Thursday, June 6, 2024

Lessons from the Burmese dystopia

We receive news every day about Gaza and Ukraine, and there are good reasons to keep our focus on them. But there are other tragedies about which we only hear from time to time that we should pay attention to as well.

Thant Myint-U, a diplomat and grandson of a former secretary general of the UN wrote a few years ago a very interesting book, “The Hidden History of Burma. A Crisis of Race and Capitalism.” The author, born in New York city, knows the country well, and participated in an advisory capacity in the attempts to complete the transition to democracy until a military coup in 2021 stopped the process.

Myanmar (as the country is now officially called) is a country sandwiched between India and China, of incredible ethnic, religious and linguistic diversity, for historical and geographic reasons. The book is the chronicle of a failed transition, the history of the years between colonialism and the current civil war. Inter-ethnic violence is an important ingredient of this history, culminating in the tragedy of the wave of the Rohingya refugees as a result of this violence.

The cascading mechanism of ethnic violence is well known, and reached tragic proportions in this case in the second decade of this century, just some years ago. A supposed crime is perpetrated, and someone publicizes that the perpetrators are members of some ethnic, religious or linguistic group. The entire group is blamed for it, which triggers a reaction by the most radical members of the targeted group, and so on and so forth. One has to be careful with the narrative, and that is why it is important that the precise details are delegated to those that know the case very well, as it happens with the autor of this book.

The episodes of ethnic violence took place in the middle of a failed transition to democracy, after years of military rule, first trying to follow a socialist system and later opening up the doors to markets and private interests without much regulation. The case has similarities to dystopian fiction: “In a world with no shortage of mass atrocities, the civil war in Myanmar is perhaps the most inescapably dystopian

The book finishes with the Covid-19 pandemic, just before the military rebellion that put an end to the transition. The current situation is one of civil war, with the army fighting against a coalition of the legitimate government and armed ethnic groups: “The resistance aims to overthrow the Military Junta, establish a genuine federal democracy, and remove the military permanently from the country’s politics."

The book is a warning about what happens to capitalism without a strong state: violence, warlords-business men, and drugs are together in a tragic cocktail. Climate change meanwhile devastates a country that is most vulnerable to it.

The mistake of ethnic federalism results from choosing to deal with fixed ethnic groups (a mistake to which the UN apparently contributed) instead of using a fluid interpretation of ethnicities, emphasizing diversity and a common purpose. Ethno-nationalism and unregulated capitalism feed each other, and Facebook contributes to it, as it did with the Rohingya catastrophe. 

The international celebrity business projects a simplified view of complex countries, and in this case it invested too much hope on a leader (Aung San Suu Kyi) that in the most dramatic moments failed to take a principled view on human rights.

I strongly recommend this book, both if you are interested in this specific case, and more generally if you are interested in the co-evolution of ethno-nationalism, capitalism and democracy.


Wednesday, June 5, 2024

Milei's neoliberal dogs

The recently elected President of Argentina, Javier Milei, who was trained as an economist, has several dogs that are cloned from a previous dog that died not long ago. Some of these new dogs have the names of economists favorable to a minimum role for government in the economy. One of the dogs, for example, is called Milton, after Milton Friedman.

Javier Milei has many of the attributes of right-wing populism. I read in The Guardian: “More than Milei’s ideas, what worries me is his state of mind and emotional stability, said Juan Luis González, the author of an unauthorized biography which takes Milei’s nickname as its title: El Loco (The Madman). The book portrays Milei as an unhinged loner who was bullied and beaten as a child and gets political advice from four cloned mastiff dogs named after libertarian thinkers.”

Milei defines himself as anarcho-capitalist. He was recently in Spain for an international meeting with other far right politicians, including the leaders of VOX, a Spanish nativist movement that denies the importance of climate change, and other parties that believe that the experiment of the European Union has gone too far. Milei not only has close links with the European far right, but also with Trump and Bolsonaro.

Milei illustrates that neoliberal ideas seem to be complementary of populist methods and far right objectives. In logic, it wouldn't need to be like that. The three dimensions could be separated. However, when one explores the similarities between, say Reagan and Trump, or Thatcher and Johnson, although the neoliberal leaders on the 1980's did not qualify as populists, many of their anti-government (except in law and order) policies where very similar, for example promoting a race to the bottom to lower taxes. Perhaps the modern right-wing populists are more protectionist, but that is not always the case. Now they are more populist, but they are equally neoliberal.

Where does the complementarity between neo-liberalism and populism come from? One hypothesis is that the evolution of technology and institutions forces the right to manage themselves today in a hyper-democratic society, where citizens interact in the social media and finally they vote in unavoidable elections (although eroding democratic institutions is feasible in this context). The right has always had a very instrumental view of democracy (capitalism comes with democracy or without it, see Franco or Pinochet): if they cannot destroy it formally, they will use all the technologies available to make it work for its objectives. I interpret national populism as one of these technologies.

Thursday, May 30, 2024

What do people think?

In a typical interview or press conference with an athlete or a coach, he or she may be asked something like “do you plan to be in the same club next season?” He or she may find the question uncomfortable, but if in the answer she includes, hidden somewhere, the word “yes,” chances are that the headline in the media a few minutes later will be: “Athelete/coach X plans to continue in the same club next season.”

Smart people would use this as an example of the intellectual mediocrity or opportunism of the Sports media, because the athlete was not “planning” anything, or if he or she was planning anything, it was perhaps to avoid being asked about the topic, to even avoid having to decide. However, it is not very different from the kind of expert analyses that are derived from opinion polls and surveys.

This is important because how people truly form their opinions is a key input in the analysis of democratic societies and of particular aspects of them, such as politics or business. Economists such as Harvard’s Stéphanie Stantcheva have recently devoted significant efforts to learn, through online representative surveys, how people form their opinions on a variety of subjects, from taxation to international trade or inflation. I am also working on this with colleagues, especifically about how people think about public vs private ownership or about the importance of competition.

As Stantcheva and her co-authors have illustrated, it is important to complement closed questions with a few options, with open questions where subjects can openly express their views without limitation. It is interesting how people develop their thinking when they are less primed by the options given by the researchers.

The example of Catalan Independence and Catalan identity (or similar identity problems) illustrates my concern. Lots of political debate hang around surveys where, for example (taking the last one by an official sociological body of the Catalan government), around 40% of respondents say they are in favor of Catalan Independence when there is just another option (no to Independence), and the figure goes down than by more than 10 points when there are more than two options. This is an example of the well known fact that the framing of the questions determines the answers to a substantial degree in many areas. In both cases, it is not clear what independence means (in or out of the EU or the euro-zone, for example), or what the other options are (what is a state in a federal Spain as opposed to an autonomous community).

But pundits and experts use the results of these surveys to say things like “support for Independence” has declined (or increased), when they should just say that the answer to these questions in surveys has increased to decreased in some way or other. Similarly when they are asked whether they feel only Spanish, only Catalan, more Catalan than Spanish, etc. What if they don’t feel anything about this, or they care little. Surveys do not capture vague preferences or the intensity of them.

Saturday, May 18, 2024

Complex social sciences

Some weeks ago, I read a review of three books in the Week-end Financial Times on Complexity Economics. I bought the three of them, written by Brian Klaas, J.Doyne Farmer and Maja Göpel. They are a good complement of  “How China scaped the poverty trap”, by Yuen Yuen Ang who also uses complexity arguments to explain the historical evolution of China, with references to other societies.

Klaas book, “Fluke,” is perhaps the most interesting and ambitious of the three, in the intersection between philosophy, natural sciences and social sciences. The book reviews the properties of complex systems, such as emergence, self-organization, non-linearity, interconnection, randomness and difficulty to make predictions (the latter, as in Taleb’s books). Complex is different from complicated in that when a part fails in a complex system, the other units change and adapt. Feedback loops, tipping points, and reverse causality are also characteristics of complex systems. These can be analyzed using network analysis and evolutionary dynamics.

In a complex evolving system, small causes can have big consequences. Applied to the human world, we are all part of an interconnected reality, the result of multiple contingencies that result in our existence. When we are born, we do not come into this Planet, but we emerge from this Planet. Klaas urges us to downplay the importance that our Western culture allocates to the individual. Our brains are the result of the interaction of many neurons, and an anthill is the result of many ants. These social insects invented agriculture before humans. We have evolved to develop a sense of self-awareness to survive, not to seek truth, and other beings have developed other skills that we do not have (flying wings, radars). 

We control nothing but we can influence everything. The complexity of human societies suggests to the author that instead of using the expression that something is or is not “rocket science,” we should instead say that something is or is not “social science.” At our state of knowledge, economic systems are more difficult to predict than some physical systems (such as planetary orbits).

To facilitate the connection with social scientists trained in traditional methods and models, books for a general audience discussing complexity should emphasize some elements of continuity with the more advanced existing methodologies. For example, I see a continuity with game theory, just with more players and less (or different) rationality, as in Bowles 2004 book on microeconomics.

For example, in the last part of the book I found useful thoughts that will help in my course on soccer and economics. When the context changes, randomizing strategies may be useful, as a tribe in Borneo does with the selection of the exact location of rice fields. Or as the animal species that follow mathematically perfect random rules in the ocean. It provides a new perspective on the use of mixed strategies, which so far I justified only in terms of being unpredictable in contexts such as penalty kicks or military strategy.

I also found useful the reference to Moneyball (the book and movie about how statistics revolutionized baseball) as a not necessarily desirable trend if brought to the extreme, because it makes the game more predictable. The notions of contingency, complexity and randomness may help explain why Moneyball techniques have been more successful in baseball (although there seems to be a backlash there as well according to Klaas) than in soccer, where the game, less dependent on set pieces, is more fluid and difficult to predict.


Sunday, May 5, 2024

Why sports clubs fail

Acemoglu and Robbinson wrote “Why nations fail,” an impressive and controversial book that concluded that nations fail when they do not find inclusive institutions to make growth and cohesion compatible. Garicano wrote “Why organizations fail,” an article summarizing the literature on the economics of organizations, concluding that organizations fail when they do not allocate talent well, and when they do not balance well the short run with the long run.

A subfield of organizations that deserves a specific treatment is Sports organizations and soccer clubs in particular. Admittedly, in the current institutional setting, these organizations are very difficult to manage, because of the pressure of promotion and relegation and the economics of superstars. But clearly some of them are better managed than others. 

Soccer clubs never totally fail, but they may decline significantly, when their officials do not follow a coherent line and only care about the very short run, like bad politicians or business managers. They are too big or too important in their communities to fail, and that’s part of the problem: the moral hazard that results from the impossibility of totally failing.

Until the reelection of Joan Laporta as president of FC Barcelona in 2021, the history of the rise and fall of what some called the greatest soccer club is explained in Simon Kuper’s book “Barça.” At the end of the book, he didn’t seem very optimistic about the president that had been eleted for a second time.

Since then, three years later things are even worse. Today, the men’s Barça team (the one that just 10 years ago was the world’s best) is out of the new Clubs World Cup of 25 teams, 12th in the ranking of teams in Europe, 3rd in the Spanish league and 2nd in Catalonia after Girona. The financial crisis of the club is even deeper than then, and the president has been unable to retain or assemble a professional economic team to address the problem.

Barça does not sign the players they need, but those that they can afford or that are offered to them by opportunistic agents. Young talent, something the club keeps producing in abundance, will receive offers from clubs that have better chances of winning big titles, more money and are better managed. The club should learn from the good and bad things of the past: look abroad to learn from the best, control populism in the transfer market and coach appointment decisions, and build on the good assets that the club still has: youth academy, women’s team, a popular brand (have a look at the new and good Barça One app)… The team that had the three best players of the world in 2010 (Messi, Iniesta and Xavi) has been allowed to decay. Since it will never disappear, it would be better to give it a more decent life.


Saturday, May 4, 2024

The federalist taboo

Wikipedia defines taboo as “a social group's ban, prohibition, or avoidance of something (usually an utterance or behavior) based on the group's sense that it is excessively repulsive, offensive, sacred, or allowed only for certain people. Such prohibitions are present in virtually all societies. Taboos may be prohibited explicitly, for example within a legal system or religion, or implicitly, for example by social norms or conventions followed by a particular culture or organization.”

People like me will be voting in the next few days in Catalan (May 12th) and European (June 9th) elections. The fact that the same citizens will be electing members of Parliament at two different levels, just above and below the state level (in our case, the Spanish level, on which we voted less than one year ago, a few weeks after we voted for our local representatives in the City Council), illustrates the federal character of our political reality. It is not that different from what happens in the USA, where voters have the right to participate in local, state and federal elections.

However, for some misterious reason, in Catalonia, Spain and Europe, we refuse to call this state of affairs “federal.” OK, perhaps there are historical reasons, or perhaps we are not a complete or a perfect federation, perhaps we lack some elements of that… but also do other realities that call themselves federal: for example, both Spain and Canada, two very decentralized countries, do not have a Senate as a powerful territorial chamber as in Germany, but Canada calls itself federal and Spain does not.

Spain today is Euro-Spain (in the EC since 1986), a member-state in the most integrated core of the EU: member of the euro-zone, and the Schengen area. It does not have an independent army, but it participates in NATO and in UN forces. The old nation state, in this very integrated region, is something of the past, but the sovereignists find this difficult to swallow.

Not only we do not call our federal features by the f word, but many of those in favor of better or more complete federal structures also refuse to call themselves federalists, or cautiously avoid the word. Just recently, two former Italian Prime Ministers, Letta and Draghi, and the French President, Emmannuel Macron, have made proposals (through reports, speeches or interviews) for a more integrated Europe, with stronger federal institutions, but in no part of their arguments does the f word show up.

It is a mistery to me why “federal” and its derivatives are almost taboo words, but sovereign and its derivatives are not. Part of it is the confusion around the term, although many other social or political concepts are also confusing and vague. If political scientists do not agree on a definition of federalism, or on whether Spain is a federation or not (certainly, it is not a unitary state or a confederation), it may be asking too much for people to have a clear idea of it.

But we live in an increasingly interconnected world, we live in a complex adaptive system that must be managed as such. Distributed but connected structures provide more stability and adaptabiblity than centralized or unconnected structures. And it is difficult to think of a better tradition and set of principles, other than federalism, to manage this complex reality.

Rodrik’s trilemma shows that in a hyperglobalized world, we may have to choose between national sovereignty and democracy. Federalism already provides stability to many regions of the world. But it is not a panacea, and there have also been failures and federal roads not taken. The nation-state remains a blueprint to solve conflicts, but it is rarely succeeding, as we see in former Yugoslavia or Israel-Palestine.

In Europe, we need to federate to defend ourselves (a typical motive for federations in history, from classical Greece to American native groups) but also to cooperate internally and externally, to harmonize taxes and fight against tax havens.

The defeat of national sovereignty is slow, as it is the victory of federalism. But there should be no doubt about the necessary winner.


Sunday, April 21, 2024

Markets usually efficient and governments sometimes effective?

The latest issue of Advances in Economics Education features a set of papers evaluating different aspects of the CORE Project to introduce new methods, materials and contents in economics teaching.

Sam Bowles and Wendy Carlin, two of the leaders of CORE, write about the importance of showing in textbooks the economic reality and contemporary economics research in dialogue with other disciplines, as a response to criticism following the Global Financial Crisis. The need for reform has been exacerbated in the midst of making sense of a pandemic, climate change, disruptive politics and wars. It was not enough since the mid 2010s with changing 15% of textbook  contents (as it was common until then), as it was not enough to Samuelson with his famous textbook after the Great Depression and the Second World War. As a result, CORE presents a new benchmark model of economics, founded in social interactions and in dialogue with the real world, where the perfect competition supply and demand cross is just a special case of secondary importance.

The other three articles in the issue reflect an external evaluation of CORE and in particular its free e-textbook The Economy. Carlos Coutinhas argues that regardless of one’s stance as a supporter or sceptic, CORE’s approach has had a profound impact, “leaving a lasting mark on the publishing and economics education landscape”. He also reports that these reform efforts may be insufficient for those in favor of more radical approaches such as feminist economics or ecological economics.

Paul Crosby and David Orsmond, acknowledging the strengths of CORE in speaking to the big problems of our time, provide the closest call in the collection to defending the traditional approaches. In particular, they claim that there is still value to keeping the basic supply and demand graphical model as a benchmark to explain most interesting things in economics. They praise the list of Mankiw’s “10 principles of economics” contained in the most successful of the traditional textbooks. These principles do not mention problems such as inequality or climate change, and include “markets are usually a good way of organizing economic activity” and “government can sometimes improve market outcomes.”

Jo Michell’s article is in my view the most interesting of the external evaluations. He focuses on some of the details of the theoretical benchmark that accompanies the textbook The Economy, in particular on the transition from micro to macroeconomics. He finds some weaknesses in how this transition is represented in CORE’s benchmark model. He has some other interesting remarks, such as a call to define a discipline like economics by its domain, not by its specific models. Still, he believes that CORE responds to a real need for reform, and that any remaining shortcomings are more problems of the discipline in general than problems of pedagogy or teaching.

CORE is the result of an effort to present economics as a set of tools to facilitate a dialogue between theory and the real world using the scientific method. At the same time, in the selection of topics and variables of interest (such as real wages and employment), it represents an economics for the working class, which happens to be the majority of the population. The old is gone, and the new is in construction and will probably always be. As the authors of these articles explain, CORE’s contents are not easy (the way to respond to students’ criticism was not to make economics “easier”, because that would have been to mislead them), and there is a role for instructors in making them digestible. But they are more interesting, and importantly students (in my modest experience) find them more interesting than traditional approaches.

After the (not universal) success of CORE, reliance on the old textbooks is difficult to justify. CORE’s materials are not the final word, but they are useful and of high quality, and they should be taken as a motivation to keep moving in ways to make economics as a discipline a more relevant set of tools for students, researchers and citizens.


Sunday, April 14, 2024

Economics for the working class

One of the great things, although not the only one, of The Economy, the free e-textbook of the CORE Project (in its 1.0 version and even better in the half-completed 2.0 one), is that it targets an audience of working class students, people that over their life will have employment and real wages as their main, but not exclusive, economic concerns. It makes sense, since it turns out that people who care about these things are a majority. Bringing a rigorous economics for the working class to the mainstream of the profession may be one of the greatest achievements of this Project. As Wendy Carlin, one of the leaders of CORE, once said, economics is not about shopping, is not about finance, it is about understanding and changing the world.

The e-textbook starts by analyzing the Industrial Revolution and how its exponential productivity growth was not translated into higher real wages until there were institutional changes that facilitated it, such as the labor movement and universal suffrage.

It presents the typical microeconomic model of constrained choice, not by analyzing the choice of bananas and apples, but the choice of working or studying hours by human beings like those in the classroom or their relatives. Next Bruno the boss and Angela the worker, two fictitious characters, are used to model the institutional history of labor relations, from slavery to the welfare state.

Before presenting markets in perfect competition in Unit 8, Units 6 and 7 analyze the firm as an institution. First, what happens inside the firm between owners and workers, how effort and salaries are determined. Second, using the relationship between the firm and its customers as a stepping stone for the aggregate labour market model, where Units 6 and 7 are put together to determine real wages and employment in the macroeconomy. 

The aggregate labour market model is then used to analyse short run fluctuations (positive and negative demand shocks) and how it is affected by fiscal and monetary policies. Inflation is described as a conflict among the claims on the value of output by capitalist owners and workers.

Unions are not one more interest group, but a critical institution that may affect the labor market equlibrium, including in a positive way (on employment and real wages) with the “union-voice effect.” The same aggregate labour market model can be used to analyze the effect of immigration in the short run and the long run. And alternatives to organizing work in the expanding fringes of the capitalist system, by worker cooperatives, are also addressed. 


Thursday, March 28, 2024

The good Artificial Intelligence

David Autor analyzes in this article the use of Artificial Intelligence (AI), in the context of the economic history of technological change in the last three hundred years. The analysis goes from artisans prior to the Industrial Revolution to generative Artificial Intelligence, passing through factory machinery and the role of computers.

A type of knowledge is expert when it is necessary and scarce at the same time. It is what, for example, artisans had in the stage prior to the Industrial Revolution, a knowledge that required a long training process, which only a minority could afford. These experts developed each product creatively, as a complete and differentiated unit.

The industrial revolution displaced artisans, producing a great increase in productivity, but relegating the majority of industrial workers to extremely hard work for miserable wages for several decades. Productivity increased because from then on each worker was in charge of a small part of the process, in a repetitive and specialized way, on a mechanized assembly line.

The Luddites (who protested the mechanization that wiped out artisans) were correct in their protest that it took five decades for industrial workers to see their real wages grow significantly, requiring the power of unions and the expansion of democracy, as well as additional technological changes. Then a middle class of mass experts did emerge (intermediate workers doing administrative tasks), but they followed rules and lacked discretion (they were not the ones who made the decisions), so they were vulnerable to the automation that computers brought from the second half of the 20th century. Until personal computing and the Internet arrived, these intermediate workers saw their real wages increase and began to swell an abundant middle class in developed societies.

Computers are very effective with routine tasks, but not with those that require tacit knowledge, such as improvised language, or recognizing the face of a child in an adult. AI is the opposite, much more effective with tacit knowledge than with routine tasks.

Already before the advent of AI, and also with it, it is important to start from the basis that tools are levers that allow us to improve human work, not substitutes for it. Think of the examples of calculators, electric saws or drills. These three examples have two characteristics in common: first, they make the task of those who work with these tools much easier; secondly, to be used they require some training.

In common with other stages of accelerated technological change, AI will not eliminate human work. Employment has not stopped growing with the emergence of new technologies, despite the fact that many professions have become obsolete. But other professions have been created and professions that already existed have been able to develop in a different way. The improvement in productivity that technological change allows generates new demand for new products and services that did not exist before or that were enjoyed by a small minority. The challenge is that the new jobs created contribute to improving the dignity and living conditions of working people. In this sense, David Autor speaks out against the “inevitabilism” of thinking that AI will make human work redundant (something that he does not consider desirable, as perhaps some supporters of basic income do, as is said in passing in the article).

Unlike other technological changes, however, AI can be complementary to decision-making (and not just routine tasks), which can make it easier for many more people to participate in it, eroding the monopoly power of some specialized professions, such as doctors or university professors (or football coaches, see this article in Nature). The existing AI already helps make decisions, although the final responsibility lies with the human being, for example accepting or not a suggestion to complete a sentence, or accepting or not the “smart car” warning about its speed and direction.

The text compares computers with classical music, which follows a series of rules reproducible in each concert, and AI with jazz, which allows improvisation and adaptation to changing circumstances. David Autor suggests that AI will allow what has happened to people who work in nursing to become widespread, a portion of whom have been enabled in recent years to assume functions (for example, prescribing) that could only be performed by people before who had a medical degree. This requires additional training, but not the same as was traditionally required for a medical degree, and this expansion of employment responsibility has been made possible by technological developments such as the connection and digitization of medical records. Analogous developments can occur in education.

In this way, AI can facilitate more affordable healthcare and education (or football quality), which are not in the hands of elites who monopolize the knowledge necessary to make decisions, whether in an operating room or a classroom. If we combine this with the demographic trends that are occurring, in the future there will not be a shortage of jobs, but rather there will be a lack of people who can work, although as in the past, jobs will disappear and new ones will emerge.

The problem is not the disappearance of work, but the dignity and remuneration of working people. The human decision will be irreplaceable. That is why self-driving cars have failed, because they do not know how to make quick decisions when reality is changing. The role of AI is not to drive a car, but to assist in driving.

The unique opportunity that AI offers humanity is to reverse the shrinking trend of the mass of decent-wage workers: to expand the relevance, reach and value of human experience to a broader set of tasks. Not only could this reduce income inequality and the costs of key services such as healthcare and education, but it could also help restore the quality, prestige and prominence that too many people and jobs have lost. This alternative path is not an inevitable or intrinsic consequence of AI development. However, for David Autor (in line with other economists such as Dani Rodrik or Daron Acemoglu) it is technologically plausible, economically coherent and morally convincing. Recognizing this potential, we should not ask what AI will do for us, but what we want it to do for us.

The article does not make a prediction, but rather points out a possibility. The same technology can have different uses depending on how institutions and incentives develop. Just as nuclear energy can be used to make atomic bombs or to produce energy without contributing to climate change, AI can be used to enrich a small minority, or to pit elites against each other, or to improve the life and work experience of the vast majority.

Tuesday, March 26, 2024

Lessons from the good populism

In this crucial electoral year of 2024 in Europe and the US, it is important that progressive candidates get the message right, and fine-tune their narrative with the objective of maximizing the number of votes, and stop the rise of a eurosceptic right and far right. Not everything is lost, as polls suggest in the UK (unfortunately, not anymore in the EU) and Catalonia (where the federalist Socialist Party comes ahead in all recent polling, after more than 10 years of a strong pro-independence revolt).

Those of us who are in academia and keep an active interest (and an interested activity) in politics, have also a duty to learn with a critical and cautious eye from all the existing and growing research and literature on "populism," and to contribute to it if possible.

I have certainly learned from reading the 2020 book by Thomas Frank, "The People, No." The message in the book, as well and in this article in The Guardian (also, this one) from the book's author, is that there is a good and positive "populist" tradition in the US, which has its origins in the "People's Party" of poor farmers at the end of the XIXth century. Frank claims that this progressive, egalitarian tradition should claim the property rights to the word "populist," as they were the first to use it as something positive, democratic and egalitarian. In Europe, it may come as a surprise that such a positive tradition exists, but it is one that has been claimed several times by the economist Paul Krugman as well. Frank reveals that some politicians (like President Obama) have used the term in a positive sense and in a negative sense on different occasions. But the book is more than a crusade to reclaim a word: it is a crusade to reclaim a popular movement that was anti-elitist but was against demagoguery and bigotry, and that was focused on income inequality above everything else. The author, who shows little patience for the recent social scientific literature on populism and its associated psychological biases and irrational voters and voting outcomes (with authors such as Mounk, Müller, Levitsky, or Mudde, from which I have also learned) argues that "Populist" has become shorthand for racist authoritarianism. But the first populists were progressive labor activists who fought for democracy.  According to Frank, genuine populism is neither new nor right-wing. 

The book is a very interesting history of ideas and facts. In general, it strongly criticizes the centrist wing of the Democratic Party and academic liberal orthodoxy for having forgotten that rich progressive populist tradition.

This progressive populism of the late XIXth century is the one that gave the US independent regulatory agencies, and that tried to spread education and culture to the masses, and unite white and black workers. That populism did not go against science and knowledge, but it went against orthodoxy. That tradition was followed in the XXth century by Franklin D. Roosevelt and by Martin Luther King (MLK), and therefore is an important ingredient of the New Deal and the fight for Civil Rights. Thomas Frank points out that the elite of academia (and especially prestigious economists, such as Schumpeter) did not endorse the policies of Roosevelt at the beginning, because they thought that they went against the established consensus. In the XXIst century the politician that better reflects this tradition is Bernie Sanders (Elizabeth Warren is also mentioned in the book).

In the past, Frank has been criticized for not being careful with data. For example, political scientist Larry Bartels (also an egalitarian, in my view) said in the past that his claim that the working class had abandoned the Democratic Party was an exaggeration. In an article in The Guardian about Paul Krugman, Frank mentioned Bartels.

Not all left wing populisms are like Sanders, Roosevelt or MLK: Corbin in the UK, AMLO in México, Iglesias in Spain, Maduro in Venezuela, Kirschner in Argentina, are not mentioned in a book that is only about the US.

Not everything Obama or other centrist Democrats did was wrong: Obamacare, gay rights... Not all non-income progressive causes (feminism, ecologism?) should be relativized as woke or culture wars. Democracy has problems (Kenneth Arrow cannot just be forgotten) and voters do have psychological biases. There are no simple recipes. But Thomas Frank has a point: there has been such a thing as good populism, and we can learn from it.

Sunday, March 17, 2024

Coaches in my course on soccer and economics

What is the role of coaches in soccer and what analogies can be established with economics? That is the subject of an interesting literature that is summarized by Peeters and Van Ours in their contribution to an IEB Report that I recently coordinated.

Sarina Wiegman, Jurgen Klopp and Pep Guardiola play the role of intermediate principals in a three-tier agency structure, similarly to referees. Upper principals are club or governing body officials, and agents are players. A problem they may have is that some agents may be more powerful than coaches. This weakness may be related to the extreme quick turnover of head coaches in soccer leagues. A graph for The Economist with data in 2016 showed that the median time in the job for a head coach (manager) in the English Premier League was less than one year. From coordination games (as for example in David Sumter's "Soccermatics"), we know that coaches could play an important motivational role to promote trust and team spirit, like Al Pacino in the movie "Any Given Sunday" in American Football. From empirical work in other branches of economics (like from Bloom and Van Reenen), we know that managerial practices are an important determinant of productivity differences among firms that produce similar goods. 

Intermediate executives can contribute to preventing organizational failure by allocating talent and wisely splitting resources between the short-run and the long-run. But it's not easy to see the impact of coaches in soccer data. In the book "Soccernomics," Kuper and Szymanski are very skeptical that coaches play any significant role (they quote Arrigo Sacchi criticizing some former players becoming coaches: "good horses do not make good jockeys"). Although they have to decide on a complex vector of multidimensional tasks, player talent seems to be much more important, and soccer coaches intervene less during the game than, say, basketball coaches. That irrelevance is confirmed by most empirical work on managerial dismissals mid-season, if those coaches that are fired are compared to coaches that experience a similarly bad streak but do not get fired. The teams of both types of coaches experience a rebound, but it is so similar that most probably it is because of regression to the mean. 

Peeters and Van Ours reach a similar conclusion in their contribution to the IEB Report when they compare the dismissal of Ronald Koeman in FC Barcelona with the non-dismissal of Valverde two coaches before. However, very recent research (which I found in Palacios-Huerta's article "The Beautiful Dataset") shows that distinguishing (imperfectly, using the notion of expected goals) merit from luck, wise dismissals really have a positive impact on performance, even after comparing with a control group of similar coaches that are not fired. It is just that there are not many wise dismissals. Peeters and Szymanski also have an article where they show that one of the reasons of the mediocrity of most managers, is that clubs are reluctant to hire new coaches with high potential due to credit constraints (new coaches may be better on average, but it is risky to hire one), and due to the fact that if they turn out to be good, they will be poached by better teams. Peeters and Van Ours argue that nevertheless, a few coaches may have as much as one goal difference impact on performance. Good coaches seem to exist, but they are rare. Perhaps artificial intelligence and big data will democratize the profession, but we are probably at a primitive stage on this.

Appointing the right coach in very popular clubs is as much a political decision as it is a business decision. That's why probably FC Barcelona tends to appoint famous former players that contributed to the past glories of the team (Guardiola, Luis Enrique, Koeman, Xavi), some of which are better as coaches than others. In general most former famous coaches do not have a good track record as managers (Guardiola is an exception: think of Rooney or Maradona), but clubs keep valuing player experience. When this experience is rich enough and is combined with a smart individual, then perhaps we have part of the secret to relevant impact (Xabi Alonso?). What surely empirical evidence shows is that coaches contribute to spreading successful tactical styles through networks of influence and evolution, as we've seen in the past with Dutch and Italian coaches and today with Spanish coaches. This season, the favourites to the English, French and German leagues are Spanish coaches. 


Sunday, March 3, 2024

China and us

Political scientist Yuen Yuen Ang, from Michigan University, has written two books that analyze the incredible economic growth of China in the recent decades, and relate it to two phenomena that in theory have played a role in the economic development of rich countries: institutions and corruption. In doing so, she demolishes the conventional wisdom of mainstream political economy.

In “How China Escaped the Poverty Trap,” she shows that the institutions that facilitated the expansion of markets and economic prosperity in China after Deng’s reforms had nothing to do with the high quality institutions that are supposed to facilitate economic growth in mainstream political economy (an impersonal and specialized administration, secure property rights, etc.). China’s rulers gave a high degree of freedom to non specialized and not impersonal officials at all levels, in a climate of confusing property rights.

Acemoglu and Robinson in “Why Nations Fail” claimed that China is an anomaly that should soon collapse because it lacks “inclusive” institutions. However, more than ten years after they wrote their book, China refuses to collapse –or to adopt inclusive institutions. If anything, secure property rights and a neutral administration may be useful to preserve markets, but not necessarily to create them, according to Ang.

She proposes an evolutionary interpretation of history, where causality does not only run in one linear direction, but in multidimensional non-linear feedbacks among several domains, such as state and market. If one applies this approach not only to China, but also to Europe and the US, one can see that their economic takeoff was not preceded at all by the type of institutions that the international organizations try to promote for developing countries nowadays.

In “China’s Gilded Age,” Ang focuses on one aspect of institutional quality, namely corruption. In doing that, she criticizes the use of unbundled measures of corruption, such as the Corruption Perception Index (CPI) of Transparency Internacional. She argues that such an unbundled index gives a misleading perception of a multidimensional phenomenon.

She proposes four types of corruption mechanisms along two dimensions. One dimension reflects whether corruption affects elites or non-elites. And the other reflects whether corruption involves theft or exchange. Combining the two dimensions results into four types of corruption, which can be further decomposed. It turns out that when corruption involves exchanges among the elites, we obtain what she calls “Access money,” a sophisticated set of corrupt deals that may even be legal. This could be regulatory capture, revolving doors, or similar deals, and has a lower negative effect on economic growth than the other, less sophisticated and more harmful, types of corruption. Of more concern is the effect of Access money on inequality.

Today’s growth in China is compatible with corruption, as the growth of the US after the Civil War in the XIXth century was compatible with corruption, and today’s economic power of the US is compatible with large scale, sophisticated access money.

What can be done? Ang suggests that, consistently with her multifaceted perspective on corruption, one-size-fits-all solutions will not work. Rather, remedies must be adapted to local context, must be incentive compatible (you should not ask officials something that goes against their incentives), and must combine a top-down approach with a bottom-up approach where civil society can make a positive contribution.

What seems clear is that “the rise of capitalism is accompanied not by the eradication of corruption, but rather by the evolution of the quality of corruption from thuggery and theft to influence peddling.”

Wednesday, February 14, 2024

Some thoughts on Colin Mayer's last book

Colin Mayer is one of the world's most recognized experts in Business Economics and corporate finance. As founder of Oxford University’s Business School, he has launched numerous research and advisory projects with some of the UK's and the world's leading companies. 

He has dedicated his professional life to pointing out both the weaknesses and the transformative potential of the capitalist firm as a key institution of our society. In this book "Capitalism and Crises" (which completes a trilogy that began with “Firm Commitment” and continued with “Prosperity”), he proposes a new firm model, one that moves away from creating problems for society, and that, on the contrary, focuses on finding solutions to these problems and at the same time generating profits for shareholders. 

The author is forceful in pointing out the responsibility of the capitalist company in the generation and aggravation of some of the great problems of humanity: climate change, social inequalities, or political instability. The reason for this responsibility lies in the fact that, in the current model, it is possible to obtain business profits as a result of creating problems for society, either by polluting, making available to consumers products that are harmful to their health, or making decisions to the detriment of the prosperity of local communities. 

Competition in the market does not solve the issue, since one company can displace another by earning more profits, creating more, and not fewer, problems for society (even for consumers themselves when they are free to choose, as Akerlof and Shiller pointed out in their book “Phishing for Phools”). The State's corrective action does not resolve the issue through regulation either, due to its limitations as it is carried out. In some way, regulation usually arrives too late, and the possibility of it being “captured” by regulated companies is one more of the problems that they contribute to generating, thereby obtaining a profit (a problem that, according to Mayer, Artificial Intelligence aggravates). 

In reality, the capitalist corporation shares responsibility with the State and with the public-sector firm in its inability to stop the great problems of our time. The company as an institution has a great responsibility in creating problems and at the same time in the possible search for solutions to society's problems for two fundamental reasons: for its unique capacity to direct enormous resources generating social impacts, and for its potential to innovate by leading technological change. 

The proposal made in the book to focus the business task on solving problems generating profits has a philosophical background: it would be about replacing a Golden Rule (“do to others as you want them to do to you”) with a Moral Rule (“do to others as they would like”). Based on this principle, business legislation should be changed to one that forces companies to generate profits without generating problems, that is, avoiding the generation of harmful effects for the rest of society. Each company should choose to focus its activity on the “purpose” of solving a problem generating profits, and articulate all its work, its structure, its corporate governance and its control and measurement systems, in solving this problem. The company's accounts, for example, should not only reflect the value of the cost of production inputs and income through the sale of outputs, but also reflect the impact (positive or negative) on society and any type of measurable outcome that arises from their actions. This would be different from the ESG movement (the acronym for environment, society and governance), which also aims to measure the impact on social problems, because in Mayer's model this impact would become something nuclear, necessarily integrated into the core objective of the company, unlike what happens in the ESG model, which according to the author has been used fundamentally for propaganda purposes. 

According to Mayer, the change in model is feasible among other reasons because it is compatible with the power of shareholders and the objective of maximizing profits, as long as these business profits are accounted for net of the cost of the activities that the company generates for third parties. The difference with the current system is that it would not be the State that would be in charge of correcting the "negative externalities", but rather the company itself, forced to do so by legislation. 

The separation between business and the public sector would be naïve according to Mayer, leading to a train wreck between institutions that have an impact on the same society, but do so with opposite objectives (profit without taking into account the problems that the company generates, and public interest without sufficient instruments to satisfy it) in the current situation, in many cases. On the contrary, the company should be involved in social objectives as a core task and not a secondary one, and the state should work side by side with companies on the same objectives. In this sense, Colin Mayer's criticism of the British regulatory and privatization model in network industries (which he helped design, together with other economists, in the 1990s), which today is in crisis, is devastating. The criticism of privatized energy, water and railway companies, and their regulation by independent regulatory agencies, is reminiscent of that made by historian Tony Judt in the book he wrote in the last stage of his life, “Ill Fares the Land.” The notion that a benevolent regulator separated from the day-to-day work of companies ("arms-length regulation") that are solely accountable to their shareholders and their objective of maximizing profits, will succeed in imposing the public interest, would be enormously naive. 


Saturday, February 3, 2024

Texit?

On Thursday February 1st, the CNN started the day criticizing the Republican candidate Nikki Haley for her support to the right of Texas to secede from the USA. To be fair, she was reacting to a question, and not explaining her program. However, it is not the first time that she shows lack of clarity on matters concerning the history of events related to the US Civil War in the XIXth century. On another occasion, she failed to acknowledge the tragedy of slavery.

However, on the evening of the same day, Jake Tapper interviewed Haley on the same TV network, and he didn’t mention the issue of “Texit” at all, although it had been the main headline some hours earlier. One can imagine that the office of candidate Haley had agrred to the interview on the condition that the secession of Texas would not be one of the topics of conversation. They talked about Iran, Hamas and the likelihood of defeating Trump and subsequently Biden.

Of course, Texit is not a serious proposal. But that does not mean that some people does not take it seriously. Brexit was not a serious proposal, but it is now a tragic reality. One can imagine millions of Texans believing the arguments of populists to “take back control” in front of the invented risk of rapists crossing the border.

“States rights” in the US have been on many occasions a synonym for the rights of elites to exploit others, and to take advantage of the prejudices of voters. The secession attempts of the Southern states preceded the Civil War in the US, which luckily was won by the federalists and lost by the confederals. Because of this victory, the US enjoys today the advantage of a large market and scale economies with a diverse and mobile population, which is also the dream of the European Union. South and Central America failed to fulfill the federalist dream of Simon Bolívar, and the African continent also failed in consolidating federations that would have replaced the current structure of small and sometimes isolated and hungry states. Egyptian leader Nasser also failed in his project to create a Federation of secular Arab states. We know today the price we are paying for this deficit of federal structures.

US Presidential candidates should be surrounded not only by communicatins experts, but also by serious historians.

Sunday, January 21, 2024

New ideas for the course on economics and soccer

One of the advantages of teaching about soccer and economics is that there are new things happening everyday, on the pitch, in the industry,… and in the offices and computers of researchers.

As I start a new edition of my course “Behavior and Incentives in Economics. The Case of Soccer” in the Study Abroad Program of the Autonomous University of Barcelona, I take advantage of three documents that contain new and very useful material:

-The IEB Report on Soccer and Economics published last year (which I coordinated) contains useful articles by Andrew Zimbalist on big Sports events, Thomas Peeters and Jan Van Ours on the role of managers, and Julio del Corral on the relationship between behavioral economics and Sports mechanism design (for example on penalty shoot-outs and the away goals rule). The piece on managers has a very useful example about how to compare managers that have a bad streak and are sacked in the middle of the season (like Ronald Koeman at FC Barcelona in 2021), with managers that experience a similarly bad streak and are not sacked (like Valverde in the same team a few years earlier): on average and in the particular example examined, there is not much of a difference, concluding that sacking the managers in the middle of the season does not have a causal effect on team performance.

-“Teaching Sports Economics and Using Sports to Teach Economics,” a book edited by Matheson and Fenn, is a very helpful teaching guide with very useful bibliographic references and teaching tips. I found especially useful the section on Women in sport, and advice on thinking about streaks and generating random sequences in class.

-“The Beautiful Dataset” is a new survey article by Ignacio Palacios-Huerta (author of the book “Beautiful Game Theory”) with an updated survey of mainly empirical literature on Sports, testing hypotheses from economics and related disciplines. The survey is very complete especially in those topics that Palacios-Huerta has researched himself, such as penalty kicks and referee bias. I learn from a footnote that in Hockey most penalties are not scored, meaning that if players believe that lagging behind in a penalty shoot-out places them at a significant psychological disadvantage, they should choose if they can to kick second. Meaning that if players can choose after the coin toss (as they can in soccer since the early 2000s), the order of kicking is not exogenous, which makes difficult to interpret in a causal way the results of research after that change in the rule (before the change, the order of kicking was exogenously decided by the coin, a point made by the only article I missed in the survey, by Kocher et al. -an article mentioned by Del Corral in the IEB report, that was recommended to me by Toni Ítal·lo de Moragas: thanks!).

These three documents overlap and leave gaps specific to soccer that I will try to fill in my course. The book on “Teaching Sports Economics…” is mainy about teaching and mainly uses examples from professional North American Sports leagues, although giving plenty of ideas and suggestions for soccer. Palacios-Huerta’s survey is mainly about how sports (and not only soccer) provide an ideal setting for field experiments, as the rules of contests are similar to the rules of experiments, and the protagonists are real professionals with high stakes (unlike subjects in lab experiments). Both the book and the survey have very useful material on the economics of discrimination in Sports, which is something I have been emphasizing (with a whole new chapter) in the last editions of my course. Also useful is material on managers: I learn that perhaps one can further compare managers that experience a similarly bad streak against teams of a similar quality, and not only experiences a bad streak against any team, and distinguish between sacking good and bad managers. The IEB report only digs deeper on three topics about soccer, meaning there is still a lot of work to do, for example on political economy topics, such as corruption and populism. With games every day and with researchers working at full steam, there is no shoratge of ideas to keep updating my course.


Saturday, January 6, 2024

Delors AND Spinelli. BOTH

For most of the around 150.000 years of existence of our animal species, until approximately 11.000 years ago, humans were organized in egalitarian bands of hunter-gatherers. Then with the Neolithic Revolution, property rights emerged and unequal societies developed, although the primitive agricultural techniques were not more productive than ancestral practices. For most of the next eleven centuries, living standards were quite homogeneous and stagnant around the world, until there was a phase transition starting in Britain with the Industrial Revolution, that saw productivity dramatically and heterogeneously increase (this narrative will sound familiar to any reader of Samuel Bowles and CORE’s The Economy).

Just before the era of the Industrial Revolution, there was a rich diversity of political organizational forms. Five hundred years ago, the Italian Peninsula was home to hundreds of sovereign entitites, but along with city-states, there were also leagues of cities, empires and hybrid alliances. Democratic forms with varying territorial structures, based on elections or sortition, had been tried in many jurisdictions, from classical Athens, to Venice, to India and Africa. Then, together with the expansion of capitalism, this economic system found an almost perfect complement in the nation-state, which provided allegiance to the provision of public goods (waging war, speaking national languages) and coercive systems that facilitated the expansion of markets and the protection of property rights, as we know from Ernest Gellner.

The nation-state, like the Neolithic Revolution some centuries earlier, emerged not because it was more efficient, but because it complemented well the objectives of elites. The fragmentation of empires and the end of colonialism was used (sometimes by elites coming from Europe, as in the American continent) to export the nation-state formula all over the world. There were roads that could have been taken (there were failed attempts or projects) but were not, like large federal structures in Central and South America or Africa or Israel/Palestine. Large federations only succeeded, however, in North America and the Indian subcontinent (perhaps we can add Australia and Brazil).

After the tragedies of the two World Wars, both born in Europe, there have been projects to create political organizations that went beyond the nation-state formula. The most successful one is the European Union. Its gradual evolution towards a federation is, according to the Spanish writer Javier Cercas in Le Grand Continent, the only reasonable utopia of our times.

After the fall of the Berlin Wall, we were probably too optimistic that globalization would make nationalism obsolete and that the march towards federalism would be fast and unproblematic. The global financial crisis and the imbalances created by globalization and technological change have made things much more difficult, and have probably facilitated the emergence of dangerous ultra national-populists that today threaten democracy.

The European utopia is already true in part, however, because of a combination of collective action, evolutionary forces and leadership. These days, we celebrate the life and achievements of one of the greatest European leaders, Jacques Delors. He pushed the ideal of the European federation through practical steps like the Single Market, the Erasmus Program or the Cohesion Funds. In the obituaries that have been written these days, some have opposed the practical and step by step federalism of Delors to the ideological federalism of Altiero Spinelli, the Italian politician that co-wrote the Ventotene Manifesto. True, Delors was not a dogmatic federalist, and Spinelli was not a man of government. But the two of them complement each other very well, and we need the memory of both to fight the sovereignist national-populism of our days, with practical feasible proposals and with an emotional narrative that can galvanize the public opinion.

 “A federation of nation states” was a proposal of Delors that has been interpreted by some as an oxymoron. I interpret it as a way to make it easier to digest that the world of nation states has to evolve, that it is already evolving, at least in Europe, towards a world where currencies, parliaments and armies can be shared, and borders can disappear. Other quotes of Delors clarify that he was not at all far away from Spinelli. He also said that "Politicians who attack the dream of a federal Europe are racist bigots intent on undermining the Continent's freedom and peace", and that "Federalism is a guideline, not a pornographic word, you can speak it out loud...We have been focusing too much on a country that has said no, no, no!"

We can call them states, but if things go well, they will be very different from the all powerful nation-states that still prevail in the indoctrination and imagination of many people. They will be at some point States In Name Only (SINO), like Brexit will become Brexit in Name Only (BINO) because the UK will progressively get closer again to the Single Market and the Customs Union. And like the two state solution in Israel/Palestine will only be functional if the two “states” share several key collective goods, and cooperate in the creation of a polity with equal individual rights instead of transforming the current disfunctional wall into an internationallly recognized frontier (like modern both Jewish and Palestinian pacifists defend).

We need to move from an either/or mentality to a both/and mentality, as argued by the Jewish Scholar Noam Pianko in “Zionism. The Roads Not Taken” (Indiana University Press, 2010). We need to celebrate BOTH the memory of Jacques Delors AND of Altiero Spinelli.