Tuesday, May 23, 2017

Independent regulators and the evolution of economic thought

Independent regulatory agencies first emerged in the USA in the Progressive Era, as a result of the replacement of litigation by regulation. Like other reforms in the same period, this one was meant to reduce the power of Robber Barons and achieve efficiency gains. The damages produced to the public interest by large corporations were too heavy to be left to litigation that was easy to capture by large interests. More or less at the same time, economic theory developed models of normative welfare economics, where benevolent planners were supposed to fix market imperfections, that is cases where markets are not guaranteed to deliver efficiency. An analogy to traditional welfare economics was the public interest theory of regulation. This traditional normative theory in economics in general was criticized by the public choice school of Buchanan, Tullock and Niskanen, under the reasonable argument that it was inconsistent to assume that market agents were selfish and instead planners had the interests of overall society in mind. The analog of this theory in regulation was the capture theory of Stigler and other scholars of the Chicago School. The first criticisms of independent regulatory agencies were inspired at least in part by this school of thought. In the recent past, like in general economics, there is some consensus that neither the public interest theory nor the capture theory completely explain the facts, and that is why we have seen the development of the new economic theory of regulation (Laffont and Tirole and authors in the same tradition) and new institutional theories of regulation (Williamson and Spiller among others). But since departures from efficiency can hardly be explained only by information asymmetries or transaction costs, behavioral economics in general and in regulation in particular have contributed even more recently to explain phenomena that were difficult to capture only under the assumption that everybody is rational. And I will suggest in a presentation in Corsica this week (hopefully the slides will be available soon and the updated paper in a few weeks) that it would be inconsistent to asume that only market agents, and not policy makers, are affected by bounded rationality.

Sunday, May 21, 2017

Friends and politics

The president of the Spanish Second Republic (1931-1936) Manuel Azaña famously said that politicians should behave as if they had no friends. To Mr. Azaña, friends and politics were incompatible. The fact is, though, that politics is a very social experience. Those that are not willing to afford the luxury of being apolitical, share experiences with others through their life time. For some people, politics is a sporadic experience, perhaps an intermittent one, limited to voting when there are elections, and not even always. In the other extreme, there are professional career politicians who spend their adult lives in a professional public or political job (actually, in many of them). The attention is focused on many of them, for which their life is more complicated than lay citizens are prepared to accept. But in between the passive citizens and the career politicians, there are millions who are active in politics: members of political parties, activists in politicized organizations like unions or associations, journalists, and these days also just normal people with an account in Twitter, in Facebook or with a blog. What happens when you have shared experiences with people who have become your close friends from these experiences and all of a sudden you disagree on substantial issues? I remember that something like this happened to Stefan Zweig as he explains in "The World of Yesterday." Many of his friends who had shared with him a political and intellectual dialogue in a cosmopolitan Europe, suddenly became fascinated by nationalism in the first world war. I have to confess that something similar, at a much more modest scale, has happened to me. Friends with whom I shared many political experiences in my youth, with whom I campaigned in support of the left and the center-left and a federal and united Europe, suddenly have embraced nationalism, and in particular the campaign for the secession of Catalonia that has been ongoing since 2012. Has the same happened to people in the USA, the UK, and France, with other national-populisms? Some of my friends have attained positions of relevance in the media and have political jobs around the pro-secession majority that controls the Catalan government. Sometimes I feel anger. At other times, I feel a desire to respond to them with irony or sarcasm (I happen to know where they come from ideologically). Mostly, I feel personal pain and sadness. Can we still be friends? Political positions should not affect personal relationships in theory. But our friendship was born from politics. We were trained in values that I thought were common to us: fraternity, solidarity, internationalism. Is all that gone?

Tuesday, May 16, 2017

Politics after Piketty

At the library of IESE in Barcelona I found the newly released book "After Piketty. The Agenda for Economics and Inequality," edited by Heather Boushey, Bradford Delong and Marshall Steinbaum. It is a long book with contributions from many authors that discuss the relevance of the famous book written by Thomas Piketty, "Capital in the XXIst Century." I had time to get an idea of the content of the different contributions, and if I am not wrong there is only one that addresses somehow in depth the policy proposals of the book (contained in its last part), namely the creation of a global tax on capital in the long run, but a European version in the short run, accompanied by a democratization of the Euro-zone and the abandonment of the nation-state, at least on Europe, as the locus of the social contract. Only the chapter written by Elisabeth Jacobs addresses the political challenges to introduce such policy innovations. But she ends up suggesting something that seems to come from her narrow (though interesting) research agenda, namely the need to expand the political rights of the poor in the USA, and presumably other democracies. Her criticism that politics is everywhere and at the same time nowhere in Piketty's book is in my view correct. It is not clear what is the political mechanism that will make possible to overcome the political inequalitites that give rise to (or are complementary of) the current income inequalities. But I miss in Jacobs chapter, as in all other chapters (after a superficial look), an analysis of the comments made by Piketty about the nation-state and the need to make progress towards new forms of international federalism. Perhaps it is an inconvenient topic in some places (or perhaps I'm too obsessed by the issue), but one without which I am afraid that the Piketty agenda will make no progress.

Sunday, May 14, 2017

From engineers to gardeners

There is a nice video explaining that one of the desirable features of the XXIst century economist should be changing our frame of mind from that of an engineer to that of a gardener. In a social reality characterized by complexity, attempts to design reality as if you designed a bridge are doomed to fail. It has much more promise to behave like a gardener: just try things, plant seeds, and help those plants that look more promising. In evolutionary game theory, players do not choose strategies, but they are of one type or another by genetics or socialization. Types that are fitter expand and types that are less successful decline in the overall population. Sometimes in a long run equilibrium only one type survives, put polyarchic equilibria with a diversity of types are also possible. What is then the role of the free will and collective action? Individuals willing to have an influence on reality should also be gardeners: they should try new types, introduce mutations, set up new games. Similarly in politics. In democracy, there is little that one individual or even a group of individuals can do to change or improve things. There are many unintended consequences. But it makes sense to pay attention to new ways of doing things: some of them will fail, others will succeed. Long periods of stability will be followed but short periods of big change (these are called punctuated equilibria in the analysis of complex systems), but this does not mean that one individual can predict and much less shape a sudden change. The result of big changes when they happen can be influenced by small steps taken in periods of stability. These ideas could perhaps be adapted to the attempts of a changing (declining?) left to influence the direction of Europe in the next few years. Those organizations that will prevail and be more successful will be those that are fitter to achieve the objectives of the left, which are the same as ever: equality, justice, freedom, solidarity, welfare... Adaptation to the environment is a desirable characteristic for a plant that any gardener should take into account. And today's social environment has as key ingredients integrated economies, globabilization and technological change. Those that adapt better to this reality will be better at achieving those objectives. Being reactive and short-termist may fool some into believing that they shape events, but what matters and can make a (small) difference is planting seeds for the long run.

Wednesday, May 10, 2017

Why it matters that it doesn't matter who will replace Luis Enrique

In the next few weeks FC Barcelona officials will announce who will replace Luis Enrique Martínez as manager (head coach) of the soccer team, after he said recently that he would step down next season. Should fans be worried about this announcement? In other words, does it matter who will replace Luis Enrique? The best experts in the economics of soccer say no. Economist Stefan Szymanski usually argues that the identity of the manager does not significantly affect the performance of teams. Teams change their managers over time, but each team stays more or less constant in the rankings, basically depending on resources and fan base. Changes around the mean can be attributed more to randomness than to managers. It is just that managers provide a convenient narrative. When a manager is fired after a streak of bad results, the performance in the subsequent games is not statistically different to the performance of teams that experience a similar bad streak but that do not fire the manager. Of course some managers are better than others, but the difference does not have a significant statistical impact. It is just that as soccer consumers we also consume celebrity managers and managerial narratives. Last summer the narrative in England was that the English Premier League would be a big fight between the two biggest celebrity managers of the time, Guardiola and Mourinho. We all know now just some games before the end of the season, that the greatest national league in Europe will be won by Antonio Conte's Chelsea, and that the second will most probably be Pochettino's Tottenham. These two managers have a lower profile than Pep and the special one, but their teams have done better. Perhaps Guardiola and Mourinho achieved the status of celebrity managers because one of them managed the best set of players in history in Barcelona, and the other had access to the largest pay check in history when Abramovich arrived at Chelsea. Manchester City and Manchester United will not finish the season very differently from where they finished last season under much less glamorous managers. That includes performance in all competitions, with ManU perhaps replacing a victory in the FA Cup with a victory in the Europa League (to be seen). Whoever replaces Luis Enrique will have access to broadly the same set of players, the same amount of resources and the same fan base. Most probably Barça will be one of the two teams contesting the Spanish league and one of the best six to eight teams in Europe, as it has happened in last 30 years or so. Does it matter that this does not matter? Yes it does, because it shows the fallacy of great men. No doubt Obama is better than Trump and Macron better than Trump and Le Pen and Hollande, but leaders are endogenous, they are produced by social processes rather than being the engineers of these.

Monday, May 8, 2017

Beneath the paving stones, Europe (but not Juncker)

Daniel Cohn-Bendit, the German revolutionary that led the May 68 revolution in Paris and who became the leader of the Euopean greens some years later, was one of the supporters of the new pro-European French President, Emmanuel Macron. The European left will have to decide whether it chooses the direction of Cohn-Bendit, and Varoufakis, and many others, or the direction of the national-trostkists, Jean-Luc Mélenchon (a europhobic) and Jeremy Corbin (a eurosceptic). That is, we have to decide whether to choose Europe as the natural space of a new social contract, or we remain fatally embraced to the myth of the nation-state. Of course, many will be tempted to run away from Europe if we are once and again exposed to the unbearable lightness of the European Commision's president, Jean-Claude Juncker. Last week in Florence he made some stupid remarks about how the English language will lose importance in Europe. He made these remarks in an event I believe (beacuse I've been there before) co-organized by the European University Institute, a European institution that does all its academic work in English in the middle of Italy (I did my PhD there), thanks to which it manages to attract some of the best scholars trained in the best American universities. He made those stupid remarks just days before that France elected a president who probably speaks better English than the US president, Donald Trump, as a twit pointed out. If this is the attitude that will preside the Brexit negotiations, Juncker will not have the support of the millions of anglophiles that populate Europe (myself included), or of the millions of europhiles still present in the United Kingdom. The English language is an asset for all of us, it is our lingua franca and will continue to be if Europe is to say anything in a globalized world.

Saturday, May 6, 2017

Patriotic solidarity is an oxymoron

In her debate with Emmanuel Macron, National Front French presidential candidate Marine Le Pen argued that without clear borders, solidarity was impossible and would be diluted. This unethical vision is linked to the idea that some human beings are more worthy of solidarity than others. This is the same notion behind any nationalist movement, and it is based on the premise that our people are more important (and better) than the rest of the world. But universal human values are totally in contradicion with the idea that some humans (especially those living in rich nations) have priority over others. Beyond this ethical argument, there is also a very practical argument against patriotic solidarity, and it is based on the fact that most of the problems of the people that deserve more solidarity in the rich countries cannot be solved in the context of a nation-state with closed borders. The increasing concentration of wealth at the international level, the existence of tax havens, the mobility of capital and tax competition, the social problems associated to refugees and climate change, all these are international or global problems can only be addressed at a transnational level. Le Pen, Trump and other xenophobic nationalists, and also those in the far left (like Mélenchon) that cannot make up their minds between proto-fascism and pro-European candidates, all these try to sell the idea that the forces of globalization can be stopped. I always ask this to my students, especially those to which I teach an introduction to economics in the degree of sociology: do you believe that globalization can be stopped? None of them believes so, and they are the kind of people that could do it perhaps (the kind of people -strong, young, probably radical and educated- who could perhaps stop globalization). No, globalization will not be stopped, at most perhaps it can be de-accelerated, but I am not even sure about this. If it cannot be stopped, it must be governed. Re-distributive, even pre-distributive policies, must be designed and implemented at a supranational level, and therefore political action must be more and more international. One of the unintended consequences of the Le Pen danger in France has been the activation of a European demos opposed to her and supportive of a better, united, democratic Europe. A pro-European left is a redundancy (the left cannot be anti-European), patriotic solidarity is an oxymoron.

Friday, May 5, 2017

Nobel Prize winners against divisive xenophobic nationalism in France

Today, Paul Krugman has made clear what he thinks about Marine Le Pen in the New York Times. A few days ago, other winners of the Nobel Prize in Economics (including Jean Tirole, Angus Deaton and Joseph Stiglitz) published a letter in Le Monde saying this:
"Some of us, winners of the Nobel Prize for Economics, were cited by candidates in the French presidential election, notably by Marine Le Pen and his teams, to justify a political program on the question of Europe. The signatories of this letter have different positions on the complex issues of monetary union and stimulus policies. However, our opinions converge to condemn this instrumentalisation of economic thought in the framework of the French election campaign.
 - European integration is essential not only to maintain peace on the continent but also for the economic progress of member states and their political power in the world.
 - The evolutions proposed by the anti-European programs would destabilize France and would call into question cooperation between European countries, which today ensures economic and political stability in Europe.
 - Isolationist and protectionist policies and competitive devaluations, all at the expense of other countries, are dangerous means of trying to generate growth. They lead to reprisals and trade wars. In the end, they will prove detrimental to France and its trading partners. 
- When they are well integrated into the labor market, migrants can be an economic opportunity for the host country. Several of the most prosperous countries in the world have been able to welcome and integrate emigrants. 
- There is a big difference between choosing not to join the euro first and getting out after adopting it. 
- The commitments to social justice must be renewed, thus guaranteeing and developing equity and social protection, in accordance with France's traditional values ​​of freedom, equality and fraternity. But we can and must achieve this social protection without economic protectionism.
- While Europe and the world are facing unprecedented hardships, more solidarity is needed, no less. The problems are too serious to be entrusted to divisive politicians."

Wednesday, May 3, 2017

NP Galaxy

Scientists have discovered a new galaxy in the universe, it is called NP (the galaxy of the national-populists). When Jean Claude Juncker told Angela Merkel that Theresa May was living in another galaxy, he was partially disclosing this so far well preserved scientific discovery. The British Prime Minister is trying to sell to the British public that it is possible to keep all the things that are popular about an integrated economy, and eliminate quickly all those that are unpopular. She is just not saying that cutting the ties with Europe and running away is not only impossible and bad for the Brits, but also just illegal, for example, and that there is nowhere to run away to (except NP Galaxy). Yesterday Marine Le Pen in her debate with Emmanuel Macron showed a similar reluctance to face reality. She lives in a parallel world (NP Galaxy) where the relevant words are liberty, independence and sovereignty (familiar words in Catalonia, Scotland or Northern Italy), as if you could be free in the world of 2017 by invoking cutting your ties with the rest of the world, starting with your immediate neighbours, clients, partners, friends and relatives. Someone has said that yesterday's was the typical  debate of a referendum about globalization. It was not: it was a debate on two visions about how to face globalization. One vision (Le Pen's) is just to turn your back on it (and go to NP Galaxy). The other vision is to accept that it is a fact of reality that must be governed (Macron's) and embraced, and that offers lots of opportunities for everybody (starting with the French) if it is managed wisely, democratically and fairly. As Simon Kuper has argued in the Financial Times, national-populists promise detail-free revolutions (that is the freedom that characterizes NP Galaxy: the freedom from inconvenient details): they may live in another galaxy, but they should be stopped if they want the rest of us to "leap into the dark without maps or parachutes."

Monday, May 1, 2017

Reading suggestions for Mélenchon on areas of similarity

Jean-Luc Mélenchon, the defeated candidate of the far left in the first round of the French presidential election is indifferent between Marine Le Pen and Emmanuel Macron. During the campaign for the first round, he campaigned on the promise of leaving the EU if the institution did not reform along the lines proposed by himself. Like Californian secessionists, his idea of a shared democratic institution is to leave it if he cannot impose his program. This is paradoxical for a left wing candidate that supposedly bases his ideology on solidarity, as very well explained in an article in The Nation that criticizes Californian secessionists. Now he is undecided between a Holocaust quasi-negationist and a pro-European candidate. Warnings from history are necessary, which is why Mr. Mélenchon perhaps would find useful to read two reviews of a recent biography of Hitler, one in The Nation and another one in The New York Review of Books. These reviews make clear that no contemporary politician is like Hitler, but they also make clear that the past provides useful lessons. National-populists look ofended when they are compared with past fascists, but careful historians in serious publications do not shy away from making the comparison, starting with the obvious point that nothing is like Hitler. This is Cristopher Browning in NYRB:
"When the original German edition of Volker Ullrich’s new biography, Hitler: Ascent 1889–1939, was published in 2013, the current political situation in the United States was not remotely conceivable. The reception of a book often transcends the author’s intentions and the circumstances in which it was written, of course, but rarely so dramatically as in this case. In early 2017 it is impossible for an American to read the newly published English translation of this book outside the shadow cast by our new president.
To begin I would stipulate emphatically that Trump is not Hitler and the American Republic in the early twenty-first century is not Weimar. There are many stark differences between both the men and the historical conditions in which they ascended to power. Nonetheless there are sufficient areas of similarity in some regards to make the book chilling and insightful reading about not just the past but also the present."

Sunday, April 30, 2017

Descending Mount Sovereignty

The Economist had an article a few weeks ago about how the British are starting to realize that Brexit as it was explained to them does not exist. The magazine announced the article as "Descending Mount Brexit." There are similar phenomena in many places. Nation-states believe they are sovereign, but they are not. They believe they are independent, but they are not: "The Europeans also stand to lose from a shallow trade deal. Their hope is that Britain will seek to converge with EU rules once the regulatory trade-offs become apparent. Should the talks proceed relatively smoothly, in time the two sides may find themselves building, law by law, institution by institution, a regime not dissimilar from the one they are preparing to dismantle. There are signs of this already. It is an “absurd” exercise, says an EU official. We are reinventing many of the instruments we already have." It may thus well happen that an agreement will look very similar to the institutions that were in place just before the referendum, and that remain in place today, with the only difference that the UK government will not be sitting on the table where decisions are made. Donald Trump thought that he could also stop the rotation of the Planet building walls and backpedalling on trade deals, but he is realizing that most things he promised ("bring back coal") are not feasible in our interconnected world. Even Marine Le Pen I just heard that, as she is trying to broaden her appeal, has said that now she does not want to abandon the euro, just create a national currency that coexists with the common European one. She is trying to replace one type of monetary chaos with another one because she is realizing that most probably it would just be too costly to abandon the euro. The far left French candidate Melenchon cannot make his mind between Mrs. Le Pen, a Holocaust negationist, and a pro-European candidate, because he shares with the Front National the XIX-century notion that socialism, or any political project, can be built in only one country, as if François Mitterrand had not had to change policy in 1981 when he tried to do precisely that. In 2017 the world and France are much more interconnected than in 1981. All these national-populists keep promising impossible things in our global reality, but the things they say are simple and appealing to many voters. In Catalonia, a tourist guide just told an American friend of mine that the Spanish government does not allow a free and fair referendum about Catalan Independence. Although the Spanish government is handling the Catalan question very opportunistically (because extreme nationalisms feed each other), the Catalan government and the Catalan secessionists are not trying to call a free and fair referendum, but a referendum controlled by one side without a neutral media and without neutral rules, and not based on the legal framework and broad consensus that international institutions demand in the extreme cases where similar votes are necessary. "National" self-determination is an example of a superficially persuasive idea, but the fact is that most democracies in the world do not allow the self-determination of parts of their territory through binary referenda, that is through divisive plebiscites where lies and threats are exchanged (like in the Brexit referendum). We have in fact in our land more free and fair elections than any country in the world, but governments at different levels quite obviously cannot call a referendum on any topic that crosses their mind and that goes beyond their responsibilities. But democracies only split or unify through broad consensus and international agreement, and if they do so the issues are very complex and can be traumatic. Many of our voters are open instead to hear simplistic messages because they were raised in a frame of mind where the relevant unit was one country, with one flag, one language, one currency, one army and one football league. That world is gone. If we do not build a multi-level democracy for our complex Planet, we will not have democracy any more.

Friday, April 28, 2017

Technological change facilitates collective action but complicates social choice

Two sets of problems make collective decision-making difficult, as well understood by economists and political scientists for a long time: collective action problems and social choice problems. Collective action problems arise because of free-riding: when some good or action benefits a broad collective, individuals have an interest in waiting for the others to incur the costs of providing the good or doing the action. Social choice problems arise from the difficulties of going from individual preferences to social decisions. We know from Condorcet and Kenneth Arrow that the rankings that individuals make of different alternatives are very difficult to translate into social decisions that satisfy a minimum list of desirable conditions (or axioms). In particular, it is very difficult to come up with examples where individually transitive rankings of (at least three) alternatives can be converted by some voting rule into a collectively transitive ranking. That is a big cause of political instability in democratic societies. There are cases where the problems identified by Condorcet and Arrow can be overcome. For example, if the alternatives can be summarized into only two, then the cycles induced by majority rule disappear and a stable solution exists. If the preferences of individuals are "ideological" in some stable sense, this also facilitates stability. Experts in the theory and history of political parties explain that these organizations have over history helped to alleviate both collective action and social choice problems. By reducing the costs of political organization for individuals, they were more willing to join collective efforts to fight for common causes, overcoming the free rider problem. Also, by organizing through shared identities, they facilitated the identification of people with stable ideologies, therefore balancing the tendency of democratic politics to instability. I would conjecture that technological change has an asymmetric effect on these two phenomena. On the one hand, the Internet and social networks facilitate political organization. Party-like organizations are very easy to set up these days. The personal costs of being involved into anything are minimal. Collective action is easier. However, smaller and smaller party-like organizations are possible. Small echo-chambers are very easy to organize, and for some reason that I don't fully understand they set a premium on disagreement and small identities. Political entrepreneurs appear from nowhere when things look stable, organizing around hardly coherent "ideologies", like left-wing nationalists or pro-working class tycoons, thus complicating social choice.

Sunday, April 23, 2017

"Tous avec Macron:" all with Macron

I would have liked that a pro-European socialist candidate finished in the first position in the French election. But it will not happen. At this hour it seems that Macron and Le Pen will dispute the second round of the French presidential election. The choice is clear: either a pro-reform agenda of France in Europe, or a europhobic racist option. In the last hours before the election it was sad but not surprising to see the current holder of the US presidency cheering for Le Pen from Twitter after a terrorist attack. It was also sad to see a leftist Spanish politician (Pablo Iglesias of Podemos) supporting a euro-sceptic candidate in the last hours of the campaign. Of course two of the losers of the first round, the socialist candidate Hamon and the conservative Fillon, have done the decent thing of asking their voters to support Macron in the second round. The favourite to win the second round has been the only candidate to argue that France must transfer more sovereignty to the European Union. That is very good news. But now all the energies should go to support him in the second round. The left has a future in trying to advance its agenda in a European context, and accept that the nation-state is obsolete in Europe. France needs reforms, and needs to present more energetically a pro-European frame of mind to defeat the extreme right. Trump, Putin, and all the national-populists in Europe and the world would be very happy with a victory of Le Pen in France. It will not happen because the young and the decent majority of French voters will stop the demagogs. Let's make with our energies and support the next two weeks a period to remember in the fight to mobilize everybody in France, and especially the young, in favor of a better and united Europe.

Friday, April 21, 2017

National soccer as part of the nationalist myth

We have been raised in modern times as having one nation with one flag, one anthem, one army, one currency, one language... and also one soccer national team and one soccer national league. In the last decades, the notion has been eroded, at least in Europe, by the creation of a shared common currency, shared military alliances, the expansion of multilinguism and the integration of societies and economies... and the UEFA Champions League in soccer. The recent surge of nativist movements is perhaps a desperate reaction against these trends. Still, national soccer teams and national leagues have too much appeal (to my taste) to believe that the forces of internationalism are prevailing. Although soccer has become a global industry and fans follow all great games from any place in the world, national institutions still have too much power and are a barrier to the expansion of a more attractive soccer. Of course, the removal of these barriers should go hand in hand with a removal of the absolute power of FIFA, perhaps with the creation of a more professional and globally regulated body. I am relatively optimistic about the decline of most national leagues. Only a few of them can survive as relevant in an integrated industry. Even if now the English Premier League looks as dominant, we still have to see how it will survive if Brexit becomes a true hard Brexit (to be seen). If it does survive, the other European leagues will have to decide how to put up a better European league, perhaps a super-league where we see all year around games like the ones we see from the quarter finals to the final of the Champions League every year (only two months of really good games). I am more pessimistic about the decline of national teams. Tournaments between national teams have become more and not less competitive and interesting, because as Branko Milanovic once argued, the institutional rules are such that all good players from any country can only play for one national team, so most of them benefit from having a more competitive industry at the club level, which delivers best top players for every country. Hopefully, games between national teams will become like games of "Calcio Storico" in Florence or Siena: fights between two teams wearing clothes with meaningless colours.

Sunday, April 16, 2017

Stephen Sackur in Venezuela

Stephen Sackur and his excellent programme Hard Talk of the BBC (a symbol of free speech) have been in Venezuela recently. They had to enter the country in a clandestine way, but they managed to conduct interviews and to show the miserable condition in which citizens live today, despite having the resources and the potential to be the richest society of Latin America. Sackur and his team show in the documentary that resulted from their visit the disasters of the governments of Chavez and Maduro:
-Violations of human rights. One of the opposition's leaders, Leopoldo López, is in jail, black lists are frequent and the free press is in danger (Sackur himself had to leave the country and the producer of Hard Talk was arrested and interrogated for 24 hours before being deported).
-Macroeconomic mismanagement. Today the inflation rate is around 2000% and there are three exchange rates.
-Microeconomic mismanagement. There is scarcity of essential goods and medicines and people have to spend hours queuing for basic necessities suchs as bread and other food.
-Violence and insecurity. Caracas has become one of the most dangerous cities in the world, violent branches of the followers of Maduro are free to move, and kidnapping bands are one of the few prosperous businesses (Sackur himself managed to interview one of these gangs with the interviewed showing their guns).
-Political and institutional chaos. Recenty the Maduro-dominated Supreme Court tried to shut down the Parliament but retracted hours later amidst local and international pressure.
It is ridiculous that some in the left still support or do not condemn disasters like the one happening in Venezuela.

Friday, April 14, 2017

Reasoned discussion in diverse societies

Reading together the reedition of Amartya Sen's book on social choice and Scott Page's book on diversity, a coherent picture emerges of the challenges and promise of diverse societies. Societies where individuals have different instrumental or fundamental preferences have difficulties in making collective choices that are stable, rational and efficient. That is the message from Arrow's impossibility theorem. Sen takes these difficulties very seriously and argues that they can be to some extent overcome by having more information about the concerned individuals, and by reasoned discussion with facilities for fact checking. In a footnote in page 276 (which deserves to be expanded in a whole new book) Sen argues that "there may be something unsatisfactory even in political problems in the possibility of going for a vote-based resolution instead of having further discussion, thereby neglecting the need for any required clarification and understanding of the issues involved. Voting on underdescribed -and sometimes misdescribed- alternatives, for a quick resolution, can go against a better informed -and wiser- social choice. There may be good reasons for restraint before going for a vote." David Cameron probably did not know about it. Individual preferences are not exogenous, but depend on social structure and the evolution of institutions, technology and culture. The genesis of individual preferences deserves scientific and cultural scrutiny. As we move from committees to nations to global issues, the need exists for examining ethical claims from a certain distance. Then Scott Page also argues that diverse preferences, although presenting social choice challenges, also offer the opportunity for diverse perspectives that help to solve problems with uncertain solutions. Diverse communities or groups do not succeed automatically, as cycling is not something that one learns without some training. But once you learn, cycling goes much faster than running, which is much easier.

Wednesday, April 12, 2017

Jimmy Carter will not support a self-determination referendum in Catalonia

There is a fascination among secessionist groups in Catalonia for US presidents that support the self-determination of small nations. Thus, a group of Catalan nationalist economists decided to call themselves Wilson Group, in memory of the US president that after World War I promoted the idea of small nations self-determination (idea that some can interpret as at the root of much of national instability in Europe in the XXth century). Last week, the Catalan regional government, one of the sub-central governments with more power and resources of the world, decided to spend some of these resources organizing a surprise expedition of the Catalan president to Georgia (USA) to meet for 25 minutes with former US president Jimmy Carter. Although there was no picture from the meeting, and although initially there was no statement from the Carter Center, the Catalan government and secessionist circles sold the event as a great diplomatic victory. They needed such a victory, because so far the expensive efforts to gather international support for the independence campaign have been an absolute failure, unless we deem a success the support of extreme right-wing parties such as the Italian Northern League or the Party of the True Finns. However, today the Carter Center has released a statement distancing itself from the call for a self-determination referendum in Catalonia, probably realizing that most mature democracies, especially in the European Union and in the Euro zone, do not organize divisive sovereignty referendums. Carter probably also had in mind in those 25 minutes the possibility of finding other solutions for the existing problems about the institutions of Catalonia and Spain. These other solutions have worked pretty well in the US, since the times of the Federal Convention in Philadelphia that resulted in the US Constitution. According to a press release signed by Deanna Congileo, head of communication of the Carter Center, neither Carter himself nor the center could be involved with this issue. The same day, the US embassy in Spain released a statement expressing its support for the unity and strength of Spain. Catalan secessionists have replied by saying that this statement was probably the result of pressure from Spanish diplomats. But that is what the diplomacies of democratic strong countries are supposed to do, right?

Sunday, April 9, 2017

From Milanovic's elephant to Ravallion's giraffe

Martin Ravaillon has written an interesting review of two books I mentioned before in this blog, by François Bourguignon and Branko Milanovic respectively. His main criticism of the two books is that they have been publicized as establishing a causal link between globalization and global inequality, Ravaillon argues that it is not clear that global inequality has increased in the recent decades, because of data issues that prevent us from establishing firm statements and because different measures of inequality provide different conclusions. Global inequality is the combination of inequality between countries and inequality within countries. Althought inequality between countries may have decreased because of rapid growth of some large previously poor countries (like India and China), within country inequality has increased in some cases, although not in all as Ravaillon explains. In the famous graph of Milanovic's elephant, which is based on relative changes in income for the world's population, clearly the emeging middle classes from India and China have done better than the working and middle clases of the developed world (which means that between the 30% poorest and the 80% those closer to the 30% have done better, reducing global inequality), but the richest of the world have done much better than all those preceding them (increasing global inequality). If instead of using relative income we reproduced Milanovic's famous graph using absolute income, the elephant actually would become a giraffe, because the relative increase in income of the middle classes of the poor world is a very small amount of money in absolute terms (so the head of the elephant disappears), whereas the relative increase of the richest is a lot of money. Ravaillon argues that this may be at the root for why so many citizens have the perception that global inequality has increased when (perhaps) it has not. The advantages and disadvantages of relative versus absolute measures of inequality can be studied for example here. He also argues that the changes in global inequality cannot clearly be attributed to globalization, and therefore we should not easily blame this for any political consequences of the changes in inequality. Certainly lots of other things were happening at the same time together with globalization. At the end of the article he somehow unclearly argues that there are not many arguments to care about inequality at the global level more than we care about global poverty. But I find this unconvincing; just as national inequality may hurt growth and democracy nationally, global inequality may hurt global growth and welfare and distabilize the expansion of democracy globally.

Friday, April 7, 2017

The balance between subsidiarity and integration

Mohan Munasinghe, the co-winner of the Nobel Peace Prize with Al Gore some years ago, was in Barcelona on wednesday to give a very interesting lecture at the Water Economics Forum. He explained with detail why it is important that we try to combine economic growth with environmental protection and social concerns. He also addressed the specific issues of the pressure on water resources given by demographics and climate change. One idea he emphasized a lot was the urgency and necessity of striking the right balance between subsidiarity and integration in water policies. Climate change calls for enhanced policies of infrastructure investment and efficiency, coordinated with income distribution so that the poorest are protected from the price increases that are often needed to achieve these efficient changes. The levels of government that are closer to the citizens, as well as local communities themselves, have the information and the ability to manage policies of good resource use. At the same time, water is a scarce resource that is unequally distributed over time and space, which makes it necessary to share it in a coordinated way. Many experiences show that this is challenging to say the least. But unless we improve the balance between subsidiarity and integration of water policies it is going to be very difficult to develop the effective water policies that are necessary. In my participation in a roundtable of the same event, I tried to apply the lessons of Mohan Munasinghe to the case of Spain. The success of water policies in Spain clearly depends on this balance. Spain is integrated in the European Union and the euro zone, and has no plans of withdrawing. On the contrary, there is a political and public consensus on staying, and on participating in the core of the Union with those that are willing to integrate even more. And Spain is also a very decentralized country, with 17 powerful regions, more than 8000 municipalities and two metropolitan areas (Madrid and Barcelona) with justified international ambitions. Our water policies will remain very decentralized, but there is scope for improving how this decentralization works, and there is scope for achieving better inter-regional coordination and better coordination with European-wide policies and iniciatives. I suggested that at the Spanish level there is perhaps scope for a federal water regulator, not one that takes away powers from lower government levels, but one that provides a forum for agreements between users and territories, and that makes a systematic effort of information collection and difusion of good regulatory practices and standards.

Saturday, April 1, 2017

The fourth P

This coming week I will talk at an interesting event, the Water Economics Forum, in Barcelona. I will briefly speak at a roundtable together with practitioners in water regulation from Portugal and the UK. Although I am no expert in water regulation, I plan to address some of the issues of governance in the regulation of water (as well as other network industries):
-The difficulties and challenges of regulation in a multilevel democracy (Spain being a decentralized country in the eurozone and the EU). Who should do what? Can we find room for an "independent regulator" or several of them? Strengths and weaknesses of each level in the case of the water industry in times of climate change and other challenges. Independent regulation is not a yes or no dimension and interacts in complementarity with other institutions. This complementarity is probably more important now than some years ago because of climate change and related challenges.
-The need to somehow involve the citizens in regulation, not in a radical democracy approach, but in ways that increase democratic quality. Akerlof would say that we need a better narrative, others would say we should incorporate a fourth P in PPP (for people or population). Otherwise the regulatory compact will be fragile and investment incentives will suffer. Mechanisms of resource allocation, including markets, must be embedded in a broader social compact, to have legitimacy and provide true long term incentives for investment.
-The reasons for the widespread lack of popularity of private ownership involvement in water, but at the same time its potential in terms of innovation and incentives: how to address these reasons and find a democratically accepted role for private ownership? In his last book, which I read in French ("L'Economie du Bien Comun"), Jean Tirole argued that the new role of the state in the economy did not include ownership. I am not so sure, or at least I am not sure that democratic polities are ready to accept it. But I hope I will have time to discuss that with Tirole himself, because he'll be at the event!

Sunday, March 26, 2017

The right lessons from a Nazi past

There is an increasing number of articles about the Nazi and Fascist period in the international media. This reflects in my view not that there is a risk of the same type of regimes coming back, but the fact that some of the mental processes that made them possible, in a different period, may be at work today in our democracies. After all, the human mind is the same now as it was in the 1930s, but the social and technological context has changed substantively. One of these articles was published two days ago in the New York Times, with the title "I loved my grandmother, but she was Nazi." I don't totally like the easy attitude of the author: "I disapprove of what my dear grandma did." A more productive  attitude is for each of us to think about our hypothetical choices if we had been exactly under the same circumstances that pushed other more or less ordinary people to Nazi or Fascist membership. And to reflect about whether our Fascist or Nazi ancestors would be very different from us had they lived under our present circumstances. Nevertheless, this particular article has a useful reminder of the frame of mind under which many people embraced disastrous ideas, and it is a frame of mind that sounds quite familar to many of us living in societies where national dreams are still too alive: "She and my grandfather grew up in a working-class suburb of industrial Dortmund, where unemployment was rife; it had been occupied by the French after World War I. They joined the Nazi Party to be youth leaders in an agricultural education program called the Landjahr, or “year on the land,” in which teenagers got agricultural training. My grandmother always maintained that she had joined the Nazis as an “idealist” drawn to the vision of rebuilding Germany, returning to a simpler time and, perversely, promoting equality. In the Landjahr, sons and daughters of factory workers would live and work side by side with sons and daughters of aristocrats and wealthy industrialists. She liked the idea of returning to “traditional” German life, away from the confusing push and pull of a global economy. Through research, I understand the Landjahr program was part of Hitler’s larger “Blut und Boden” (“blood and soil”) vision of making Germany a racially pure, agrarian society. The “racially pure” part was not something my grandmother ever mentioned."

Friday, March 24, 2017

European Union: happy birthday and thank you

60 years, a Nobel prize and no wars. We should all thank the European Union for its existence. Personally, my life would not be the same without 4 years in Florence and two and a half in London courtesy of the training and research funds of the Union. But more than this selfish gratitude, we should thank the founders for all these decades of peace and freedom. Without the European institutions that made possible the European dream, Spain would perhaps never have been a democracy. For my mother, it was a great thing to be the first woman to leave her village to go to a University. Her mother spent all her life without never travelling more than 100 km away from her home. For many of the younger generations today, going to Universities in other countries in Europe is routine. It is very sad, especially for us anglophiles, that we cannot celebrate this birthday with our British friends, although so many of them would like to join in the party. Mike Rice-Oxley, writing today in The Guardian, is one of them, and we should pay attention to his message: "Where did it all go wrong? Looking back, it’s clear that this Europeanisation was perhaps only relevant to an outwardly focused, relatively privileged minority, to people interested in a world beyond the end of their street and able to afford to investigate it. The tide turned in the 2000s, though it’s still quite hard to pinpoint precisely why. Immigration? Economics? Euro-crises? Elitism? Complacency? Boredom? Or perhaps simply that those who talked down the EU were just better at doing so than those who talked it up. People say you can love Europe without loving the EU. That’s the wrong end of the telescope for my generation. It was the camaraderie and fraternity the EU fostered that helped us discover and fall in love with Europe. And that makes the divorce so much more bitter." But this was not a marriage, this was brotherhood. Who knows, perhaps we'll be together again in future birthdays.

Sunday, March 19, 2017

Universal values and truth against paleo-conservatism

Paul Blest has an excellent article in The Nation arguing that those in favor of "Calexit" or the secession of California and other "blue states" are dumb and cruel (paleo-conservative) and would leave the poor and the ethnic minorities in the hands of the worst politicians.  "The idea that the left should completely abandon the poor and working class in entire swaths of the country—which, in many places like Mississippi, is largely made up of people of color who have faced systemic discrimination at every level for generations—is pure cruelty." To defeat national-populism and xenophobia, what is needed is not secession and communitarian laissez-faire, but solidarity and universal values. Of course it is also necessary to fight for the truth, as the national-populist advance their cause by systematically lying about policies, climate change, or economics. Tim Harford argues that fighting lies is not easy, because telling the truth is more complex and boring and unpopular than lying: "a simple untruth can beat off a complicated set of facts simply by being easier to understand and remember. When doubt prevails, people will often end up believing whatever sticks in the mind." He finishes by suggesting as solution that we had some kind of Carl Sagan or David Attemborough of the social sciences, because scientific curiosity seems to work as a therapy to resist lies. But that is in contradiction to Harford's suggestion that fighting for truth is a complex issue. There are no easy solutions. A respected TV advocate would be a good thing, but nothing can replace the work of millions of people in schools, the media and politics organizing and fighting for truth. Harford gives the example of the tobacco industry as a lying machine that succeeded for many decades, but it ultimately lost its battle against truth.

Friday, March 17, 2017

Neither austerity nor Corbyn are the solutions

Michael Ellman from University of Amsterdam says about the Dutch election that
"The main loser is the traditional Social Democratic party, the Labour Party or from its Dutch initials PvdA. This party has played a major role in Dutch politics since 1945 but fared dismally in these elections. I think the main reason is that it was the junior partner in the coalition and went along with fiscal orthodoxy/austerity which hit many of its traditional voters who turned elsewhere to express their dissatisfaction. For many years now it has been a 'New Labour' type of party and not a home for victims of globalisation. This has not pleased many of its traditional voters. It is also a culturally liberal party which also did not go down well with many of its traditional voters."
That does not mean that an extreme left answer is the best strategy, as shown in this article  by Zack Beauchamp. This autor argues that left or center left parties that focus on redistribution have a hard time convincing voters that do not want to share their welfare with "others". That probably requires some convincing that more and more, in our integrated world with huge global challenges, "us" also includes "others."
Applied to the U.S., it means that

"The uncomfortable truth is that America’s lack of a European-style welfare state hurts a lot of white Americans. But a large number of white voters believe that social spending programs mostly benefit nonwhites. As such, they oppose them with far more fervor than any similar voting bloc in Europe.
In this context, tacking to the left on economics won't give Democrats a silver bullet to use against the racial resentment powering Trump's success. It could actually wind up giving Trump an even bigger gun. If Democrats really want to stop right-wing populists like Trump, they need a strategy that blunts the true drivers of their appeal — and that means focusing on more than economics."

Tuesday, March 14, 2017

"Deciding our future" versus "taking back control"

It is very sad to see people from the left such as Jeremy Corbin and some in his team accepting the logic of self-determination referendums. It is not the "will of the people" or "democracy" that is prevailing, but utter confusion and a slippery slope that may take us back to a logic of government more typical of the Middle Ages than of the XXI century. It seems that those acritically in favour of the wrong type of referendums do not think about the ultimate consequences of what they are proposing, consequences that we are starting to see in front of our faces. If the "will of the people" is that 52% of a given population agree that they do not want something, then it is not surprising that some of the sub-populations where the remaining 48% live argue that the will of "their" people is that they do not share those feelings and therefore that they want to secede from the first population. For example, the leader of the Scottish nationalists claims the right of the "Scottish people" to decide its own future (although Mariano Rajoy may want to have a say). She could have said that she wants the Scottish people to "take back control." Or the Brexiteers could have said that they wanted to decide their own future (well, actually probably they already did). Meanwhile, Northern Ireland may become as a result physically separated from the rest of its own island through a hard border, or perhaps not and they also have the wrong kind of referendum (unlike the one that gave them peace in the 1990s, based on an international general agreement) and then 51% of them decide to secede from the UK. Then perhaps the protestant minority may argue that the will of their own people is to secede from Northern Ireland and have a system of walls and checking points similar to the one in Palestine. And so on and so forth until we have neighbours seceding from each other and at the end each individual waves a different flag in the roof of his or her house. This is the slippery slope to the Middle Ages. Thank you, David Cameron.

Saturday, March 11, 2017

The problem is our lack of faith

An article in The New Statesman by Jonn Elledge explains very well why the federalists will be blamed for the collapse of the pro-independence campaign in Catalonia, even if the article is about the UK: things do not turn out as expected because of the lack of faith of the skeptics. This is how this Tinkerbell theory works: "It was in run up to the Scottish referendum that I first spotted Tinkerbell in the wild. Reports suggesting that RBS would consider relocating from Edinburgh, should independence lead to a significant rise in business costs – a statement of the bloody obvious, I’d have thought – were dismissed by then-First Minister Alex Salmond as merely “talking down Scotland”. Over the next few months, the same phrase was deployed by the SNP and its outriders whenever anyone questioned the Yes campaign’s optimistic estimates of future North Sea oil revenues. The implications of all this were pretty clear: any practical problems apparently arising from independence were mere phantasms. The real threat to Scotland was the erosion of animal spirits caused by the faithlessness of unpatriotic unionists, who’d happily slaughter every fairy in the land before they risked an independent Scotland. All this seemed pretty obnoxious to me, but at the time of the referendum it also all seemed to be a reassuringly long way away. Little did I realise that Salmond and co were just ahead of their time, because today, Tinkerbell-ism is bloody inescapable. On Monday, Sir John Major made a wonkish speech laying out his concerns about Brexit. He talked about the threat to the Northern Ireland peace process, the way it would isolate Britain diplomatically, the difficulty of negotiating highly complicated trade deals on the timetable imposed by Article 50. He wanted, he said, to “warn against an over-optimism that – if unachieved – will sow further distrust between politics and the public, at a time when trust needs to be re-built”. And how did Britain’s foreign secretary respond? “I think it’s very important that as we set out in this journey we are positive about the outcome for the very good reason the outcome will be fantastic for this country,” Boris said, probably imagining himself to be a bit like Cicero."

Friday, March 10, 2017

The risks of institutional monocropping

Many articles and books point out the failure of institutional transplants from one country to another. Institutions must be complementary from each other, and fit with the social norms and the cultural endowment of a society. There is now almost unanimity that the so-called "Washington consensus" failed to deliver in Latin America and Africa because it tried to promote institutions that were at odds with local practices and local political equilibria. Instead, may countries in East Asia, including China and India, have grown successfully with very different institutions, different from those promoted by the Washington consensus and different among themselves. China is very different from India, and India is very different from South Korea. But all of them have grown spectacularly. Of course they face challenges, and their institutions will keep evolving, but surely they will do so in unexpected and unpredictable ways. In Europe we have learned that the institutional monocropping of the nation-state is basically dead, and we have been experimenting with other institutional solutions for some decades now. This experimental process is likely to continue in the foreseeable future. This supposedly dangerous 2017 will see events happening, but most probably the European Union as a conglomerate of institutions at different speeds will survive, learn from its mistakes and keep evolving. Institutional diversity is friendly with modular hybrids and solutions that defy definitions. Perhaps if we approached problems in regions like Africa or the Middle East with a mentality that stops practicing the institutional monocropping of the nation-state we would find solutions that have been eluding us for the last 50 years.

Wednesday, March 8, 2017

Fix Europe to put the world first

It is very tempting to respond to nationalist campaigns by Trump supporters or pro-Brexit campaigners by shouting "Europe First." But we would be falling into their trap. We must not build a new nationalism based on Europe. Against conventional wisdom, I believe it would be possible, we just need a high enough propaganda budget to influence the hearts and minds of ordinary people. That is how most nationalisms have grown over time in many places. No: we must have more and better Europe, a better European Union and Euro zone, with the objective of contributing to making a better world. Europe is an example of freedom, respect for human rights, well regulated free trade, and support of social policies. The best version of its model is an example for the whole world. More than a two-speed Europe, we need a conglomerate of institutions at the right speed each of them, but at least the countries in the eurozone should benefit from a fiscal union with a decent budget to promote investments, transfers and growth. A stronger Europe will be able to be a force for the great causes of humanity, like fighting climate change or eliminating fiscal havens. Without more Europe,  nation-states and their citizens will be small boats in the middle of a storm in the ocean. No human being is more than another one: European citizens should not have more rights than citizens from other lands. But citizens from everywhere will benefit from a stronger and more democratic Europe, as they have already benefited in the last few decades, with the elimination of the risk of war in those countries belonging to the EU. Instead, those countries that are not in the EU, even if they are in the European continent, have not avoided war, as it happened in Yugoslavia and Ukraine. The stability provided by a more integrated Europe is a global collective good.

Sunday, March 5, 2017

A frightening reminder

The historian Richard J. Evans, in his review of a recent book by Volker Ulrich ("Hitler: Ascent") in The Nation, shows that the type of literary creation does not need to constrain the power of the message. One can say absurd or trivial things in a novel, an essay or an autobiography. But you can also convey powerful messages in any of these, or in a book review, or in a poem, or in a textbook. More than his comments about Ulrich's book, I would emphasize that Evans' piece is one of the best I have ever read suggesting, just suggesting, analogies between current events and the Nazi past.The article starts by saying that there is more than one way to destroy a democracy, and one by one it reminds us of the risks that we face when we underestimate totalitarian tendencies. Hitler would make Germany great again and put it first, of course. His vulgarity was compatible with a clever use of the new media of the time and he took advantage of international and economic circumstances to sell panaceas and target scapegoats. Each period confronts inmoral leaders with specific constraints and social norms. Many of us believe that the current developed world has both formal and informal institutions in place that will stop the worst from happening. But also many people in the 1930s believed that Germany had a strong judiciary and Parliamentary system that would tame the Nazis once in power: "Few took  Hitler seriously or thought that he would actually put his threats against the country's tiny Jewish minority, his rants against feminists, left-wing politicians, homosexuals, pacifists, and liberal newspapers editors, into effect. Fewer still believed his vow to quit the League of Nations, the forerunner of the United Nations. But within a few months, he did all these things -and much more." History does not repeat itself, but sends us warnings.

Wednesday, March 1, 2017

Brexit, peace and borders

The Northern Ireland peace agreement would have been impossible without both the Republic of Ireland and the United Kingdom being members of the European Union, and also without a Democratic administration in the USA committed to universalistic values. Needless to say, all of that is today in serious danger. The agreement was exemplary because it was based on the relativization of self-determination, the requirement of broad intercommunity majorities and the de facto disappearence of the border. Too much complexity for those in favor of "taking back control", who perhaps would have preferred a two-state solution building high walls and border patrols between the neighborhoods of Belfast. There was a great article yesterday in the New York Times about Brexit and Northern Ireland. It includes this:
"The most striking thing about Ireland’s only land border is its absence. No posts or fences mark its circuitous 310-mile length. There is neither razor wire nor checkpoints.
When, a couple of years ago, I often took a rickety bus from the Republic of Ireland into Northern Ireland, I would occasionally pass the time by trying to figure out if we had crossed the invisible line based on when my cellphone switched providers. I was seldom certain. The hedgerows and fields, the fog-capped hills, look the same on either side.
Now, in the wake of the Brexit referendum, the border has returned to Irish politics. When Britain leaves the European Union, which is expected to happen some time before the summer of 2019, the undulating border counties will become a European Union frontier, raising the prospect of dislocation, violence and political disintegration in Ireland — and in Britain."
Thanks, Nigel and company.

Sunday, February 26, 2017

Rodrik: the wrong solution to his own trilemma

Dani Rodrik believes that the only way to protect democracy is to stop trying to achieve a better globalization and re-affirm the nation-sate. He thinks that by doing this, we will fix his trilemma by sacrificing hyper-globalization and keeping both democracy and national sovereignty. However, globalization is out of the bottle: are we going to stop the Internet? are we going to stop climate change by forgetting about global rules? is capital going to stop moving? Bradford Delong is clear that Rodrik is wrong even if your priority is the welfare of your nationals: national welfare for example in the USA requires a better world, starting with a better macroeconomic health of their Mexican neighbors: "We find Rodrik beating his breast about how "Cosmopolitans often come across like the character from Fyodor Dostoyevsky’s The Brothers Karamazov who discovers that the more he loves humanity in general, the less he loves people in particular.... The best way to serve global interests is to live up to our responsibilities within the political institutions that matter: those that exist..." In today's political context, that will be read as: "only weenies care about the impacts of policies on people outside national borders, and any consideration of those impacts has no place in any political debate." In today's political context, that will be read as: "the well-being of Mexicans and the stability of Mexico must have a zero--nay, a negative--weight in the U.S. discussion about whether to abrogate NAFTA."
But the major reason to do NAFTA is and always was that it is an important and a big good deal for Mexico. Having a good relationship--i.e., being in a positive-sum gift-exchange relationship--with the country on our southern border is a matter of elementary prudence in international relations. And doing what we can easily and cheaply to increase the chances that the country on our southern border is stable and prosperous is elementary prudence as well.
NAFTA is close to rounding error in terms of its effects on the U.S.--not one of the thirty most important things the U.S. government could do for good or ill for the U.S. economy. It has small net benefits, yes. It had some costs for groups that had flourished under the umbrella of the pre-1993 barriers to imports from Mexico, yes. Those costs should have been better cushioned--and would have been had not Americans voted for Gingrich as House Speaker and Dole as Senate Majority Leader in 1994--yes. But those costs are now sunk, and those firms and sectors have adjusted and moved on. Abrogating NAFTA would impose a new and different set of costs, and would have no net positive benefits as an upside, yes.
But NAFTA is, substantively, not worth committing political capital to attack or to defend if one is required to limit one's view to its direct effects on the U.S. The rational strategy, therefore, if one is forced to look at the direct effects in the U.S. and at the U.S. only is to let the point go and keep your powder dry for more important struggles, rather than wasting energy and stressing political alliances.
That's where Dani's rhetoric takes us.
And that is, I think, very wrong. The indirect and long-run benefits for the U.S. in living in a more peaceful, more stable, and more prosperous world are large and mighty. NAFTA is and was worth doing for the reason that it is and was a stone placed in that still-unfinished arch. But to point that out is to be a rootless cosmopolite--the thing that Dani wants to rule out as a political position. And if one has to argue that abrogating NAFTA is "poor domestic governance" in terms of its direct effects on the U.S. economy--well, that is a very heavy lift indeed..."

Wednesday, February 22, 2017

Behavioral economics, public policy and regulation

I'm trying to add material and improve the way I teach behavioral aspects of public economics. I have been teaching that in an undergraduate optional course on Public Economics and in a master's course at my university, and it also interacts with my research, as I try to analyze how behavioral issues impact on regulators. I am now dealing with this for my undergraduate course, and I divide my presentations in three parts:
-An initial part on introducing behavioral economics (for example, ways to classify biases) and the main ideas that affect public economics. On this, I have found very useful the 2015 article by Raj Chetty on "Behavioral Economics and Public Policy", which offers a common structure and useful examples especially on policies to promote savings and policies that help neighborhood choice.
-A second part on the specific topic of how relaxing traditional assumptions about homo economicus helps understand why sometimes humans manage to find solutions to social dilemmas, including the free-rider problem. There is an important experimental literature on this that I would like my students to be aware of. At some point, I would like to run simple experiments in class and I am collecting material on how to do this, but I am not ready to do it yet (I need to talk more with Jordi Brandts about this).
-A final part on behavioral political economy and social choice, collecting my own preliminary research, existing surveys on behavioral political economy and the ideas of Sen, Olstrom and Putterman on how Arrow (who sadly just passed away) was too pessimistic about the ability of groups to make reasonable collective decisions.
Hopefully, better preparing my teaching on this will be a good complement to improving my research on behavioral aspects of regulatory institutions.

Sunday, February 19, 2017

This is what happens when nation-states affirm their sovereignty

I know of academics that are reconsidering travelling to the US for fear of immigration officers. Police raids go after undocumented migrants, sometimes including those that entered as children and that were protected by Obama period legislation. There are rumours of police agents asking for your smartphone password in the airport to check your whatsapp chats. EU nationals living in Britain worry about their future in the UK. Today The Observer reports about these citizens living in an uncertain legal limbo: "EU nationals say that to obtain permanent residency cards they have to complete an 85-page form requiring huge files of documentation, including P60s for five years, historical utility bills and a diary of all the occasions they have left the country since settling in the UK. Some have received letters inviting them to prepare to leave the country after failing to tick a box on a form." In another article, they report about an orchestra leaving Britain because a clampdown on immigration: "The European Union Baroque Orchestra has been based in Oxfordshire since 1985, but will give its last UK concert in its current form at St John’s Smith Square, London, on 19 May, before moving to Antwerp. The critically acclaimed orchestra, described last month as “brilliant” and “the blooming excitement of youth” by Radio 3’s Sean Rafferty, auditions about 100 students a year, including young British musicians, and chooses between 20 and 25 for intensive training and performance. Alumni have gone on to fill posts in major baroque orchestras around the world." Meanwhile, I just watched an interview with Dutch politician Geert Wilders, favourite to be the first party in the next Parliament, speaking, in the name of freedom, democracy, and the people, about voting for him to stop the wave of Muslim Africans that will swallow his country if nothing is done. I don't know what Dani Rodrik is thinking about when he proposes to solve his famous trilemma by affirming the sovereignty of the nation-states. It looks more like a dilemma today, because globalization is already out of the bottle: freedom or nation-state.

Friday, February 17, 2017

Maitreesh Ghatak's bus

We have enjoyed this week the presence of London School of Economics scholar Maitreesh Ghatak at my UAB department's seminar series. He presented a paper on intrinsic motivation, extrinsic incentives and social distance, which is part of his research agenda on non-conventional incentive issues. Professor Ghatak not only has a very ambitious and fascinating research agenda, but has been increasingly involved in making his voice heard on a number of issues that have to to with the rise of national-populism in many regions of the world, including his country of origin, India. His opinions on issues that combine concerns of income distribution and concerns about identities are shaped by his personal experience as a young left-wing activist in India who went to study a PhD in Harvard and had a first academic job at the Chicago economics department. He then moved to London, where he has gone through the sad experience of the Brexit referendum. He is a vocal critic of Indian Prime Minister Modi, another nationalist that shares some features with other national-populists. Maitreesh Ghatak told us an interesting metaphor at lunch time about identities and scapegoats. I have seen that he wrote about it in an article before: "Consider the following example. Suppose you are waiting at the bus-stop, along with some people who are visibly different from you. If buses keep on coming, whether you feel positively towards these outsiders or not, you will mind your own business and focus on your journey. Now consider a scenario where buses come infrequently, and when they do, they are terribly crowded. The bus stop will get more and more congested and you are going to get more and more frustrated and ready to vent your anger if you found a target. If everyone around you looks the same, then you are more likely to blame the bus company rather than fight among yourselves. However, if there is a small but visibly different group of “outsiders,” then as a member of the majority group, you might begin to find their presence highly annoying.
If we take the arrival of buses as a metaphor for economic opportunities, so long as the buses keep coming – or as long as there is the prospect of economic mobility -- you do not want to disrupt the system even though you do not necessarily like people who are visibly different from you. But as growth slows down, you are likely to get angrier at visible scapegoats whose ethnic and cultural differences now seem more salient than their class affinities with you. The immigrants then become symbolic of all that is wrong with the “system”. Not just that; earlier, you may have tolerated the rich driving in cars while you waited for a bus, thinking one day you or your kids will have cars. When that possibility becomes increasingly remote, other than being upset with the “others” at the bus-stop, you also become angry at those driving cars since you feel the whole system is unfair."

Tuesday, February 14, 2017

Against panaceas

Some academic thinking and especially the translation of academic thinking into policy is very prone to what Elinor Ostrom used to call "panacea thinking." There is a very interesting special issue in the Proceedings of the National Academy of Sciences in 2007 devoted to the risks of panaceas. Ostrom focuses on the failure of applying panaceas to solving collective action problems to manage "commons." The so-called "tragedy of the commons" predicted by Hardin can be overcome in a number of ways, but the precise mechanisms depend on local conditions, history and culture. Hardin himself thought that the panacea was state ownership of rival but non-excludable goods. Others suggested that the panacea would be property rights, meaning privatization of the common property so that a single owner would internalize all the relevant externalities. Still others, perhaps believing that they were interpreting the work of Ostrom, thought that the panacea would be management by user groups. In fact, different solutions apply to different cases, and sometimes complex jurisdictional systems combine different solutions at different scales in an overlapping way. For some time, one of the panaceas was to rely on insulated expert agencies, but as we know even this panacea is also in crisis. This is what William Easterly had to say in the Financial Times about this in his review of the book "Thinking, fast and slow" by Daniel Kahneman: "Kahneman regards even the experts as prone to the mistakes of System 1 listed above, and cheerfully admits that he is no exception. But he wants to know whether this view can be reconciled with cases such as that of the firefighting captain. So he engages one of his vehement critics on this issue and they debate their way to a joint paper. Their answer is that expertise can be learnt by prolonged exposure to situations that are “sufficiently regular to be predictable”, and in which the expert gets quick and decisive feedback on whether he did the right or the wrong thing. Experts can thus train their unconscious “pattern recognition” mechanism to produce the right answer quickly. So this certainly applies to chess, and it certainly does not apply to predicting the course of Middle East politics. Another classic bias is called the “halo effect”, when somebody very good at some things is falsely assumed to be good at everything. This book itself could benefit from something similar, as amid its general excellence a few stumbles are easily overlooked. The main flaw comes predictably in the final section in which, according to some mysterious universal law, all authors in the social sciences are required to produce a public policy fix for the problems they have identified. Kahneman’s endorsement of “libertarian paternalism” contains many good ideas for nudging people in the right direction, such as default savings plans or organ donations. But his case here is much too sweeping, because it overlooks everything the rest of the book says about how the experts are as prone to cognitive biases as the rest of us. Those at the top will be overly confident in their ability to predict the system-wide effects of paternalistic policy-making – and the combination of democratic politics and market economics is precisely the kind of complex and spontaneous order that does not lend itself to expert intuition."

Sunday, February 12, 2017

Is it possible to fight Trump with grace?

The Canadian academic and politician Stéphane Dion visited Barcelona in 2014 and explained to Catalan federalists his experiences in democratically fighting secessionism (successfully) in Quebec. He told us that we had to fight nationalism with arguments and with grace, meaning that we should never fall into the temptation of using insults even when we are overwhelmed because of our indignation or anger. Is that possible with Donald Trump? It must be very difficult, but there is an ongoing interesting and necessary debate on how to fight him, or how to fight the Brexiters, or how to fight Marine Le Pen: institutional checks and balances? collective action? Among the people I follow, some would like to focus relentlessly on the flaws of the new President and his team (like Paul Krugman?), whereas others seem to be more concerned about scrutinizing the limits of the center and the center-left that have created an opportunity for the national-populists to conquer the vote of the middle and working classes in the developed world (like Branko Milanovic?). I guess both strategies are not incompatible. Two social scientists I have been reading recently come to my mind to qualify or extend both types of arguments. Amartya Sen, in his new expanded edition of his classic book on Social Choice makes an appeal in favor of "government by discussion", as well as an appeal for trying to reach national and international agreements in favor of partial solutions, not necessarily waiting for perfect solutions. I guess that an application of this would be to try to reach out to at least part of the national-populist voters, convincing them constructively (that is, avoiding that they feel insulted) that some of their legitimate fears would be better addressed in a better democracy. Elinor Ostrom joined Sen in her last years in trying to argue that many of the tragedies and impossibility results in economics and social science are not unavoidable results, but to avoid them we should not rely on what she calls "panacea thinking." That is, there are no easy solutions to complex problems, but solutions to social dilemas must come from experimenting with different practices in a modular and polyarchic way. The translation of this to contemporary events is that although we should keep a critical mind with the center and the center-left we should at the same time be aware that liberalism and social-democracy are probably the most successful imperfect ideologies precisely because they do not propose any panacea.

Friday, February 10, 2017

Tragedies and impossibilities in economics

One of the reasons economics is called the dismal science is perhaps its pessimism concerning the possibility of fixing social problems. Welfare economics postulates the existence of a number of market failures in which the free interaction of individuals does not deliver an efficient outcome. Two examples are the presence of collective goods and externalities. In the presence of collective goods (goods that are non-rival and non-excludable) individuals are unable to overcome the "free-rider problem," and they need some costly external authority to help them solve the problem. Mancur Olson suggests that only those that have high stakes will be able to organize themselves and contribute to collective action. In the presence of goods that are non-excludable but rival (commons), then we face Hardin's "tragedy of the commons," because individual agents do not take into account the negative externality that their comsumption imposes on others. Again, only concentrating the property rights in one agent (a kind of dictatorial solution) or delegating the solution of the problem to an external authority, will the problem be mitigated. But if this external authority has to be democratic, then we are confronted with Arrow's Impossibility Theorem, which argues that democracy in the form of majority rule voting is incompatible with some mild conditions of consistency that we would like to impose on social decisions (the alternative is again a dictator, something Arrow would not recommend, being a very reasonable progressive economist). James Buchanan and the authors of the "public choice" critique argue that we cannot expect much from public servants, because they will be as self-interested as consumers. Our hope is that there is an army of economists and social scientists that take these results as motivation to try to find conditions under which they can be overturned. Putterman and other experimentalists show us in their work that humans are not always unable to overcome the free-rider problem, and are even able through their social norms or intrinsic preferences to spend time and resources to monitor the political system and make it work reasonably well (well, not always). Sen reminds us that Arrow's impossibility can be overcome through reasoned dialogue and additional information beyond preference rankings. And Ostrom devoted all her career to show that many communities do overcome the tragedy of the commons without external impositions, although some smart governmental help may be useful.

Tuesday, February 7, 2017

Friends that should hang their heads in shame

Ian Birrell has a nice article in The Guardian about his Brexiter friends that claim to be liberal. I am very sad to say that I have a similar feeling towards many friends of mine that still call themselves progressive and that support national-populism in Catalonia:
"How proud those liberal leavers must be as they survey this new world order, having done so much to foster the nationalist revolts. Still these people pose as optimists and rightly promulgate globalisation; but they must bear some responsibility for hitching themselves to forces of fear, then exploiting the concerns of communities buffeted by global forces and suffering from long-term government failures. These Brexiters played with fire by pandering to populism. And now the world is burning.
Instead of bridges being built, walls are going up around the west. Perhaps the liberal leavers will recant and apologise, but more likely they will find excuses and blame others rather than search their own souls. It pains me to say this, since some are my friends, but the truth is that if they really believed breaking from Brussels would lead to a more open nation and outward-looking world, they should hang their heads in shame for stunning naivety."

Sunday, February 5, 2017

A sophisticated coup by unsophisticated people

The national-populist forces represented by Trump, Putin, the Brexiteers, Le Pen and others are not fascists. The risk they pose is not the risk of the military taking over and start torturing people and killing members of targeted ethnic groups. The risk they pose is more subtle: it is the risk of manipulating democracy in the name of democracy itself and ordinary people, to result in a society where we start hating each other and stop learning from people from other places. It is important to understand that there are differences between all these movements. For example, Trump is different from most Brexiteers (he is more vulgar, among other things). But it is also instructive to understand what they have in common:
1) They exagerate the positive things and hide the negative things of what is local, and underestimate the good things and overestimate the negative things of what is alien.
2) They think of the important distributive issue as that between communities or territories (usually "nations") and not that between income groups and social classes.
3) They (Trump, the Polish government, Erdogan in Turkey) do their best to attack the division of powers and especially to undermine the role of the media and the judiciary, perhaps because this helps them in their permanent confusion between public and private objectives, including the difficulties of some of their leaders with tax authorities.
4) They need to promote international divisions and to aggravate international tensions or tensions with neighbours and political rivals: they enjoy living in the permanent climate of a "clash of trains."
5) They have a preference for direct democracy: they love referendums or direct communication with voters via social media. They don't like representative or deliberative democracy.
6) They exagerate the size of their political support among the electorate and tend to speak in the name of the people (French far right leader Marine Le Pen or Catalan nationalist Artur Mas) or in the name of ordinary people (Donald Trump). Amartya Sen (a progressive that at a crucial historical juncture has not waivered in his criticism of nationalism), in the expanded edition of his book on social choice, points out that national-populists like Trump, the Hindu nationalists in India or the Brexiteers behave as if they had a majority among the electorate, but in fact what they do is they take advantage of imperfections of the voting system (like absense of run-off votes or abstention or the Electoral College system in the US) to reach power even against the will of a majority of voters.
7) They are very good at using social pressure, especially in rural areas or small villages, and at using sports players (American footballers or European soccer players or managers) to promote the need for strong men (or women).
8) Simple emotional answers to complex questions are provided for most topics, and their defenders praise this as a positive thing that their too rational rivals should imitate if they want to fight them.
9) There is a constant rhetorical attempt at rescuing the nation-state from its wreckage. They may disagree on how to do it, but they disregard federalist solutions to Rodrik's trilemma that imply rejection of the nation-state as the monopolist of sovereignty.
10) Their selection of the political personnel is purely based on patriotic loyalty or the division of their enemies (like the left), which makes more evident to the rest of the world the low quality of many of their agents. This is probably connected to their rejection of experts.
All this is a danger for democracy, but a more sophisticated danger than a traditional military coup. The paradox is that such sophisticated coup is performed by really unsophisticated people, like Trump or many of the nationalists in Europe (I would include here many Catalan nationalists...). How could this be? Perhaps the answer is in evolutionary biology: self-organization of (really) boundedly rational adaptive agents may produce very sophisticated complex systems. Ask ants or bees.