Saturday, 8 April 2017

Things we would need to know to estimate the long-run impact of Brexit on incomes

The view that Brexit would reduce average incomes was no more of an opinion than man made climate change is an opinion. They are both almost certain facts.
Simon Wren-Lewis
This is unconvincing. To see why, here is a non-exhaustive list of things we would need to know in order to estimate the effect of Brexit upon incomes, along with the relevant knowledge, social science or otherwise, that might be relevant.
  • Is the European Union politically stable in face of the long run challenges such as rising populism, a resurgent Russia, and economic tensions engendered by the Euro? What is the chance of the EU's break-up (a) if Britain stays in (b) if Britain leaves? What would EU break up do to members' incomes? Political science. Theories of institutional change.
  • Innovation is a key driver of long run growth. How innovative will EU economies be over the long run - say, the next century - with Britain either in or out? Conversely, how innovative will Britain be outside the EU? Economics of innovation. Relationship between innovation and (a) institutional environment (b) policy (c) market size.
  • More generally, what is the current effect of EU policy on growth? Are EU policies   social democratic, or liberalizing and market-oriented? And how do such policies affect the economy? Macroeconomics, plus knowledge of EU law.
  • And given that, what will EU policy be in future? Will it stay as it is, or will drastic changes come via an altered intellectual climate, or via political change in member states? Political economy. Intellectual history. 
  • On the other hand, how will Brexit affect domestic politics? Will it lead to a disastrous, inefficient populism? Or a renewed, outward-looking, global approach? Will the UKIP die away, its mission complete, or be strengthened and even take the place of Labour? Political science: voting behaviour, party systems theory. Knowledge of the internal state of the UK parties.
  •  What attitude will EU leaders take to negotiating with Britain if we leave? Will they be principled, insisting that the EU's four freedoms go together? Vengeful and punitive? Or pragmatic, giving us a "special deal" so as to protect the interests of exporters? International relations. Bargaining theory. Knowledge of the attitudes and psychology of key players - Merkel, Hollande et al. - and the domestic pressures faced by each.
  • Conversely, will we be able to strike good trade deals with players outside the EU? Can we negotiate better or worse with India, China and the US? As above, plus knowledge of the domestic politics of each potential trading partner.

I have only a little familiarity with any of these areas, but am pretty sure that in all of them, we have nothing even approaching solid, validated causal theories from which predictions might be drawn. 

Notice that we cannot even start using the tools of economics until we answer some of these questions. Economics makes conditional predictions - how much will trade be under a given set of rules? But then we need to know what the rules will be.

By contrast, to believe that human CO2 emissions affect the climate, all you need do is accept the theory of the greenhouse effect, which is more than a century old, and is as thoroughly validated as the theory of evolution.

For what it's worth, I think that the answers to all the above questions probably favour the Remainers, and did even during the referendum campaign (when we knew less about, e.g. the EU's negotiation attitudes). But pretending to be white-coated scientists who have all the answers is silly posturing which reduces the profession's credibility. Social science is uncertain, because social life is intrinsically uncertain.

Wednesday, 22 February 2017

Thoughts on the "ban Trump" debate in Parliament

1. When the phrase "line up to denounce" appears in a story about Parliament, someone's time is being wasted: yours, Parliament's, ours.
2. A Eurocrat once described the European Parliament as "one big fucking NGO." This is like one big fucking Students' Union.
3. Thanks to direct democracy, 100,000 Twitter users can now jam our legislature with whatever bee is in their bonnet this afternoon.
4. The crawling populism that lines MPs up to make anti-Trump soundbites is the same pathology that produced Trump himself. But at least Trump is entertaining.

Update: I rest my case.

Friday, 13 January 2017

New paper

My paper with Carlo Perroni has just been accepted in JEBO. There's an ungated version at my website. Here on my blog I can step back and explain it more informally. And I can be more controversial than in the paper itself, since I have no reviewers to please.

The germ for this came during my year at Northwestern, in a chat with my game theory lecturer, Christoph Kuzmics. He mentioned to me that he was working on evolutionary game theory explanations for costly punishment. The idea of costly punishment is that people are prepared to pay costs so as to punish bad behaviour or take revenge. For example, if a guy starts a bar fight because you spilled his beer, or someone lectures you for leaving litter, that might be costly punishment. Christoph scribbled down the game tree and explained the puzzle. A self-interested person would love to have a reputation for starting bar fights and being a tough guy – they would get their way a lot. But they would never want to actually start a bar fight, as they might lose! So, he wondered how  these motivations could evolve.

But, I said, why does it matter? Surely in the real world, if I am strong enough, I can blackmail you to do something which harms you and benefits me – like buying me a new drink. He replied: well, it's just an interesting problem! I was naïve back then and thought that there must be some deeper reason for the interest in this idea, which has spawned a large literature with about 4000 google scholar hits.

Since then, I've come to believe that academics quite often go down rabbit holes of faddism and groupthink, and perhaps costly punishment is an example. We don't claim it never exists, but I suspect it has been greatly exaggerated. For some behavioural economists, costly punishment has become a pillar of social order.

In real societies, punishment of bad behaviour is often not costly, but beneficial to the punishers. For example, in Japan, villagers caught taking too much wood from the forest had to pay a fine, often commuted by the village official to a bottle or two of sake. Not so bad for the official!

Or, here's a nice example from Colin Turnbull (we cut this from the paper to save space). This is what happens when Cephu the pygmy is caught by his fellow hunter-gatherers, putting his traps out of place to get more meat than others:
Cephu knew he was defeated and humiliated.... He apologized profusely, reiterating that he really did not know he had set up his nets in front of the others, and that in any case he would hand over all the meat. This settled the matter, and accompanied by most of the group he returned to his little camp and brusquely ordered his wife to hand over the spoils. She had little chance to refuse, as hands were already reaching into her basket and under the leaves of the roof of her hut where she had hidden her liver in anticipation of just such a contingency. Even her cooking pot was emptied. Then each of the other huts was searched and all the meat taken.
(Cited in the excellent Guala 2012.) Again, it's nice to get other people's meat. The logic behind this is simple – the rest of the group can do more harm to Cephu than he can do to them, either by physically harming him or simply by leaving him to fend for himself. As a result, they have a credible threat, which Cephu has to avoid by handing out his resources.

We argue this is common. Much social science literature assumes that communities face a terrible problem – coercion is a public good, so it is underprovided, and everyone just does what they want. There ought to be an anarchy of selfish free-riding. The solution is either a state to provide coercion (but how can we tax people to fund the coercive state? An infinite regress looms...) or perhaps some special motivations so that people "just like" punishing bad guys. Other theorists invoke repeated game theory. This has been hugely influential too: many modern theorists, for example, think that the ideal community makes it very hard to leave, and has a lot of gossip so everybody knows each other's business. (Weird. Most people think of gossip as a bad thing.)

But don't communities often have too much coercion, not too little? A lot of societies are extremely repressive and control individual behaviour very tightly – even without a formal state. Go read Thomas Hardy, or The Mill On The Floss.

Our paper examines this situation. What if a group can coordinate to punish a bad guy? And doing so is profitable, not costly, to them – they make him pay a fine or extract some resources from him. But of course, if so, they could do it not just to bad guys but to anyone. Red haired people. Witches. Outsiders.

We look at societies from this perspective – trying to balance the power to punish with the danger of abusive expropriation. So, the paper is subtitled Expropriating Free-riders and Outsiders. We analyse this situation using a simple model. Then we describe the history of the Californian gold rush, which featured a lot of expropriation, often in the name of "rules" that someone had just invented on the spot. Last, we run a lab experiment, to give us some credible examples of what happens when punishment is profitable. Here's one nice graph. It shows what happens when punishment gets easier, i.e. when it can be inflicted by a smaller coalition of players - this is the M on the x axis. Contributions go down, not up. So, too much punishment can be bad for you.

Tuesday, 3 January 2017

More fun with ngrams

So, Foucault claimed that the Victorians weren't repressed about sex – they just talked about it in different registers.

What does the data say? Here's the number of times the word "sex" was used, 1800-2000:
And here is the number of times the word "fuck" was used:
I would say these are pretty good evidence that at least the Victorians talked less openly about sex than we do, especially in a colloquial register. Incidentally, if we zoom in a bit, we can see that "fuck" starts to pick up popularity before 1960. Here is 1820-1960. The highest usage for a century is reached in 1937, and usage picks up again after World War II. Personally I blame the GIs. You see, we can do this now. We can study culture quantitatively and directly, in one of its most basic and pervasive forms – words, language, text. This is so cool.

Friday, 25 November 2016

Burning karma on HEA

Email exchange I've just initiated... 😀


I will not be applying for an HEA fellowship.

I am sorry to say that everything I have heard about HEA qualifications leads me to think that they are a wholesale waste of time, foisted on us by government mandate, and developed by an organization that is much better at lobbying than it is at providing useful teacher training.

When I interviewed for this position, I specifically asked about whether I would have to apply for an HEA qualification. I was told that at my level it would not be necessary. That was one reason I took the job. So, just as an advance warning: any attempts to force people to take this qualification will, at least to me, be very, very unwelcome. 

With best wishes,

David Hugh-Jones
Senior Lecturer
School of Economics

On 25 November 2016 at 12:16, XXX <XXX> wrote:
Dear colleague,

You may be aware that the university is seeking to encourage all staff to apply for an HEA Fellowship, if they do not already hold one. I am keen for all academic staff to take this opportunity to further advance their professional development, and for SSF to take the lead in this initiative.

If you would like to take this opportunity to apply, please contact XXX in order to be added to a Blackboard site, on which there is a list of staff who already hold HEA Fellowship and have agreed to provide references for academic staff. Please note that your referee should be someone who is familiar with your teaching/research methods. Any further helpful information will also be added to this site in future, such as HEA writing retreat dates. Please note that XXX is the main contact for all HEA Fellowship enquiries; she will pass more detailed enquiries on to me if necessary.

I have attached the list of voluntary referees as it stands, as well as a flowchart explaining the HEA monitoring process and application payment details.

If you could kindly inform XXX if, and when, you will be applying for HEA Fellowship – and to what level of Fellowship – it would be much appreciated for monitoring purposes.
Additionally, if you already hold an HEA Fellowship and believe you have been incorrectly contacted, please let XXX know your current level of Fellowship for our records.

Thank you, good luck and have a great weekend!

Best regards

Saturday, 12 November 2016

Is populism dumb? A follow up

My article on populism has just been republished on the UEA economics blog. This follow-up is inspired by Sascha Becker and Thiemo Fetzer’s interesting paper on UKIP support.

Their strategy is to look at places in the UK that received migration from Eastern Europe after 2003. They examine how vote share for UKIP grew in these places between 1999 and 2014, over 4 elections, compared to places which received less migration. (So, for stats nerds, this is a difference-in-difference analysis.)

The results show that indeed, UKIP support grew more in places which received many migrants from EU accession countries. That’s not too surprising. In particular the measure they use is the proportion of migrants 2001-2011, divided by the number of EU migrants in 2001 – so it is a relative measure which weights migration more if it starts from a low base. This might reconcile the conflicting perspectives on Brexit – i.e. was it areas with few migrants or many that voted Leave? – perhaps the answer is, areas with a sudden increase from a low base.

What shocked me, though, were the economic effects on these areas that they estimate. Now, be aware that the statistics here are not gold standard in terms of causality: they can’t prove for sure that the following changes happened because of EU migration. Nevertheless, these things did happen where there was more EU migration:
  •  Lower wages, especially for the low paid, though the effect is not large
  • More job seeker allowance and incapacity benefits claimants (NB: this won’t be solely driven by migrants claiming, but also by native claims – in other words, displacement of natives out of the job market)
  •  Higher house prices and more people renting privately

I don’t want to lean too much on a single unpublished study. Nevertheless, this is not what I expected. The consensus position one hears from economists is that migration does little to harm the wages of natives. This paper doesn't fit that picture. If it is right, UKIP support and maybe Brexit voting may be driven less by nationalism, more by economic self-interest.

By the way there is a cautionary tale – yet another – here about over-reliance on “expertise”. The UK government at the time vastly underestimated the level of migration:

A central reason for opening the borders where [sic.] the thriving UK economy and a set of estimates from a Home Office commissioned study, predicting that “only around 5,000-13,000 Eastern Europeans [were] to arrive to the United Kingdom per year” …
The reliance on historical data, which naturally constrains the analysis to periods with relatively high migration cost... and resulting low migration elasticities, in addition to the possible impact of general equilibrium effects (Germany and most other countries restricting free movement for the whole discretionary period) may have contributed to the discrepancy between the projections and actually realized migration flows.

Or, as Daniel Kahneman might say, analysts of migration live in a zero-validity environment....

Wednesday, 9 November 2016

Thoughts on Trump: policy, geopolitics, ideology

These are short, sketchy and incomplete. I had to write some ideas down. Time will tell how far they are right.

  1. The media – which, yes, leans Democrat – focused on Trump's personality, which was indeed a massive minus. However, Trump won because of his protectionist and isolationist policies, despite his personality. We know little about these, partly because the media didn't report them very well, partly because many were made up on the fly and are not serious.
  2. But Trump will do what he says in some respects. He will protect existing industries; prevent immigration, increase deportations; and spend money on stimulus policies – which were the first point of his victory speech, not migration or the border wall. Stimulus policy is Keynesianism, but pursued too late, at a point in the cycle where it will be procyclical not countercyclical. Also, although the US could probably do with some public investment, the money is unlikely to be well spent: Republicans are less competent at public investment than Democrats. Expect a short-term boom, followed by the bills coming due. At that point, Trump may try to undermine the Federal Reserve and print money.
  3. So, expect further long-term decline in the US economy. The US may now have entered the cycle of populism that parts of Latin America went through in the last century.
  4. Also expect the legislature to continue its slide towards irrelevance. Trump is pushy and strong-willed; he will build on Bush II and Obama's rule by executive decree. Political systems always have a demand for political decisions; if one institution can't supply this demand, others will take its place.
  5. Trump's policies have more continuity with Obama than is obvious. Obama pivoted towards Asia (i.e. away from Europe) before being forced back by events. Trump continues this with his attitude to NATO. The pendulum has also been moving away from free trade for a while. Obama has deported many illegal immigrants and this will increase.
  1. The logic of the situation, post-Brexit, is likely to push Britain, the US and Russia closer and away from Germany. France might also slip away from Germany if Le Pen is indeed elected. This is more with respect to trade than in terms of conflict, but the border between these is not solid. This situation is pretty sad, given that Germany is a liberal democracy and Russia is run by Putin who poisons UK citizens on the streets of London, but I think strong forces are pushing for it. If France does fall to Le Pen, then we can probably predict the end of the Euro in the next ten years. Geopolitically Europe might then look as if the twentieth century hadn't happened.
  2. I cannot imagine Russia will not try to play more in Eastern Europe. Trump has made the terrible mistake here of publicly announcing his weakness of will. It is hard to see Europe stepping into the breach to defend, say, Latvia.
  3. I'm not clear what will happen with respect to China. Will the US try to split Russia from China, Nixon's ploy in reverse? Or could Trump become a wholly owned local subsidiary of the Authoritarian International, à la Berlusconi?
  1. What's Left? Not much. The radical Left has a discredited economic programme, plus cultural politics that electorates hate (internationalism, multiculturalism....)The moderate Left has an economic programme that made people richer, but increased inequality and left bitter losers...  plus the same cultural politics that electorates hate, except also it is tied to their disliked internationalist economic programme. (Key campaign moment: the leaked Clinton speech which supposedly revealed her desire for open borders.)
  2. This is another step in the divorce between liberalism and democracy. For example, Trump has promised to torture terror suspects. I see no reason to dismiss this or to assume he will be prevented by the US's checks and balances: Bush wasn't. It's time to admit that democratic tyranny is a real possibility. It may even be that liberals – in the straightforward sense of people committed to human rights and civil freedoms – will need to organize and struggle politically against some democratic regimes. Maybe Tim Garton Ash can lead the first Liberal International.
  3. Democracy itself is more threatened by the elites who are disgusted by Trump and horrified by Brexit than it is by Trump's authoritarian tendencies. If Trump's policies fail, then expect a further round of middle-class disillusionment with democracy.
  4. Democracy has already become somewhat hollowed out. We are far from the days in the 1970s when Lord Hailsham could warn of "elective tyranny". Now, government decisions can be challenged in court, even in areas of "high politics" such as Brexit; much policy, including monetary policy, is delegated to unelected bureaucrats; at local level in the UK, non-democratic bodies get a lot done. Actually existing resistance to democracy, driven by people who have money to lose, currently focuses on these rival centres of power. But institutions need coordination by the political centre. If that centre loses authority, different institutions start serving their own constituencies rather than the national interest. In newer, marginal democracies, expect anti-democrats to push for non-democratic political institutions and take steps away from democracy. In established democracies, expect continued institutional sclerosis.

Some Adorno quotes

Not wishing to add to the general alarm, but does any of this ring a bell?
The agitators spend a large part of their time in speaking either about themselves or about their audiences.They present themselves as lone wolves, as healthy, sound American citizens with robust instincts, as unselfish and indefatigable; and they incessantly divulge real or fictitious intimacies about their lives and those of their families. Moreover, they appear to take a warm human interest in the small daily worries of their listeners, whom they depict as poor but honest, common-sense but non-intellectual, native Christians....

They identify themselves with their listeners and lay particular emphasis upon being simultaneously both modest little men and leaders of great calibre....

Another favorite scheme of personalization is to dwell upon petty financial needs and to beg for small amounts of money....

All these demagogues substitute means for ends. They prate about “this great movement,” about their organization, about a general American revival they hope to bring about, but they very rarely say anything about what such a movement is supposed to lead to, what the organization is good for or what the mysterious revival is intended positively to achieve....

Scandal stories, mostly fictitious, particularly of sexual excesses and atrocities are constantly told; the indignation at filth and cruelty is but a very thin, purposely transparent rationalization of the pleasure these stories convey to the listener....

Conditions prevailing in our society tend to transform neurosis and even mild lunacy into a commodity which the afflicted can easily sell, once he has discovered that many others have an affinity for his own illness.The fascist agitator is usually a masterly salesman of his own psychological defects....
Hitler was liked, not in spite of his cheap antics, but just because of them, because of his false tones and his clowning. They are observed as such, and appreciated.
Adorno, Anti-Semitism and Fascist Propaganda