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 na├»ve 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.