Saturday, 28 February 2015

Eurohawks and Eurodoves

Eurodoves believe...Eurohawks believe...
Soft power Soft power, and carry a big stick
The EU kept the peace in Europe since 1945 It also helped that NATO held the USSR at bay
European economies need structural reform Economic reform matters, but political unity comes first
Europe as a counterweight to US neoliberalism Europe as a stronger partner in the Atlantic alliance
The age of spheres of influence is over Russia, out of our back yard!

I'm a Eurohawk.

Friday, 27 February 2015

And the winner of the 2015 Mood Affiliation Award is...

Ian Martin:
Suppose those ridiculous blobs all over Waterloo’s sunset had different occupants. So a child points to the Shard and asks you what it’s for, and instead of trying to explain it’s half-full of dicks in haircuts “doing business”, you’re able to say it’s subsidised housing for key workers. Does it now magically become “architecturally beautiful”? Yes. YES.

Wednesday, 25 February 2015

Is lab behaviour just habit?

A cite from a 2014 Nature paper:
According to the SHH, people internalize strategies that are typically advantageous and successful in their daily social interactions. They then bring these automatic, intuitive responses with them into atypical social situations, such as most laboratory experiments.
If this is the case, what does it imply for laboratory experiments testing equilibrium behaviour and self-interested rationality?

Sunday, 15 February 2015

Embedded liberalism, the Eurozone and Russia

Back in 1997, Martin Feldstein worried, in a famous Foreign Affairs article [paywalled], that the introduction of the Euro could lead to war in Europe.

That still seems overstated, but the Euro is pulling Europe apart politically, in the way Professor Feldstein predicted. The economic suffering of Greece has brought to power a far Left party which is prepared to support Russia against NATO and the EU.

Almost everything in the European situation can be read straight from the script of a little-known political economy article subtitled "embedded liberalism in the postwar economic order". The original is frankly obscure, but the basic idea is simple. While free market liberalism may be efficient, the dynamism and disruption imposed by markets can cause a lot of pain in the short term. In a democracy, that pain may lead voters to choose populist solutions, a cure that ends up worse than the disease. Keynesian demand management during crises, and some form of welfare state in the long run, are the price economic liberalism must pay to democracy in order to prevent worse. (Those who feel nostalgic for earlier times, when market institutions could be implemented without paying heed to democracy, should remember that the disruptions of the 19th century prepared the ground for the growth of Marxism, liberalism and capitalism's most dangerous opponent. Politics never goes away - it just hides sometimes.)

The Germans seem to have forgotten this basic idea. But I doubt very much that the German political elite are ignorant of the political dangers of their economic policy. Their problem is their own voters, who suffered through their own structural reforms and reaped the benefits, who have no experience of what Greece is going through, who of course think they have paid enough already, and who fundamentally care more about themselves than about the Greeks.

Let's flip a famous Jean-Claude Juncker quote around: German leaders know exactly what not to do to Greece, but they don't know how to get reelected after not doing it.

Economists usually ask whether the Eurozone is an "optimal currency area" - one with free movement of labour and capital, synchronized business cycles, and a mechanism for fiscal transfers. An area like this can cope well with asymmetric shocks: unemployed people move to areas of higher employment, fiscal largesse helps weaker regions out, and in monetary policy, one size roughly fits all. Even in the 90s most economists thought the Eurozone was not such an area. They hoped that the introduction of the Euro might itself help it to get there "endogenously" - partly by creating the political will for fiscal transfers. As the Delors report put it (italics added):
[European Monetary Union]...would imply a common monetary policy and require a high degree of compatibility of economic policies and consistency in a number of other policy areas, particularly in the fiscal field... 
[t]he need for a transfer of decision-making power from Member States to the Community as a whole would arise primarily in the  fields of monetary policy and macroeconomic management.
It turns out that in a union of democracies, that's hard.

On that basis, I suggest the following

Criterion for a politically optimal currency area: 
  • The democratic publics involved must have strong enough ties of common identity that they are prepared to help each other through economic and political difficulties.
The Eurozone is currently failing this test. The task for Europe's leaders is now to create this common identity "endogenously": the crisis itself must bring the peoples of Europe together, so that they can overcome it.

One helpful condition is there already. Social psychologists know, as Bismarck did, that "war with outsiders creates peace inside".

Well, we don't need to manufacture a common enemy. We've got one already!


This interview (long) with famous and much-parodied game developer Peter Molyneux has a brilliant one-liner on the nature of entrepreneurship:

RPS: My first question wasn’t, ‘Are you a Machiavellian and spiteful liar’, it was ‘Are you a pathological liar?’ It was, do you say stuff that isn’t true without meaning to?
Peter Molyneux: Like anybody that is in the business of creating something that doesn’t exist, I say things that I believe is true, that very often don’t come true and sometimes do come true.
A little-known Armenian physicist discovered a new, easier way of doing calculus, which can be taught to children.

Wednesday, 11 February 2015

HSBC was advising its clients on tax avoidance/evasion

Dave Hartnett explains why he never told the government about HSBC's issues:
Asked why he took no steps to pass on the allegations contained on the so-called “Swiss disc”, Dave Hartnett, HMRC’s then head of tax, said: “HMRC is asked to provide an indication of reputational risk for appointments of peers in relation to their tax compliance history only.”
So, the rules said HMRC had to report only Steve Green's personal tax compliance. Surely the government would or should have wanted to know about HSBC's dodgy history before making its chairman a Peer and a minister. But the rules didn't cover that case. Moral for political economy types: written rules and institutions are never enough.

For those of us who hope personal virtue can solve these problems, here's another Guardian piece...

Thursday, 5 February 2015

The TPP will extend copyright to 70 years for participating nations

Linkage here.

A nice Geertz quote

The locus of study is not the object of study. Anthropologists don't study villages (tribes, towns, neighbor­hoods . . . ) ; they study in villages. You can study different things in different places, and some things - for example, what colonial domina­tion does to established frames of moral expectation - you can best study in confined localities. But that doesn't make the place what it is you are studying.

For anthropologist substitute experimental economist, for villages substitute laboratories.