A long time ago, the first teacher that tried to teach me Game Theory was Clara Ponsatí. In those years and at least in that particular class, she was not a very good teacher and I was not a very good student. I had to wait for some years to know the basics of Game Theory when I had more time to be a good student and I had a better instructor in James Dow at the European University Institute (Dow had met Ponsatí in the USA in their formative years). She is now fugitive from Spanish justice in Brussels (she says she is "in exile"), because she was part of the Catalan government that tried to violate the rule of law in October. She had been appointed as Regional Education Minister just months before the failed declaration of independence because she was believed to be a Taliban of Independence, according to media commentators. She published a short article in 2012 (I can only find a version in Spanish here), entitled "Benefits, Costs and Game Theory" where she argued that the only reasonable equilibrium in a game between the Spanish median voter and the Catalan median voter was for the Catalan median voter to declare independence and for the Spanish median voter to accept it, "because the costs of conflict for Spain were not affordable." It is basically the same argument of those in favor of Brexit in the UK: the EU negotiators will have to accept the conditions of the UK negotiators because the costs of a hard Brexit or of no agreement would not be affordable for the European Union. Both in the case of Europe and in the case of Spain, we have seen that the predictions of the nationalists (even the best educated of them) could not be farther away from reality. What was wrong in their analysis? First, probably that decision makers in Spain and Europe do not take only into account the economic costs in the two by two game, but also the overall politico-economic costs of disincentivizing any other separation attempt. Second, the relevant players were not only the representative voters in Spain and Catalonia, but the diverse voters holding different positions in both societies. Finally, Ponsatí assumed that absent the "irrational" opposition of Spain and any veto of the European Union (that would fall under the acceptance of an abiding Spain), the economic benefits of independence were overwhelming. Today, more than 3000 firms (see this article in The Economist) have moved their headquarters out of Catalonia, and hundreds of thousands of small investors moved their savings to other regions, only after the threat of independence. I still believe, after what I learned from James Dow, that Game Theory can be very useful to understand politics and economics (and beyond), and I enjoy teaching it at a basic level in my courses on Microeconomics, Public Economics and Sport Economics. In some rare cases, 2x2 games are not rejected by real data from real interactions (like in soccer's penalty kicks). Most of the times, though, real world games are much more complex than simple blackboard (or power point) 2x2 interactions.
We are finishing another edition of the course on soccer and economics at the Study Abroad program of the Autonomous University of Barcelona. Most students are from the USA and one of the groups just presented their essay about the limits to soccer success in their country. Of course, a key issue is that resources are already being spent on other sports, such as American football, baseball and basketball. Although soccer is increasing its popularity because of the expansion of demographic groups such as hispanics and women's soccer is very successful, most fans still see the NBA, the NFL and the MLB as the most important sports leagues. Although basketball is probably expanding and American football is declining (see an article in The Guardian by the famous former basketball player Kareem Abdul-Jabar), they are still above soccer in the preferences of Americans. According to my students, one possible reason is just history: in the XIXth Century, the USA wanted to re-affirm its identity by distinguishing itself from British sports such as rugby or cricket, and that is how American football and baseball started and expanded. This gave them a starting advantage, and the era of big economic growth of the United States additionally favoured these leagues. When soccer became a global industry at the end of the XXth century, it was perhaps too late to become the leading sport in North America. It can still grow of course, and the elimination from the next World Cup should not be seen as a drama (at least, they will be in the good company of Italy, The Netherlands and Chile). Countries that do not have a strong soccer tradition can easily catch up by importing resources such as managers or veteran players, or by exporting their best players to the best leagues and asking them to come back to play for the national team, as explained by Branko Milanovic in an article published in 2006. But once they achieve a decent level, they find much more difficult to achieve excellence. Like in other industries, imitation is easy but excellence requires innovation and the creation of new styles of doing things, and this probably only comes with role models, cultural environments and strong communities transferring a passion for something from generation to generation. That is what is argued in a recent academic article by Stefan Szymanski and Melanie Krause. Perhaps that is why Messi is Argentinian and not form the USA or China -although many are trying to produce "the new Messi," in some cases with a lot of money.
I started reading this article in The Guardian by Matthew D'Ancona believing that it would relate the Isareli-Palestinian conflict with the Brexit controversy about Northern Ireland (something that keeps my analogy-prone mind in good shape), but I found something much better. Actually, two things. First, a great metaphor about the lies of Brexit based on the re-invention of the wheel: "So, here’s an idea: let’s abolish the wheel. Let’s escape the tyranny of
the circular device, and spend the money saved on axles, spokes and hubs
on – oh, I don’t know – the NHS.
Let’s take back control of rotation! But wait a minute. This can’t be
done overnight. We shall still need some means of transporting ourselves
and our goods until we have formally renounced the wheel, but before we
have agreed on a new device. There’ll probably need to be an
“implementation period” in which we remain “aligned” with the existing
circular format. Then, when we’ve finally got rid of the old system – let freedom ring! –
we’ll need a new, bespoke mechanism. What we’ll want is our own round
component that rolls around an axis; an independently designed disc that
turns reliably to enable easy movement. Something that gyrates smoothly
along the ground. I wonder what we should call it." Second, a very useful insight about clarity and ambiguity, which should be read by those in Spain and Catalonia that fell in love with the Clarity Act of Canada: "As so often, it was our old friend “constructive ambiguity”
that got May, her party, the Irish government and Brussels over the
line. You can read the text as a victory for British sovereignty, a
significant retention of power by the EU, a step towards Irish unity or a
safeguarding of the union. This kind of ambiguity was essential to the Good Friday agreement, which
entrenched an open-ended process founded upon euphemism. In contrast,
the Brexit talks assume and depend upon the eventual achievement of
clarity – even if, in many cases, that point is not reached until long
after the UK’s formal departure on 29 March 2019." And to wrap it up there is a final part of the article that is the perfect illustration of the big topic of behavioral political economy: expressive voting versus rational choice. I leave it to you to enjoy it.
James Atlas is the biographer of two American writers, the forgotten poet Delmore Schwartz and the famous Nobel Prize winner Saul Bellow. I have never had the opportunity to read these two biographies but now I will try to buy and read them. What I have read is the wonderful autobiography of Atlas himself, where he explains how he became a biographer, and he tells us some of the secrets of his speciality, starting with what he learned at Oxford (a place he didn't particularly enjoy) in the beginnings of his career. I knew about the book after reading a positive review by a Spanish writer in a newspaper. The book, entitled "The Shadow in the Garden. A Biographer's Tale," is a love letter to books and book writers and critics in general. Atlas tells us about his emotions and physical sensations in those moments where he lived through experiences such as finding some special document or meeting some important character. He is also very open about his tension with Bellow and the many flaws of this author as a human being. The difference between Bellow and Schwartz from the point of view of Atlas is that he never met the latter (although he shared with him the problem of depression) but he interacted frequently with the former. The last chapters of the book discuss the future of biography. In the past, writing a biography was about collecting documents such as letters, personal journals and objects, unpublished manuscripts, and interviewing people who had interacted with the subject of the book. With the Internet, email, social networks, blogs and you tube, the lives of famous authors are very much in the public domain. Perhaps it will not be about writing a biography any more, but about putting together materials in a web site. But then many of the emotions associated with the old art of a biography will not be there any longer.The footnotes are not to be missed, full of irony and interesting insights to complement the general text. I really enjoyed reading this book.
For anyone who has been paying attention, it should be no surprise that detailed and nevertheless fragile peace agreements that were reached in the 1990s are today in danger because of the rhetoric, the actions and the events unleashed by national-populist forces. Brexit threatens the results of the Good Friday agreement reached almost twenty years ago after decades of violence in Northern Ireland. That agreement was not perfect, it was complex and multilateral. It had even some disturbing elements, like the obligation to "share" a government between religious parties, accepting de facto the "tagging" of organizations and voters, instead of promoting that one day the province could be dominated by a secular multicultural political force or several of them. More importantly, the agreement was made possible by the existence of the European Union, which facilitated a legal and economic framework that produced the dilution of the border between Northern Ireland and the Republic of Ireland, as it happend for example between Spain and Portugal (I still laugh when someone wants to seem modern by asking for an Iberian federation -we already have it! It's called European Union). The two parts of the island can share today a common economic and trading area and even an electricity system. Each part probably believes that it is sovereign, but the border disappeared twenty years ago, which means that even unconsciously they have been sharing the same territory. And it has been good for them, as the island has probably lived through the most prosperous and peaceful period of its contemporary history. Now Brexit threatens this, because British voters by a small margin decided to leave the EU in a simplistic referendum by a very small majority, even if the voters in the Northern Ireland province voted to remain, as they voted in favor of the Good Friday agreement almost twenty years ago together with the voters of the Republic of Ireland. That was a complex and patient agreement, the result of multilateral negotiations. The extremists in the British conservative party and the extremists among the Northern Irish unionists have a hard time trying to make compatible Brexit with the Good Friday Agreement. In fact, they are incompatible, and probably the only solution is either to acknowledge that Brexit as it has been imagined by its proponents is impossible, or to construct a special regime in Northern Ireland without saying it to save the face of the Unionist and the British government. In the Middle East, the Oslo peace accords were also fragile and imperfect. In a perfect world, instead of a two state solution we would have a plurinational federal state as suggested by the late historian Tony Judt. But it was also a multilateral agreement that laid the foundation of future peace negotiations. Donald Trump does not want any of it and is willing to sacrifice decades of good will and slow progress to demonstrate that his rhetoric must prevail. Our world is interconnected and the decisions of British or American voters have effects on third parties. But a characteristic of national-populists is that they do not have time for complex agreements or institutional constraints. The problem is that some of these constraints keep the world in relative peace.
The weeks that surrounded the illegal and suspended declaration of independence in Catalonia coincided with a 4% reduction of the retail sales in the region, the exodus of the headquarters of 2800 firms (among them, the two largest banks and some of the most important companies), the fall or postponement of tourist reservations and investment plans, and the transfer of savings to accounts in other regions. It is tempting to conclude that pro-secession leaders lack any knowledge of the economy or any knowledge of the mechanisms of the rule of law in a European member-state of the XXI Century. We could easily blame bad selection mechanisms in political elites or even the poor educational system in general in Spain and Catalonia. However, the Catalan pro-secession movement and the regional government that has represented it in the recent past have been supported by first-rate intellectuals, among them several economists with a PhD from US universities, philosophers fluent in Germany and experts in Wittgenstein, or legal scholars with previous high reputations among their peers. On October 10th, the day in which the now sadly famous Catalan former president Carles Puigdemont said that he acknowledged the results of the illegal referendum of October 1st and then added that he suspended the declaration of independence temporarily, his cabinet met in the morning prior to that Parliamentary speech to decide on the strategy. In that meeting, all the members of the regional government agreed that it was better to suspend the declaration and try to offer a more moderate face, given the hundreds of companies that were already announcing that they were leaving the region and given the zero prospects of international recognition. Only one member of the regional government disagreed from her by then scared colleagues by proposing to go all the way down and declare independence immediately without fear of any consequences. That was the regional Minister of Education, an economist with a PhD from Minnesota University in the USA. Today Paul Krugman has written in his blog about the betrayal of many intellectuals of the US Republican Party, their refusal to apply scientific or moral standards when they evaluate the policies of their party. Krugman alludes to the title of a famous book ("La Trahison des Clercs") by a French intellectual in the first half of the XXth Century, where he denounced the many intellectuals that supported nationalism or stalinism. We could similarly refer to the betrayal of many intellectuals, Catalan edition (incidentally, one of the Republican intellectuals mentioned by Krugman is a co-author of one of the most radical Catalan economists). In the blog of the LSE there is a review of a recent book on how European governments are these days more and not less crowded with academics. The regional Minister of Finance and Economy of Catalonia was in October a Historian with a PhD, like Gordon Brown. The difference does not lie in the academic credentials (although I suspect that the PhD dissertation of Mr. Brown was much better than the one written by Mr. Junqueras). The difference lies in the moral compass, which in the case of Brown made him give that famous speech against nationalism ("the silent majority will be silent no more") that most probably decided the 2014 Scottish referendum.
in a recent article written by a former central banker
of Argentina and a co-author:
for amending the design of some of democracy’s existing commitment devices.
These relate to the judiciary, media, central bank, regulators – the elite’s
expertise and the experts themselves. The current commitment devices and
institutions don’t seem to be fully sufficient nor entirely credible
(depending, of course, on the country and its institutional history). These
institutions should be improved immediately by introducing what we call a
‘second generation’ of commitment devices. These are specifically designed to
materially improve existing structures through stronger and more credible
accountability elements, for both the institutions and the elite. They can
reduce the populist’s incentives and ability to introduce measures that would
quickly and disproportionally favour him and allow him to enhance his grip over
the initial benefits.”
“second generation commitment devices” require a careful study of the biases of
regulators and a careful study of the behavioral issues that surround the
political arena in which they work, because the forces of populism do play with
these tools. Before embarking on the specific or generic reforms suggested by Mario Blejer and Piroska Nagy-Mohacsi in that
article, such as periodic reviews of regulatory institutions or focusing more
on fair process than outcomes (as well as “allocate resources
to improving the public’s understanding of the long term costs of unsustainable
policies”), it would be useful to have
a better knowledge of the characteristics of the decision-making process of the
individuals that participate in regulatory decisions.
Mainstream political operators respect the existing institutional constraints and functioning of politics, but these are often under criticism. As another recent article on the supply and demand of populism suggests, new leaders are then very tempted to break away from one form or another of existing constraints. These constraints can be formal or informal, and it is not unusual that national-populist leaders, at the same time that they propose walls or exits, they also depart from inherited conventions and use strong rhetoric or ride the waves of the mob rule. The answer should be serious institutional reforms.