Tuesday, January 26, 2010

Or maybe not

What were we saying? It turns out that we're still so worried about government debt that we might end up trashing the recovery before it gets started. Strange that markets were happy for banks to sell mortgages to the insolvent, but governments that have been democratic for two hundred years are regarded as risking default.

Anyway, back to the textbook - if consumer balance sheets over the world are in shreds, we will only get output if governments spend some money. It may be socialism (sic) but capitalism only works if people want to buy stuff.

It's all over!

Britain moved out of recession today. Well, UK output rose 0.1% in the last quarter, which given the margin of error of these kinds of estimates might not even mean that the recession has formally ended. But, assuming this isn't a quirk of the figures of a temporary revival (inventory bounce etc), it's good news.  

Unless policymakers suddenly decide that it's time to worry about inflation and public debt, we might get a proper recovery back to where the economy's capacity could take us (ie 10% higher output than we got in 2009 - which of course in practice shrinks the deficit more than any of the spending cuts being discussed).

Saturday, January 23, 2010

Man United 4 Hull City 0

Yawn.

Schumpeter and Central Bank Independence

OK, maybe I'm dragging Schumpeter anachronistically to the present, but talk of the Martha Coakley fiasco imperilling Ben Bernanke's survival at the Fed sets me thinking about democracy and central bank independence (stuff I've been teaching about this week).

First, if central bank independence means isolating central bankers from political pressures, then this ain't central bank independence. A special election potentially leading to a Fed Chair's removal is a remarkable politicization of the institution (I mean politicization in the sense of partisan, electoral politics - obviously everything the Fed does is political in the broad sense). OK, these are not normal times, and in normal times the Fed is more protected from partisan battles. But this shows that central bankers' performance has a far closer relation to electoral politics than we've been assuming.

Second, Schumpeter's minimalist 'throwing the bums out' conception of democracy ends up applying, at a remove or two, to central bankers as well as politicians. The whole point about the elitist conception of democracy present in Schumpeter's thinking is that the masses don't have the skills to understand government, but that they need to have the option of removing rulers if they mess up. Central banks, of course, are 'independent' because the dominant theory holds that the masses would have them take myopic, short-termist decisions, rather than sensibly shepherding the economy to stable growth. Good luck with that. Central banks didn't understand the economy two years ago, and probably don't now. The masses know the economy stinks. Voting against the government, and potentially by extension against Bernanke, might get the bankers taking popular disquiet a bit more seriously. Populist pressure doesn't necessarily lead to the right policies, but when the results of policy are so damning, it allows for a change of course which may not happen if elites are truly insulated from mass opinion.

Moral of the story: No matter how complex the policy detail, you can't let the bankers run the economy on their own.

Friday, January 22, 2010

Flexicurity and the Crisis

Nice FT piece today discussing the surprisingly resilient employment performance of European economies such as France, Germany and even the UK, compared with the jobs collapse of the United States (and Ireland and Spain for that matter). The article analyzes the 'weird' dynamics of jobs markets in this recession compared to others, and points out that labour market flexibility - the mantra of reformists everywhere for the past two decades - can accentuate the effects of downturns and destroy more jobs than in more rigid systems. It also reports a change of heart at the OECD where the negative effects of some recent labour market reforms are leading to a marked shift in policy emphasis.

Part of the reason for the UK, France and Germany doing better than the US, Spain and Ireland is the smaller decline in their housing markets. But that doesn't explain the whole story. A separate report today shows that unemployment in Britain is running significantly before the forecast level. It won't save the Labour government, but it indicates the recession could be less damaging for the job market than previous (Tory...) downturns.

Elections work

What a difference an electoral defeat makes. No sooner has the dust settled over Martha Coakley's shock defeat in Massachusetts, then Obama decides to sock it to the bankers. The President may have been mulling over this decision for a while, but it's striking that the announcement - which appears to mark a significant shift away from the softly softly approach to finance adopted until now - comes just a couple of days after an electoral humiliation.

Maybe democracy works after all.

Tuesday, January 19, 2010

Monday, January 18, 2010

Rosarno: ognuno ha il suo Sud

(The upstanding citizens of Rosarno protest about immigration)

This picture beautifully illustrates the depressing paradox of the widely reported incidents in Rosarno. If we placed this picture below a headline 'Immigration in Italy', it would be easy to  assume that the crowd behind a barrier of Carabinieri were Romanian or Albanian immigrants. In fact, they are italianissimi inhabitants of Rosarno, a mafia-ridden city in Calabria, one of Italy's poorest regions. Until very recently, Rosarno exported humanity, sending migrants to Northern Italy or overseas. Now local people are not prepared to pick fruit as cheaply as Africans will, so Rosarno has become an importer of labour. It will be interesting to see who does the harvesting this year.

Politically these events mark the culmination of the extraordinary journey of the Northern League, which has unapologetically taken sides with the Rosarno locals. Once a movement representing prosperous Northern Italians' frustration at having to subsidize poor and mafia-infested regions such as Calabria, the League now directs its fire at non-Italians. Why? Two simple reasons. One, because Northern Italy now imports labour from Eastern Europe and Africa, rather than Southern Italy, and the presence of outsiders has unsettled many Italians. Two, because the League has allied with Berlusconi's Pdl, which gets a healthy chunk of its votes from Southern regions like Sicily and Calabria, and it would be rude to point out that the North subsidizes the South just as much as it did before. I think this is what Schattschneider called the 'mobilization of bias'.

The level of racism permeating public discourse in Italy is reaching critical levels. Yet Italy has no alternative but to accept and integrate immigrants, as an aging society with one of the lowest birth rates in the world and a disfunctional labour market and welfare state. The anti-immigrant rhetoric of the Italian right - and mainstream opinion on the ground - suggests a society in denial. If it carries on this way Rosarno will start to look like a walk in the park.

Monday, January 11, 2010

Dichiarazione di Berlusconi sui fatti di Rosarno

Stiamo ancora aspettando.
Sappiamo che e' in convalescenza, ma una dichiarazione sulla giustizia l'ha fatta.

Saturday, January 9, 2010

Chelsea reprieve

We got a reprieve today - KC Stadium snowbound, the Hull-Chelsea game postponed. So, I'm relieved. I was expecting Chelsea to beat us today, and they didn't. These are the kind of little satisfactions a Hull City fan has to cling to.

Friday, January 8, 2010

Something to cheer you up



(thanks to Jeff Kopstein via Mark Blyth)

Economics and the meaning of life

Funny article in the Wall Street Journal (I never thought I would write those words) on 'cheapskate economists'. Most of it is examples of economists' geekiness and unhealthy interest in making small savings in their everyday lives. But the following passage is quite interesting:

<
Ms. Stevenson and Justin Wolfers (above, ndr), also of the Wharton School, gave a friend $150 to hire movers instead of helping him themselves. Harvard University economist David Laibson pays to have a driver pick up his sister from the airport rather than driving himself.
Stanford University economist Robert Hall, incoming president of the American Economic Association, values his time so highly that his wife, economist Susan Woodward, occasionally puts her foot down. "Bob doesn't see why we can't just hire people to trim the Christmas tree," she says. "I tell him that's not what it's supposed to be about.">>

This is where economics falls down in its attempts to understand broader social dynamics: we are social animals (or at least, most of us are), and putting up the Christmas tree with our nearest and dearest is precisely the kind of thing that makes life satisfying (although I have to admit that in my case I tend to sit and watch complacently while my partner and daughter do it). I think most of us would return Stevenson and Wolfers' gesture by not returning their calls in future - doing stuff together is what most of us regard as a healthy chunk of our 'utility' (what would be the point of a 5 star Michelin meal consumed in solitude?), and people who would rather pay than help out are probably worth avoiding.

All of this doesn't matter if you're not forced to hang out with economists (and I must stress, some of my best friends etc etc). But the assumptions behind this behaviour also end up underpinning predictive and normative models of social dynamics, which can inform policy decisions. These policy decisions constrain behaviour, undermining the social ties that people value. It's one thing for models to be wrong (most of us would help our friends move house, rather than giving them cash). It's quite another if we are forced by institutions to behave as the models prescribe (eg by moving far from our family and friends to take a job).