Thursday, April 28, 2011

Growth-friendly fiscal consolidation: the evidence

From the Financial Times:

No way Jose

Jose Mourinho sees a conspiracy behind Barcelona's Champions League victory at the Bernabeu yesterday.

Well, you could make a case that Pepe may have got away with a yellow. But just before the sending off, the possession stats read Real Madrid 29%, Barcelona 71%. This is at the Bernabeu, remember. So being down to 10 men made things harder for Madrid, but they had already been chasing shadows for an hour.

And what about the goals? 0-1 happened because Marcelo fell on his arse, Afellay got a good cross in, and Messi left his marker (Alonso) standing and also beat Ramos to the ball. 10 men? Irrelevant.

Goal number 2 - Messi beats six men and slips the ball past the goalkeeper. It looked like he could have beaten another defender if he'd had to.

What Mourinho should really be complaining about is the fact he can't sign Messi.

Monday, April 25, 2011

Social mobility

The FT announces that being white and poor leads to worse educational attainment than being black. Important and interesting research. I would quibble with the interpretation though. The FT article explains that

The figures highlight the challenge facing the coalition, which has identified social mobility as one of its top concerns. Earlier this month, the government published a “social mobility strategy”, which stated that “tackling the opportunity deficit...is our guiding purpose”.

There is no evidence the coalition is serious about social mobility - and the use of the term 'opportunity deficit' gives the game away. This is about addressing the suspicion that this government has one aim only - to cut the UK budget deficit, mainly by cutting social spending. All the rest is window-dressing.

Wednesday, April 20, 2011

Town and country

Enjoying the more relaxed atmosphere of the Easter break, I've been fiddling around with election data from 2010 (fun, I'm sure you'll agree). What's quite striking about the way people vote in Britain these days is that although the old cleavage of social class (measured through occupation) seems to have declined in importance as a predictor of the vote, where voters live seems to have grown in importance. This is pretty interesting because the electoral studies literature has tended to stress various 'issue' and 'valence' models of voting in which individual level preferences and perceptions of policies and leaders are more important that socio-structural variables (see various links here for instance).

The British Election Study seems to focus on 'nationalized' politics, yet even the most cursory look at the data suggests that politics is playing out in deeply different ways across the country. For a start, the Conservatives - the ruling party, albeit in coalition - are barely represented in Scotland. Second, the Conservatives also win barely any seats in any major city outside London. A quick and dirty regression on English data alone tells me that just two variables - region, and the urban-rural classification of the constituency, explains 43% of the Conservative vote share at the constituency level (my guess is that increases a lot once we include Scotland, which I haven't entered the data for yet). Labour are a little less regionalized, but the two variable model still explains 34% of the variation. The Liberal Democrats, perhaps not surprisingly, present a more mixed picture (16% of variation explained).

So, class voting may be dead in the strictest sense, but we still know a lot about a voter by knowing which region they live in, and whether they live in a city, a town or suburb, or in a rural area. I don't know how much of this is an indirect measure of class (some of it must be), but my guess is that this indicates a high degree of endogeneity of the kinds of preferences that the 'valence' models use to predict the vote.

Politically, this is a big deal, since a coalition largely representing the wealthy South and suburban and rural Britain is slashing public spending in Northern urban areas with weak private sectors. I don't think this can end well.

Monday, April 18, 2011

Spain's turn to be the pinata

Hard to disagree with anything in this article by Tony Barber in the FT. The Eurozone bailouts allow Germany to pretend that it's all about the irresponsibility of those volatile Mediterranean types, who didn't make hay while the sun shone. The vulnerability of the Germans' own banks in all this is hidden from view, although it won't be for much longer if the markets ramp up the pressure on Spain, of which there are early signs already.

Spain is already heading towards bailout - nobody ever succeeds in staving off the vigilantes once they start to move. But moralistic Northern Europeans should remember the key thing about trade imbalances - that my deficit is your surplus. Sure, you can say that the Eurozone periphery was irresponsible in the mid-2000s - after all, wasn't it obvious that you needed to run a double-digit budget surplus just in case you couldn't sell all those new homes (irony warning)? But if Athens and Madrid were irresponsible, just how dumb were the staid bankers of Frankfurt to lend them the money?

Anyway, we'll see. It's just frustrating that anyone with access to a newspaper can see what's going to happen, if they care to look. Why do Spaniards, as well as the others, have to tighten their belts when it's all going to fall apart anyway? What long-term benefit is that going to bring? Or are we going to carry on pretending that a few hundred thousand extra unemployed will so impress the markets that they'll call off the chase? I guess the prospect of a €300 billion bailout is so unpalatable that policymakers simply hope that something magical will happen to make the Euro's problems disappear.

Fat chance.

Sunday, April 17, 2011

No way, Jean-Claude

The Greeks are starting to figure out that the bailout deal involves them suffering extraordinary economic pain in order to save the German and French banks who bought their over-rated debt. Of course, Northern European electorates may not want it any other way. But the reality is that the Eurozone periphery has no real option but to default, and the consequences will reach well beyond Athens, Lisbon and Dublin.

Thursday, April 14, 2011

... here all week

There's a joke going round the blogs on this. No attribution, because it's all over the place. It goes as follows:

'A public union employee, a tea party activist and a CEO are sitting at a table with a plate of a dozen cookies in the middle of it. The CEO takes 11 of the cookies, turns to the tea partier and says, "Watch out for that union guy he wants a piece of your cookie.'

My name is Jonathan and I am ...

No, I can't quite bring myself to say it. But I'm hurtling towards the constructivist camp at the moment. Why? Because nothing makes much sense to me at the moment without at least some reference to how processes are socially and intellectually constructed. This works in two ways.

First, the self-evident nonsense of large swathes of the populations most punished by the financial crisis voting for right-wing parties, whose idea financial liberalization was in the first place and who are most likely to go for punitive austerity measures (OK, this doesn't work everywhere, but it's good for most Anglo countries). It's hard to spin the line that this is the consequence of Gourevitch-style interest coalitions without at least some reference to the weird and wonderful ways in which interests are constructed.

Second, there is huge ignorance and uncertainty about the policy options available, even if we allow for some kind of rational collective behaviour on the part of the various social groups in western democracies. After all, we don't really know for sure what the results of austerity or Keynesian stimulus measures will be. However at least here we have a sense that the former can't work (that is, as long as you're not a central banker) and that the latter is clearly a better bet. But when it comes to financial reform, I am honestly not sure that anyone really knows how to sort that nest of vipers out. And yet nothing could be more important - we're not talking about the regulation of some minor consumer product, where mass ignorance is to be expected.

So we're all just guessing. And if that's the case, then what is left of interests-based explanations? I don't like cuts, I think I must be a social democrat.

I couldn't live with myself

... if I killed someone by running into them on my bike. The remorse would be tough to deal with, for sure. But strangely I'd never actually thought about how I would feel as some innocent bystander's bones were mercilessly crushed under my light but sturdy 3 cm wide Mavic wheels. Not until yesterday.

The reason I'd never thought about this is because I think it's pretty unlikely to happen, in much the same way that I don't worry much about blowing my house up when I turn the gas central heating on, or burning down my office building by leaving my computer plugged in over night.

But now, thanks to Conservative MP Andrea Leadsom, I have been jolted into examining my conscience. Leadsom concedes that

'the vast majority of people killed or seriously injured on our roads are pedestrians and cyclists hit by motorists and the penalties for dangerous or careless driving are severe and rightly so'.

She then adds

'However, very occasionally it is a cyclist that causes death or serious injury to a pedestrian and yet in this case sufficient punishment does not follow.'

OK. So cyclists are getting away Scot-free with injuring pedestrians, whilst drivers are severely punished. I guess the Rhyl Cycling Club may have something to say about that. But anyway, I'm going to be extra careful now that I don't run into the next iPod-clad pedestrian that walks out in front of me. After all, one pedestrian was killed by a cyclist back in 2009, and although none were last year, it's bound to happen again at some point and I don't want to be the cyclist responsible.

Monday, April 11, 2011

Can you hear that whirring noise?

It's Galileo spinning in his grave. The Vice President of the Consiglio Nazionale di Ricerca, Italy's state research council, opines the following:

1. That paradise really existed
2. That the Japanese tsunami was divine punishment
3. That Darwin was wrong
4. That Islam is a religion based on violence and oppression

He's said lots of other objectionable things, but these four seem to be particularly inconsistent with any commitment to the scientific method.

Dark ages here we come. Here's a petition you can sign asking for his removal.

Rhetoric and the left

Given that I've been thinking about the left's inability to use rhetoric properly, how about this:



It's probably counter-productive, but I could listen to that all day.

Saturday, April 9, 2011

Leave my head alone!

The Northern Ireland Assembly wants to make helmets compulsory for cyclists.

This policy is fiendishly clever, because it seeks to protect us from dangers that will actually increase as a result of the policy, and places those who already behave virtuously (in the view of the policymakers) in greater danger than they were before.

We know roughly three things about cycle helmets with a fair degree of certainty (there is not that much research): 


If we add a further piece of knowledge


then we get this:

The NI Assembly is placing cyclists in greater danger, although there is a small chance they will slightly better protected against this danger. As long as they didn't wear a helmet in the first place, in which case this will be less safe than they were before.

I guess as things go at the moment, this is not the gravest example of policy stupidity around at the moment, but it's still worth stopping: sign the petition here!

NB By the way, I'm a helmet wearer.

The end of the social wage

Just reading one of Krugman's multiple hatchet job posts on the Ryan fiscal plan, and an interesting point emerges.

Krugman points out, amongst the many other fantasies contained in the Ryan document, that

The Ryan plan calls for cutting the top marginal rate to 25 percent — lower than it has been at any time in the past 80 years

Why is this so unrealistic? Why should it be that taxes have by necessity to be higher now than 80 years ago?

A point Krugman makes in the next post sums up exactly why that is the case. The plan:

has as its centerpiece a Medicare plan that will collapse as soon as seniors start getting their grossly inadequate vouchers


In other words, the aging of the welfare state means that there is simply no way that spending can be cut - the political veto point of older voters sees to that. So the point is that, even if the electorate as a whole decided that it had a preference for a 'smaller state', this preference could not actually be exercised, because the existing commitments of a 'larger state' built up by previous generations cannot be reversed. Cynical politicians try to imply that the trade-off is between lower taxes and higher spending on teachers' salaries, pork-barrel projects and welfare. In fact, it's between lower taxes and healthy grandparents.

What this all means is that a smaller state costs more than voters think. Because so much of the value of the social wage is deferred into the future, voters are tempted, in hard times and with limited real growth in living standards, to go for cash in hand now, and worry about their old age later. But of course in practice that can't work, because somebody else's old age has to be paid for now.

This is what I meant by time inconsistency in the previous post. but I guess there is also a big chunk of this which is inter-generational solidarity too. This is familiar stuff of course, but the link with tax, spend and deficit debates is rarely made.

Home and away

Now to more important matters.


Hull City have just chalked up their 4th consecutive away win, 1-2 at Watford. This is truly bizarre, since their last 4 home games read: LLDL. This must be the only team in the league that has promotion form away and relegation form at home.
So this great result leaves them 10th, with an outside chance of making the playoffs. But I'm less than elated, since I'm resigned to the fact that the team's inability to perform at the Anlaby Circle (scene of my senior cricket debut, back in the day....) means there is no way they'll get promoted.


What's even more bizarre is that for most of their time in the Premiership, their away form was truly horrendous, with barely a point last season. 


You can observe their weird performance here:



MATCHES
Home
Away
Overall

 Wins
6
9
15
 Draws
7
7
14
 Defeats
7
4
11
 Winning %
30%
45%
38%
 Drawing %
35%
35%
35%
 Losing %
35%
20%
28%

(Filched from soccerstats.com)

The Crisis of the Eurozone pt.374

Nice post on Crooked Timber about the Euro crisis, and particularly the trilemma identified by Dani Rodrik: that we cannot have globalization, democracy and the nation-state all at once. Some interpret this to mean that the EU needs to become a functioning democratic state, so that there is some kind of legitimate governance arrangement to sort out the terrible mess Europe is in.

My thoughts: nice idea, but is there any historical precedent for an number of small, already democratic states, merging into a larger, also democratic one? I honestly can't think of one (although there have been attempts at a non-democratic alternative).

The problem is that the institutions that make democracy work - political parties, a free media, interest groups - are pretty hard to organize across national boundaries. And without these institutions, what is likely to happen is that politics would remain pretty technocratic and removed from the citizens, as it is now, but with a few trappings of real democracy. The very best that we could hope for is something like the US, where parties are actually fairly fragmented compared to those in Europe. But even there huge strains are developing, and Europe is unlikely to adopt the kind of labour mobility that would allow a US-style welfare state to hold over here.

I guess the best answer to Rodrik is the oldest one - that you can have globalization, democracy and the nation-state, because democratic nation-states can function within globalization. After all, nobody forced the UK or US to liberalize their financial systems so that the trade imbalances would lead to the current chaos. I admit it is asking a lot of any political system to develop the kind of sophisticated counter-cyclical policies that would have been needed to ward off disaster. But Sweden managed it.

It's always Sweden.... And of course, we can't all be Sweden. That would be dull.

Friday, April 8, 2011

Would you like a side dish with your death panel?

If only the left took rhetoric more seriously, we might not be in the mess we're in. The mess, let's remember, is even worse than it ought to be because sensible politicians like Obama or Brown have proved unable to defend sensible policies to sensible voters, who are instead taken in by crazed nonsense from the likes of the Republicans or, over here, Cameron and Osborne.

Let's illustrate with an example. 'Obamacare' was lambasted by Republicans as imposing death panels - faceless technocrats deciding what procedures would be available to people. A bit like NICE, which our strangely right-wing coalition government here immediately abolished in the midst of general indifference. Now you can have an argument about whether or not there should be more organized rationing of health care, but when you start talking about rationing as such, you've already lost the argument.

But Dean Baker, as ever, shows how it can be done. He neatly points out what the Republican reform presented this week by the apparently sensible but actually fanatical Paul Ryan really offers. The Republican claim is that


"The president’s health reform plan relies on a centralized board of technocrats to restrict choices. The Ryan plan relies on a premium support model that would allow individuals to exercise greater control over what sorts of procedures they would not be covered for."

Baker responds that


There is nothing, as in zero, in President Obama's health care plan that prevents any individual from getting any health care procedure that he or she wants to pay for. The "centralized board of technocrats" he mentions would determine the procedures that Medicare would pay for, not the procedures that individuals could receive. Obviously this will be a very serious restriction for people who cannot pay for expensive procedures on their own, but Ryan's plan does not change this situation one iota. It gives people a choice of insurance companies, each of which will rely on a board of technocrats to restrict choices.

Magnifique! So, the point is not death panels or no death panels, but a government death panel as against a choice of profit-seeking death panels. The whole question is immediately turned upside down.

What the hell are we paying our centre-left politicians for, if it is not to make appealing arguments for centre-left policies? Why can't our side wheel out the rhetoric too? After all, we have the advantage of mostly being right, or at least wrong for the right reasons - whereas conservatives are effectively campaigning ever more shamelessly to redistribute wealth from poor to rich. Can it really be so hard to find neat ways of pointing this out so that people understand what the different parties stand for?

Monday, April 4, 2011

Social democracy and time inconsistency

Back to the usual theme of what can be done to save social democracy.

One of the areas I have been pondering is demographic and labour market change. The debate about how the aging population will make pensions spending take up an increasing share of GDP and place pressure on health services has been running for a couple of decades by now. But perhaps less attention has been paid to the ways in which changing patterns of dependency affect the ability of social democratic parties to mobilize their constituencies on the basis of solidaristic appeals.

The problem here is that centre-left parties need to appeal to people on both sides of the welfare divide: those who receive benefits, and those who pay for them. Of course, this has always been the case, but what has changed is that the proportion of recipients has grown enormously. The percentage of pensioners as a share of population has more than doubled in OECD countries since 1950, from 7.1% to 17.5% (over 20% in Italy and Germany). All of this 17.5% of the population has the right to vote, so pensioners constitute an important voting bloc.

A lot of the debate around the effects of demographic change on pensions has consisted of arguments about financial sustainability. But even if we believe (as I do) that publicly funded pensions remain sustainable in these circumstances, this does not mean that it is easy to persuade the working population to pay for them. A wedge is driven between the working and non-working parts of the social democratic constituency, because working voters suffer from a degree of time inconsistency, and are probably reluctant to pay ever higher taxes in order to enjoy a pension of uncertain value in the distant future.

This problem is complicated further by the fact that parties of the right, on the whole, avoid threatening to reduce pension or healthcare provision, mindful of their votes amongst the older population. They imply that spending can be reduced by cutting down on waste, reducing immigration, and working public servants harder. On the whole, it isn't possible to cut spending seriously without cutting real pensions and health spending. But the right has cleverly manoeuvred itself into a position where it can simultaneously reassure older voters whilst implying to younger voters that taxes can be cut painlessly.

Similar points can be made about unemployment. The share of employment in the working age population in OECD countries has, contrary to what many believe, actually increased over the post-war period, from about 63% in 1970 to nearly 67% in 2008. But the distribution of that employment has changed, with a greater number of women and fewer men working, leading to a larger number of workless households (here David Willetts has a bit of a point). Here again, the right can drive a wedge between work-rich and work-poor households, since the work-rich are required to redistribute income to the work-poor, and some of the work-poor remain so structurally for very long period. However, the answer to this is to improve activation and ensure welfare policies do not discourage work which, on the whole, has been reasonably successfully achieved in some (especially Northern European) countries. Most working households do not have an interest in the dismantling of the welfare system, since many of them will need it at some point in their lives.

The problem is therefore not so much that social democracy is no longer workable, but that the social democratic constituency has increasingly deep faultlines within it. There are still common interests, but it is also easy to identify ways in which these interests appear to diverge. Social democracy has the right policies, but has a real problem communicating them, because of the time inconsistency of voters, and widespread ignorance about how the labour market actually works and how the government spends its money. Working and non-working people do have shared interests in social democratic policies, but social change has made it much easier for conservatives to imply that their interests are conflicting by making misleading arguments about public spending, and scapegoating immigrants and the unemployed.

David Willetts rests his two brains, part 2

It has been pointed out to me that Turkey and Mexico may not be appropriate comparators for the UK, so here is the chart published in the previous post, with 'new democracies' excluded.


The dispersion around the regression line is greater now so the R^2 is lower, but the broad trend remains. In particular, there are no cases in either the top right or bottom left corners: ie with very high inequality and very high female labour participation, or with very low inequality and very low female labour participation. If Willetts had a case, there surely would be.

Having said that, inequality and mobility are not exactly the same thing. A longitudinal analysis would be interesting, but cross-national work on this is diffcult, given the data limitations.

Sunday, April 3, 2011

David Willetts rests his two brains

David Willetts, the minister responsible for frightening a generation of teenagers out of the idea of going to university, has now turned his fire on women. Women are responsible for a decline in social mobility, by insisting on working and having careers. This statement has predictably generated a hail of criticism, by seeking to imply that women should forego their opportunities in the name of social mobility, and for ignoring the probably more serious effects of a range of deleterious policies and processes which have nothing at all to do with feminism.

But as well as the troubling normative stance Willetts reveals, he also has basically no evidence at all for making such a claim. Of course, the tendency of well-paid men to be increasingly likely to form families with well-paid women does increase inter-household inequality. But this effect is only important because it compounds the existing levels of inequality in the labour market. The real reason for declining social mobility is much more likely to be the increase in inequality caused by structural changes in the labour market, the decline in trade union membership, and changes to the welfare and tax systems, none of which are particularly favourable to women.

So, how likely is it that Willetts has a point? Well, let's look at the data. Comparable social mobility data is hard to come by, but we have good data on overall levels of inequality at a given point in time. If Willetts is right, we could expect to see countries where women work more having higher levels of inequality, as the women crowd men out of the decent jobs in the labour market and create a larger gap between rich and poor.

Here is what the data say:


Countries with higher levels of female labour force participation have lower inequality. Over to you, two brains.

Friday, April 1, 2011

ECB in shocking U-turn

Claude Trichet announced today that the European Central Bank would probably not be raising interest rates at its next meeting.

'With all the deflationary pressures resulting from the effects of the financial crisis on public and private balance sheets, the last thing the European economy needs is an interest rate hike to finally squeeze the last dregs of life out of it. After all, we know that inflation up to about 7% is more or less harmless to economic performance  - why should we bankrupt the periphery and bring down the German banking system just to keep it below 2%?'

Trichet also added 'the European Central Bank is here to serve the people, not a narrow clique of bankers and blinkered technocrats' and suggested 'regulating financial markets so that we don't get another financial crisis 5 years down the line'. He went on to say 'I know the bankers will protest, but I think it's our duty as policymakers to put the public interest first'.

In a similarly surprising move, UK Prime Minister David Cameron announced today that reducing the deficit would no longer be his government's main policy priority. 'Putting people back to work and protecting vital services is much more important than protecting the balance sheets of big banks' he said.



N.B. Any reference to living persons in this post is purely coincidental.