Saturday, October 31, 2009

Brown and out, pt.2

Here's a short piece on the financial meltdown in the UK, for Il Mulino:

From Blair to Brown, From Boom to Bust: Britain’s Economic Crisis and its Political Consequences

One of the first signs of something dangerous brewing in the world financial system came in the United Kingdom, in the late summer of 2007. A small regional bank, Northern Rock, requested liquidity support from the Bank of England, a clear sign of financial difficulty. The immediate response was panic: the bank’s shares collapsed and depositors rushed to withdraw their savings, leading to scenes reminiscent of Mary Poppins as desperate account-holders queued in the street outside Northern Rock branches. This was the first run on a bank in the UK since the 19th century, and a huge embarrassment for a country whose economy has revolved around the financial sector in recent decades. By the second quarter of 2008 Britain had entered what is proving to be the longest recession since the 1930s.

Wednesday, October 28, 2009

Sunday, October 25, 2009

A stimulus for bankers

Gillian Tett has an interesting and depressing piece in the FT - the idea is that the cheap money, intended to raise lending and therefore productive activity, is simply being exploited by banks to engage in hyper-leveraged trading. In other words, back to what they were doing before the crisis, minus the kind of 'main street' lending which an economic recovery relies on.
Added to the persistence of the bonus culture, it points towards a huge flaw in the recovery strategy - by focusing on throwing cheap money at the banks, it makes the whole economy entirely dependent on the banks playing ball. And why on earth would they do that if they can avoid it? Any chance of moral pressure on them to use their public subsidies to create public goods is undermined by the weakness of the government. They also have the excuse of rebuilding their capital base to duck their obligations to the wider economy.
So, maybe old-fashioned socialism is not such a bad idea after all - we could have nationalized the banks and forced them to use their public subsidies to help the real economy. And into the bargain, the stimulus spending should have been left to the government, not the market - we need public works, not a VAT cut (as anyone who uses public transport can see).
Yet another nail (intellectually, if not politically) in the coffin of neoliberalism.

Football-free zone

Hull City 0 Portsmouth 0
Only saw the highlights, and the BBC put on around 30 seconds of the first half, which must have been awful. Portsmouth should have won really, but missed a couple of gilt-edged chances. City created nothing at all. At least they kept a clean sheet, thanks to the now-injured Boaz Myhill. Gardner came back but looked very shaky. Bullard injured again - any hope of survival seems to rest on him.

Thursday, October 22, 2009

Nobody likes a smartipants 2

The new 'Freakonomics' book is barely out, and already suffering what my colleague and fellow blogger Bob Hancke calls 'second album syndrome'. The blogosphere has already shredded Levitt and Dubner's contrarian chapter on 'global cooling' (not quite what it sounds) and the book was only published a day or two ago.
I'm more inclined to be skeptical this time around, especially after having read John DiNardo's critique of Levitt's econometrics in the first book. Abortion cutting crime with a 16 year lag and so on are such great stories you want to believe them, but in the end social science is nearly always a precarious form of knowledge, and it's worth remembering that as we chuckle our way through volume two.
Of course, this time around Freakonomics is also up against something else - the widespread perception over the past year that the economics profession has failed us (expressed most cogently by HM the Queen at LSE). This point was also made more rudely and amusingly by a blogging economist:

When future generations ask the economics profession 'What were you doing while the great bubble built up ahead of the Second Great Depression?', and we have to reply 'Lots and lots of quirky little working papers about sumo wrestling and speed-dating', it is going to be really, really, ****ing embarrassing"
(courtesy of D-squared Digest)

Back to adversity again

Fulham 2 Hull City 0

Although Fulham only really had 2 chances (and the first goal was offside), you had the feeling they could have found another goal had they needed one.
Back to the drawing board - in particularly, we need two new full backs. Both Dawson and MacShane are very shaky at this level.

Monday, October 12, 2009

The crisis of the left, Part 267

An enjoyable interview for Politics Daily with Delia Lloyd, in which I offer my take on the current weakness of the left in the middle of the worst capitalist crisis since 1929:

Friday, October 9, 2009

David Cameron: Or how to give a major political speech in 2009 Britain without mentioning banks

I just read the full text of the speech given by the likely future Prime Minister, which you can find here.

There are two ways to interpret this speech.

1. We've got no real plans about anything, so we're just going to talk about all the things wrong with the country, and offer some irrelevant gimmicks as solutions, hoping that people will either not notice or will not care, in their relief at seeing the back of Gordon Brown.

2. There is a plan, but we don't want to tell you what it is, because you won't like it. But for those who can read between the lines, the plan is: cut government back. A lot.

The evidence for 2. is the following passage, which rather surreally blames excessive government spending for the current recession:

"we won't help anyone unless we face up to some big problems. The highest budget deficit since the war. The deepest recession since the war. Social breakdown; political disillusionment. Big problems for the next government to address.
And here is the big argument in British politics today, put plainly and simply. Labour say that to solve the country's problems, we need more government.
Don't they see? It is more government that got us into this mess.
Why is our economy broken? Not just because Labour wrongly thought they'd abolished boom and bust. But because government got too big, spent too much and doubled the national debt.
Why is our society broken? Because government got too big, did too much and undermined responsibility."

So, the collapse of the banking system has nothing to do with the recession, except to the extent that it is Gordon Brown's fault for creating the Financial Services Authority. And the doubling of national debt is not the result of bailing out the banks, but because of too much government spending on Regional Development Agencies and NHS computers.

This is a gigantic intellectual fraud, but it could well work. After all, the banks' detritus is now on the government's books, so the financial blackhole the banks created can now become government's fault.  And what better way to deal with the debt which is now on the government's books then cutting the kind of government spending Conservatives don't like?

Tuesday, October 6, 2009

The Left and (the futility of) electoral reform

My Compass thinkpiece, which uses Iversen and Soskice's theory of class coalitions under different electoral systems to advocate PR in the UK, is now published here (I'm down as Jonathon Hopkins).

Just in time for Iversen and Soskice to publish a piece arguing that PR and redistribution are in fact spuriously correlated (click here for link). In this latest article, the root cause of both are economic institutions in the 19th century which entrenched business-labour cooperation (guilds etc). If they're right, my advocacy of PR comes over a century too late.

Saturday, October 3, 2009

Brown: triumph in the face of adversity

No, not that Brown.

Yes, it's Hull City 2, Wigan Athletic 1.
The turning point of the Tigers' lousy 2009 was clearly this:

Majorities and inequality

Back to the electoral reform and the left debate....
Ever since the Persson/Tabellini and Iversen/Soskice contributions, the link between PR and redistribution and public sector size has been established as a strong one. The data is quite strong, with a consistent effect being empirically observed. The theory is not bad either - Iversen and Soskice provide a quite plausible theoretical account about voter and party behaviour which fits the data quite well. But still I'm not comfortable with this argument, probably because instead of looking at the formal models and econometric results, I stubbornly try to run the theory past individual country cases I know quite well. The PR=redistribution result works fine until you look at the history of government spending, redistribution and electoral politics in any real case.

My first problem with it is that it implies the following counterfactual: the United States would probably have generous public spending and a large welfare state if it had adopted PR (or, alternatively, Sweden would have a small state and low taxes if it had adopted majoritarian rules). Do we really buy this? Is the effect of the electoral rules so strong as to reverse (probabilistically of course) the positions of these two polar cases on the redistribution spectrum? It seems a little implausible - surely things are going on that are strong enough to counteract the effect of electoral rules. And probably, these things are also likely causes of electoral rules, a familiar objection to their arguments.

My second issue with it is that we do have cases of electoral regime change, and it doesn't seem obvious that these changes change the nature of the politics of redistribution, eg in 1960s France or 1990s Italy. Of which more in later posts. Presumably if the effect of electoral rules is so strong, then changing them is bound to change something, unless the effect is circumscribed to key historical periods in which the long-term patterns of redistribution are up for grabs.

My third issue is with the theory. Iversen and Soskice show how under majoritarianism, there is a credible commitments problem undermining the centre-left coalition which will need to form pre-electorally to promote redistribution. This is all well and good if the effect of majoritarianism takes place at the party system level. But, of course, we know it doesn't. Duverger's law is only logically valid at the constituency level, as Gary Cox and Chibber and Kollman have shown. And majoritarian polities have large numbers of constituencies, with diverse class structures. Where does that leave the coalition formation logic? I'm not sure, but it has to change something.

A clue as to what might be missing from this debate comes from Rogowski's interesting papers on the effect of majoritarianism on market liberalization (the basic logic being that majoritarian parties need to produce public goods to win majority support, and therefore sectional interests have less ability to hijack policy-making). But patterns of market liberalization appear very path-dependent, and tied also to legal and religious traditions. So what causes liberal markets - electoral rules, or common law legal systems and the Protestant religion? Should be possible to test this, since electoral rules come after the latter two. 

So the upshot of all this is, although I've been arguing recently that Labour should go for PR as a well of saving its skin and promoting redistribution, all the above considerations make me doubt my own reasoning. More soon.