Monday, February 28, 2011

Bring back the unions

Matthew Iglesias cites a paper estimating the impact of union decline on the norm of acceptability of inequality. This is fascinating stuff, and picks up on a point made tentatively by Krugman a while back - market forces, globalization, welfare retrenchment and so on are not the only reasons for growing inequality. It matters that inequality has become more socially acceptable, and the role of unions is sustaining norms of 'fair shares' in the past was important. Time to grow the unions again!

Interestingly, today Ed Miliband launched a consultation exercise to investigate how the 'squeezed middle' could be defended from falling living standards. The Guardian headlined it by pointing out that the superrich have gained a large chunk of income gains over the past 25 years. No-one mentioned the decline of unions in this process, and my guess is Miliband will avoid the subject like the plague. Electorally he may be right, but it's hard to imagine an egalitarian society without unions that are a lot stronger than in the UK.

Saturday, February 26, 2011

Gordon Brown's spending spree: The evidence is clear

OECD figures for 1970-2007, General Government Expenditure as a % of GDP (for explanation and data see here):

No wonder Britain is staggering under the weight of its national debt - the year before the financial crisis UK government spending was almost as high as it had been under that well-known spendthrift Margaret Thatcher.

I wonder what proportion of the British population is aware that government spent a greater proportion of GDP in the Golden Age of Margaret Thatcher (1980-86) than it did in the year before the financial crisis? In 1981, government spending was over 49% of GDP, higher than now. Did anyone talk about Margaret Thatcher's spending spree?

As the saying goes, you can have your own opinion, but you can't have your own facts.

Another one bites the dust

The Irish election, predictably, has brought the humiliation of Fianna Fail, down to just 15% of the vote, and a likely centre-left coalition between Fine Gael and Labour. Not surprisingly, given the almighty mess that the government made of handling the financial crisis.

So far, no government in any democracy that I can think of has actually won straight reelection since 2008. Germany had continuity in the Chancellorship, but the coalition changed radically, with the Social Democrats taking the punishment; in the Netherlands the CDA hung onto some government power but lost half of its parliamentary seats (leader and former PM Balkenende resigned). Long-standing incumbents - Labour in the UK, Bush in the US, the Independence party in Iceland - have all been defeated at least in part by the consequences of the collapse of liberalized finance. In Belgium there isn't even a government. We await elections in France, Italy and Spain - incumbent defeat is a near certainty in the latter.

It is predictable that voters punish incumbents when things are going badly. However, the scale of the punishment is unusual, because things are going unusually badly. We know that political parties are weaker than they used to be, and that electoral politics is getting more volatile - this was the case even before 2008. There are prospects now for major changes in democratic party systems - quite what form they will take is difficult to say. But it seems a good bet that parties protesting against the establishment are likely to do well, since most mainstream opposition parties had pretty much signed up to the economic orthodoxy that led to disaster.

Friday, February 25, 2011

Taxes, spending, deficits

A lot of my favourite bloggers in the US are going crazy over the absurd debate on the budget deficit over there. Republicans - who are within days of shutting down the federal government, again - have managed to convince many people that they are the ones who want to cut the deficit, when in fact their proposals would increase it.

How do the Reps get away with it? I think part of the answer lies in the inability of most citizens to understand the very basic concepts of fiscal policy, particularly that deficits = spending - taxes. As a result of many voters' failure to get their heads around that admittedly difficult equation, sloganeering along the lines that deficits = spending get a grip on our public debate. So, the Republicans argue for tax cuts, which increase the deficit, and then justify the spending cuts -  a trick they have been successfully playing for 30 years. Here in the UK, we have similar problems. Mervyn King - an increasingly partisan independent central banker - and the Lib-Con coalition have managed to firmly entrench in voters' minds that the deficit is solely a question of spending.

Academics are no better - the number of books and papers on government spending clearly outstrips those on taxation, at least in political science. Why is it that we only focus on that side of the ledger? Psychology may give us part of an answer, particularly in this period of pressure on spending and slow growth in living standards (I'm talking about the last 30 years here, by the way, not just the crisis). The fact is that tax rises are keenly felt when growth is slow, and spending, of course, is difficult to reduce, because people don't like to lose what they think they have. Moreover, spending may often be on public goods, but the taxation is very much on private income, so the temptation to free ride is strong. The successful politician will be the one who appears to provide public goods for free.

Hence the nature of the debate revolving around spending cuts, rather than increases in taxation. But if the left gives up on the taxation argument, it will always be under pressure. An effort needs to be made to persuade people that taxation matters, and that the median voter pays less in tax than they get in benefits. Easier said than done, but some research on how we get median voters to accept higher taxation is a matter of urgency for the progressive agenda.

Thursday, February 24, 2011

If not now, when? Pt 2

Other amazing stuff happening at the moment...

If not now, when?

These are exciting times, with popular revolts not only toppling brutal dictatorships in North Africa, but also mobilizing people in established democracies who are fed up with being pushed around by arrogant elites. Obviously Berlusconi in Italy and Walker in Wisconsin are not exactly up there with Gheddafi and Mubarak, but there seems to be a feeling in many places that people are not being listening to and their interests are not being looked after by political leaders. Could this be the beginning of a wave of mobilizations similar to what we saw between the mid-1960s and the late 1970s?

One thing that is becoming fairly clear here is that political science has been caught on the hop in pretty much the same way economics was humbled by the 2008- crisis. Nobody I'm aware of was predicting popular revolts in the Arab world, and my guess is that our discipline was just as surprised by all this as Ben Ali, Gheddafi and Mubarak evidently were.

Why are we so useless? Well, in part because social science is aspiring to achieve the impossible - predicting the behaviour of human beings who have free will and whose ideas about the world change as a result of experience and new knowledge. Physics doesn't have to cope with reflexive stars.

But in part it's also because of the way our disciplines have developed. Despite the institutionalist turn in political science, and more restrictively in economics, we still don't really understand collective behaviour very well. Political science has turned its back on the empirical problem of how interests are articulated, instead dedicating itself more and more to developing models based on absurdly crude assumptions about social structures (see for example Acemoglu and Robinson or Boix's work on democratization, which entirely ignores the problem of group formation). So we have nice theories about what happens if we have a society divided into three discrete class groups, distinguishable only by their material well-being, but we don't know why societies divide up in this or other ways, or indeed how the interests of these class groups are interpreted by their leaders, or how they get mobilized.

So, the cutting edge is missing the point. What should we do instead? Go back to Schattschneider, Dahl, Lipset and Rokkan and develop new theories and empirical accounts of how people identify with each other, mobilize, and organize. There is plenty of work in this tradition out there, but it's about time it got the status the 'politics in a social vacuum' guys get.

Just a thought.

Saturday, February 19, 2011

Bankers quake with fear...

... according to the FT, which runs the terrifying headline '"Banker bashing"' returns as activists focus on Barclays'.

It seems that after making billions of pounds in profit, avoiding billions in tax, while drawing on the largesse of the Bank of England, as well as playing a big part in the free-for-all that led to the near-collapse of the British and global economies, Barclays is being targeted by a brutal campaign of protest. UK Uncut are going to take some books into a London branch of Barclays, and turn it into a pretend library, to highlight the mismatch between the banks enormous barely taxed profits, and the swingeing cuts of public services resulting from the financial crisis.

The FT is a great rag, but I can't help thinking that 'ordinary citizens' peaceful expressions of disapproval of banks' outrageous behaviour' would be a more appropriate description than 'banker bashing'...

Berlusconi: at least my foreign policy is a success

Thursday, February 17, 2011

Running to stand still

Emmanuel Saez of UC Berkeley, who has done some of the most important work recently on historical patterns of earnings inequality, has a wonderful (although deeply depressing) interactive chart which shows the proportions of total earnings growth going to different income groups in America since the First World War. The chart is here and you can play around with it to find where income growth went in various periods. The most astonishing thing I discovered there is that between 2002 and 2008, average incomes in the US went up by $2,388, but that none - literally none - of that growth went to average Americans (on average, of course!). In other words, as Saez's chart bleakly announces, in 2002-8 'all growth went to the richest 10%' and 'income for the bottom 90% declined'.

What I'm finding is that the more you look at income distribution in the US (and to a degree in the UK the patterns are similar), the more dramatic the inequity of it all becomes. I've been ranting on about this for a while now on this blog, but the harsh reality of economic growth passing the vast majority of Americans by even before the crisis is still shocking.

the £90 billion welfare bill

David Cameron today announces action to cut our £90 billion welfare bill, complaining about the way in which it encourages 'dependency' (where have we heard that before) and doesn't 'make work pay'. Within this debate, the £90 billion cost of 'welfare' is waved around enthusiastically. The implication, of course, is that £90 billion is being spent on Waynes and Waynettas who don't want to work and prefer to live a life of indolence at our expense.

But what lies behind that number? Here is a bit more detail, courtesy of a link here.

First, £90 billion is a lot of money, of course, but in the context of government spending of over £700 billion it is by no means the biggest drain on the government budget: that is of course the NHS, which no-one these days dares to challenge. So we are talking here of a number which amounts to a bit more than 5% of GDP.

Second, 'welfare' is not just unemployed people of working age. The £90 billion includes child benefit, which everyone gets (although now, of course, higher rate taxpayers will lose it), and which is actually the second biggest share of the bill at £11 billion. How many of these children are undeserving?

Anyway, moving on, the next biggest chunk is tax credits (£23 billion), which are allocated to people working, and is in fact central to the last governments 'welfare to work' strategy. Cutting that figure would certainly save a lot of money, at least until you consider that it would push many people who are currently working back onto the unemployment register.

So, that is £34 billion already. What about the other £50-odd billion? The next biggest item is Housing Benefit, a colossal £14 billion. Some of this goes to the 'undeserving poor' I suppose, some of it goes to the 'deserving poor' - pensioners, the disabled, the involuntarily unemployed, carers. And, of course, all of it goes to private landlords who get rich providing this housing.

£7-8 billion goes on disability benefit. This is a large amount, and there is some evidence that disability allowances are higher in areas of high unemployment, suggesting that not all recipients are genuinely physically incapable of working. However, many recipients clearly are. Choosing between them is not easy.

Jobseekers' allowance and income support - what are generally regarded as 'the dole' - amount to 3.7 and 7.5 billion respectively. So cutting off all unemployment support would save about £10 billion, which is a bit more than 0.5% of GDP. My fear is that people think that £90 billion of 'welfare', is going on unemployment benefit - in fact the true number is a ninth of that sum.

I could go on, but you get the point. Look down the list and you see a number of items that are not obviously wasteful - statutory maternity leave, industrial injuries benefits - none of which amount to much more than a billion quid each. You can cut the welfare bill, but not by much, and not without creating real hardship. As we will see.

How on earth did that happen?

Arsenal 2 Barcelona 1

I don't think I've ever seen a side comprehensively not only dominate, but humiliate another for 80 minutes and then actually lose. But that's what happened last night at the Emirates, where Barcelona lazily threw away what should have been a comfortable victory. Congratulations to Arsenal for not giving up, but Barcelona made them look like Sunday morning hoofers.

Wednesday, February 16, 2011

Finalmente la sinistra...

(For Italian-speakers only, I'm afraid) 
Nichi Vendola, leader of the main left party in Italy (Sinistra e liberta'), has come up with the clearest plan of action I've heard from the centre-left (full article here):

"Dobbiamo cacciare una classe dirigente di amici e sodali di dittatori, mafiosi, ruffiani, una corte dei miracoli segnata dall'antropologia dei lelemora e dei fabrizicorona. Dobbiamo congedarci da un enclave di affaristi che ha calcato la scena pubblica confondendola con il Bagaglino".
"Per ridare all'Italia l'ossigeno che il berlusconismo le ha tolto urge rimuovere le macerie della Seconda repubblica. Ma se è genuino questo allarme bisogna evitare le inopinate aperture di credito a quei leghisti che sono un elemento centrale del degrado civile del Paese. Facciamo allora un coalizione di emergenza democratica, reclutiamo le migliore competenze giuridiche e occupiamoci delle cose fondamentali: legge elettorale, una buona norma sul conflitto d'interessi e sul sistema informativo. Poi, ognuno per la sua strada". 

He proposes Rosy Bindi as candidate to lead a broad centre and left coalition to kick out Berlusconi. A great choice, because as a progressive Catholic and a woman, she appeals to a very broad audience of voters outraged by the old crook's behaviour, from left to right.

Will it happen? It would need courage and a sense of self-sacrifice from the old guard of the PD... Good luck with that.

Another good day for Berlusconi

The Guardian reports: 

Milan drag the aristocracy into the gutter and shame San Siro

Once a champion, now a sad relic. 

Tuesday, February 15, 2011

Berlusconi: some moderate and reasonable comments

The irony of Berlusconi's current travails is that the accusations levelled at him are rather less serious than some of those he has faced in the past. Most of his many previous brushes with justice have involved accusations of bribery, corruption, tax evasion, and false accounting. These offences are much harder to prove than the rather simple criminal charges in this case: anybody with any skill in the field of corruption - and Berlusconi is clearly a master - can cover up the traces of their involvement in a variety of ways, so that absolute proof is almost impossible. In Italy's legal system, a good lawyer can find a variety of ways of casting doubt on verdicts so that they are either overturned on appeal, or the proceedings drag on for so long that the statute of limitations (or in some cases, changes in legislation passed by Berlusconi's party) get the accused off the hook.

Here, instead, the matter is quite simple. Berlusconi paid for sex with an underage prostitute, and when she was arrested for another offence, he rang the police responsible telling them to release her because she was Hosni Muburak's niece (no irony there). The prosecuting magistrates have booked a quick trial on the grounds that the proof is so evident that there is no need for full committal proceedings. Maybe this time they'll get him - although no doubt Ghedini and the rest of Berlusconi's legal team (who are also MPs on his ticket) are thinking of subtle ways of challenging the charges (one of which is, apparently, questioning the girl's true age).

Now however revolting the accusations may be on moral grounds, there is a strong case that this particular offence is the least damaging of all the ones of which Berlusconi is accused. After all, damage here is limited to just a few individuals (although there are others, but no charges have been brought so far), whereas the various financial and political corruption scandals Berlusconi has been involved with previously wrought vast harm on the Italian political and economic system. This is not to underestimate how gross it is to exploit underage women in that way, but here the harm is essentially private, whereas as in many of the other cases, third parties were harmed in very obvious ways.

So, the irony is that Berlusconi seems most likely to fall on the least egregious of his multitude of sins (although that's clearly a matter of opinion). Having proved impossible to pin him down for colossal abuses of political and economic power and subversion of the legal process, Berlusconi may end up falling over a less serious crime.

Where have we seen that before?

If not now, when?

So Berlusconi faces trial. If anything can topple him, this can, but let's remember that he's a veteran of legal action, has an excellent legal team, a bunch of TV stations to pile pressure on the judges, and no serious rival for his job. So, it may be the beginning of the end, but more likely it's the end of the beginning...

Friday, February 11, 2011

Football philosophy

No, not this....

...this: interview with Xavi in the Guardian. Read and learn more about football than 2000 years of conversation with Alan Hansen, Alan Shearer or Andy Gray.

Don't know

How likely is it that answering 'don't know' to a polling question might be a sign of intelligence and political motivation?... this neat article about 'either/or' polling questions in the US suggests precisely that. More importantly, it suggests that voters are likely to shape their views - at least in opinion polls asking them to choose between a constrained range of options - by following partisan cues.

So far so good. But if these polls tell us anything about real voter behaviour, it suggests that party positions then become important in structuring public opinion. And given that, according to the polls discussed by Greg Marx, voters are evenly split on the option of freezing or cutting federal spending, the fact that parties are not offering increases in federal spending implies that voters don't want it.

Now obviously poll responses are not the only information we need to look at in order to understand voting behaviour, but in many political systems party leaders' decisions to adopt particular policies effectively constrain what people can vote for. Which makes the increasing similarity of partisan positions on economic policy issues all the more troubling. If no-one offers increased spending, you can't vote for it. So much for the popular will.

The end of British multipartism?

YouGov gives Labour a 9 point lead in the polls: Labour 44, Conservatives 35, Lib Dems 10%. So Labour is only one point behind the coalition parties together.

The fun thing about all this is that after 30 years of Britain drifting toward multiparty government, the first experience of a coalition has led voters to relocate themselves in the two opposed party camps, just like in the glory days of the two-party system. Whether of not this will persist is anybody's guess. But the electoral risks to the Lib Dems are high, and the success of the Lib Dems since the early 1970s is the main reason the UK has been looking more like a multiparty system. If Clegg wrecks the Lib Dems as a vehicle for voter discontent with the establishment, that will be a big deal.

Wednesday, February 9, 2011

Coalition politics

Just in case we'd forgotten, Britain currently has a coalition government. The supine attitude of leading Lib Dems - with the brief, soon ended exception of Saint Vince of Cable - has been challenged by Lord Oakeshott, who has quit his position as Treasury spokesman in the Lords over bankers' bonuses. Could be the first sign of serious unease in the Lib Dem camp, could be nothing. We'll see.

Tuesday, February 8, 2011

Monday, February 7, 2011

Rêver un impossible rêve: Scunthorpe Utd 1 Hull City 5

Haven't been posting about football much, since Hull City's relegation from the Premiership. But the Tigers have lost only once in 15 games, are unbeaten away, and clobbered local rivals Scunny on Saturday. My first ever away game as a City fan was at Scunthorpe, where a triumphal march to promotion from the third division was rudely and fatally interrupted by a 2-0 defeat. This result suggests Nigel Pearson's clear-out of the Augean stables - practically paying Ipswich to take on Jimmy Bullard for instance - is doing the trick. Too late for promotion, probably, but if Jacques Brel were still around and had any interest in football, or indeed had ever heard of Hull, he would probably sing this:

What the Economist lacks

The Economist drives me nuts. This week, beside the lead story, Egypt, the magazine headlines 'Why Germany is so successful'. This is a change from the usual 'Why Germany is not growing' stories that we became accustomed to whilst Britain was booming on the back of house price inflation and public expenditure growth.

But, naturally, the explanation for Germany's success largely ignores the real story: that Germany did not embrace the Anglo-Saxon model (despite the Economist's exhortations) and maintained an industrial model based on worker involvement in company decision-making, relatively coordinated wage bargaining, and long-term investment in skills and fixed capital. Along with (union-agreed) pay restraint, limited consumer credit growth and silly old-fashioned ideas about making high quality products, this put Germany in pole position once the Anglo model tanked.

The Economist does not entirely forget the diagnosis for Germany's ills that it trumpeted for years. So we learn that 'traditional German virtue is more effective thanks to liberalizing reforms of recent years', such as the Hartz reforms that increased labour market flexibility and conditionality in welfare payments, and rules undermining German companies' 'cosy' cross-ownership arrangements.

The problem with this argument is: why place the emphasis on the liberalizing changes, rather than what didn't change (despite two decades of external pressure to reform everything)? How do we know that the Hartz reforms are more important than Germany's rather generous welfare arrangements and employment protection, which encouraged the development of high levels of specific skills? How do we know that the liberalization of cross-ownership is more beneficial than the institutional arrangements which cushion German companies from short-term capital volatility, allowing patient, long-term investment to pay dividends in increased productivity?

We don't. It could just as easily be that the German model was working all along, but it took the collapse of the Anglo model to reveal it.

Sunday, February 6, 2011

Go easy on the math

Very, very interesting stuff here about the limitations of modern macroeconomics for making sense of the current situation. Ricardo Caballero of MIT has written a paper (thanks to Amol Agrawal for the flag) which essentially argues that modern macro is incapable of grasping what is going on, and that contact needs to be made with reality.

Fresh from taking part in a public debate on the UK spending cuts at LSE, I read this with interest, and wished I'd read it before Friday. I argued that the high degree of uncertainty facing us meant that political actors grasp hold of models in order to make sense of the world, and it is these models which drive their behaviour as much as the likely real consequences of doing so (sounds like a hermaneutic circle...). I didn't push the first part of the argument too much, given the high-powered economics brains I was up against, but at least there are some people in the economics profession itself making these points (most notably, with qualifications, Krugman).

What worries me about economics is that, if pushed, most sensible scholars will retreat to the position that the models are crude appromixations of reality, yet often the impressive mathematical precision of the models lends them an authority and apparent reliability that leads people to place way too much faith in their predictions.

As a humble political scientist, there is nothing I can do about this, except insist on the point that policy emerges from a political process, and that models are part of that process, rather than an adequate explanation for it. People hanker after prediction, and a non-predictive science offers little comfort. But still, there has got to be some point in reminding ourselves that we don't really know what the effects of policy are going to be, and that the resulting caution must be all the stronger when policy will predictably harm people.

Bang goes the neighbourhood

Thanks to the English Defence League for reminding us about the alternatives to multiculturalism. Is this what David Cameron meant by hugging a hoodie?