Monday, May 30, 2011

Berlusconi discovers limits

... to Italy's patience. After winning elections for years despite a long list of judicial proceedings and dubious friends, Berlusconi has finally found out how to alienate his electorate: by engaging in sex parties with underage girls in the middle of a deep economic crisis. Berlusconi's party has lost Milan, the jewel in their crown, as well failing to recover Naples (whose centre-left administration, lets remember, filled the city with piles of stinking rubbish), Turin or Bologna. Milan is a very big deal, since Letizia Moratti (sister of the Inter Milan president) lorded it over the city for over a decade, with little opposition.

It's probably not the end, but it looks like the beginning of the end. And when Italians turn against their leaders, things can happened quickly, as Bettino Craxi - who never made it home from his holidays - found out. The parallels with Craxi are enticing - boss of Milan, at the heart of an intricate network of corrupt exchange, prime minister for a record length of time (in the 1980s) - Craxi's empire fell apart in the space of weeks in 1992 after Milanese prosecutors started investigating allegations of bribery in a care home. The same care home was the subject of investigations, once again, a few months ago. Sign the winds are changing once again?

Greece, again

Greece set for severe bail-out conditions, according to the FT.

Well, that should work.

Thursday, May 26, 2011

Funniest protest slogan of the week

Nothing going on but the rent

Which in DSK's case, is $200,000 a month. Yes, a monthly rate about the size of my 25-year mortgage. These people inhabit a different world, and in this different world, you can grope whoever you want and get away with it. Usually.

Dean Baker makes the excellent point that it's thanks to unions that DSK's alleged victim was free to report him to her bosses. Weren't unions supposed to be obsolete? Without wanting to read too much into all this, the DSK case could be a parable for our times. When we are isolated individuals, the powerful get more powerful. When we are protected by collective action, the powerful have got to watch out.

Wednesday, May 25, 2011

Twitter revolution?

We live in strange times. On the one hand, the rich and powerful appear untouchable, able to twist political decision-making at their whim, hide their wealth from taxation, bully opposition into submission.

At the same time, technology is opening up surprising fissures in this edifice. Two examples, from the world of football (OK, not quite the Koch brothers, but bear with me). First, the notorious Ryan ****s case, demonstrating the futility of a super-injunction in these information-rich times. Interestingly, the same happened with Fred Goodwin, a more interesting target (see here). The neat thing about these cases is that although the motives of the injunction, at least in ****s' case, were understandable, the backlash against reporting restrictions did not come from the powerful tabloid press, but from the anarchy of the twittersphere.

Next example: the notorious bully Alex Ferguson got caught out by the amazing recent advances in microphone technology. Even his sottovoce whisper to his media assistant - along the lines of 'sort that rude journalist out' - got picked up and circulated, much like in the Gordon Brown case last year. Here there is no obvious justification for Fergie's behaviour, but it's interesting that the dark arts of media manipulation that he's mastered over the years didn't prevent him being revealed for what he is: an old-fashioned bully.

So, the rich and powerful are rich and powerful as never before, and we're not doing a very good job of reining them in. But new technologies are also making it harder than ever before for them to keep bad publicity under wraps. I guess we should be thankful for small mercies.

We're not spending enough...

... to stop unemployment rising and growth slumping.

So says the OECD.

And what's the answer?

Why, higher interest rates of course. Geddit?

Musical chairs

The Guardian Educational Supplement has a piece on its front page about internships, which everyone is getting very exercised about these days. Graduates leverage family connections to get unpaid work experience in prestigious firms and organizations, thus giving themselves a head start in the race for the top jobs.

A similar article a few days ago told of the high levels of stress suffered by teenagers aware that only top marks - As and A*s - in their A levels which get them a place at the best universities.

All of this is symptomatic of a shift that has taken place at the top of the British income distribution. Whilst graduates on the whole have good job prospects, the range of outcomes in income terms has grown wider, as top incomes have soared. Once upon a time, graduate-level jobs would deliver fairly similar incomes, but as the gap between the super-rich and the not quite so rich has grown bigger, the stakes in the race for the top have got higher.

In short, even the higher levels of inequality amongst the wealthy get us all stressed out, as The Spirit Level famously argues. If the difference between the top and the bottom of the graduate workforce is so large, no wonder students are increasingly scrabbling to keep near the top of the heap. If the difference in income between a teacher and banker were smaller, graduates would not have to work for free for daddy's chums after college. Getting people to understand this is tough, because of the overwhelming social and political influences of the winners in this game. But it's one more demonstration of how inequality is bad for everybody - except for the handful of big-time winners at the top.

Tuesday, May 24, 2011

On Planet Brooks, Britain has a functioning political culture

I never bother reading David Brooks, although I have noticed that bloggers I respect, like Dean Baker and Brad DeLong, tend to go apoplectic on a regular basis about Brooks' Op-Ed columns in the New York Times.

Now I understand why. David Brooks has just written a piece extolling the virtues of Britain as an example for the United States to follow, a country 'blessed with a functioning political culture'. In view of this, 'We Americans have no right to feel smug or superior' concedes Brooks.

The basis for this pathbreaking argument is an account of post-war British politics which is probably only recognizable to the Queen, Margaret Thatcher and Jim Davidson. We learn that Britain was messed up between 1945-79 (a period which saw rising living standards across the board and a flourishing British culture, despite relatively mediocre economic performance), but sorted out by Margaret Thatcher (source: a nice chap called Oliver Letwin).

In 1979, British people were 'enervated' and 'some mired in poverty' (although all the data suggest that the poverty came after 1979: UK Gini coefficient in 1979 was 0.27, now it's 0.36. But whatever).

Thankfully, Margaret Thatcher 'liberated the economy' and New Labour 'built on those gains'. Since the turning point of 1979, Britain has moved 'from a centralised, industrial-era state to a networked, postindustrial one'. David Brooks hasn't noticed the probably permanent 6-7% shrinkage in UK output since 2008, nor the abject collapse of Britain's key postindustrial activity, financial services, which caused it.

But all this is nothing compared to the constitutional analysis. Where Brooks excels is in lauding the British class system and establishment: 'Britain is also blessed with a functioning political culture. It is dominated by people who live in London and who have often known each other since prep school.'

So let's be clear about this: the key to a successful democracy is to have a closed oligarchic elite of rich school chums. Wasn't that in de Tocqueville somewhere?

Lawd help us, as we say around here.

Remember Italy?

I wouldn't normally link to anything in the Wall Street Journal, but I'll make an exception for Edward Hugh - he has a neat piece about how people are slowly remembering that Italy has a big debt problem, a useless and corrupt government, and serious competitiveness issues. He also reminds us that while Portugal, Greece and Spain together amount to 18% of Eurozone GDP, Italy alone accounts for another 17%.

In other words, there may be (more) trouble ahead for the Euro. Trouble of the kind European elites are clearly not up to dealing with.

Saturday, May 21, 2011

The pain in Spain falls mainly on the young

... which is why the squares are full in today's jornada de reflexion before tomorrow's local and regional elections.

Will Europeans put up with the miserable years of adjustment that their elites have got lined up for them? This is a first sign that perhaps they won't.

It's also interesting that the protest appears to be non-partisan, reflecting frustration at the lack of real alternatives on offer. EMU and fashionable thinking about non-majoritarian economic policy making have left countries like Spain with no real economic policy choices, and electorates seem to have cottoned on to this fact.

Thursday, May 19, 2011

Iain Duncan Smith: Ignorant or Dishonest?

A statement of the Department of Work and Pensions website claims that the UK governments spends £150 billion on tax credits. This would be around a tenth of national income, larger than the deficit or the budget of the NHS. If this was true, it would be an amazing figure.

But it's not. The true figure is £23 billion, out of a total welfare bill of £90 billion, as documented here and discussed in a previous post on this blog here. I just wonder how the British government can publish bare-faced lies on a ministerial website. Not a good sign.

So IDS either has no idea what his ministry's budget looks like, in which case he should resign, or he is lying about it, in which case he should resign.

Monday, May 16, 2011

What to do about the top income problem

Raise taxes!

More research on the impressive ability of top earners to post consistently huge pay rises when most other incomes barely hold their own.

The same research suggests that people do not believe governments are able to do much about it. And yet, all the evidence suggests otherwise. Why else would wealthy interests be trying so hard to cut government programmes which are inherently redistributive by design (such as Medicare)?

The tragedy of the left at present is that the trend in the private sector is towards ever greater inequality, yet many of the victims of this distributive shift are reluctant to accept the higher taxes and government spending which would counteract it. Countries with higher government spending tend to have lower inequality, but countries with high inequality find it hard to generate political coalitions in favour of a bigger state.

In other words, the biggest beneficiaries of bigger government tend to oppose it. My guess is some kind of increasing returns model is the only way to make sense of this.

Bad news can be good news

When it's about the price of oil. John Quiggin on Crooked Timber tells us that gasoline consumption in the US has peaked, reflecting in part the continued rises in oil prices. And the good bit about that news is that declining consumption means declining CO2 emissions. Every cloud has a silver lining, although the over-weight petrolheads that populate western countries may not see it that way.

Sunday, May 15, 2011

I read the news today oh boy

There are times when reading the news is a bit like reading a creepy version of the Onion, or the Daily Mash. Dominique Strauss-Kahn decided to launch his bid for the French Presidency - allegedly - by assaulting a maid at New York hotel. Meanwhile, the Iranian government is considering allowing a woman to blind her assailant with acid. There is plenty of head-turning copy even with all the superinjunctions flying around.

Crisis? What crisis?

Just back from Madrid, where there are few signs of economic meltdown. Except perhaps an unusual lack of traffic at 2am in Chamberí. Otherwise, Spanish society seems to be holding up in the midst of the highest unemployment in Europe, at least as far as I could see.

How come? Well, first of all Spain doesn't actually have 20% unemployment, or at least if it does, nobody in Spain I talk to believes it. Sure, unemployment is high, but 20% generally means not being able to walk the streets at night. I would still rather walk the street at night in Madrid than any other European capital.

But of course Spain is in a deep economic mess. So why isn't it visible? Well, Spanish society, and Mediterranean societies in general, are more robust than they look. Economic and social data in Spain don't look that great, but there are social institutions that holds things together, such as family, friends, pandillas, peñas, barrios, and so on. The kind of thing that social scientists briefly got interested in when social capital was all the rage.

I might be overstating a fleeting impression on a 3 day trip, but there is something here that social science is missing. Everyone who knows these countries understands this, but nobody writes about it in scholarly publications. I think we can call this the tyranny of method.

Saturday, May 7, 2011

European deconstruction

Greece may be about to skip the five years of pain before Euro exit and just get it done with.

Here is a great paper by Kevin O'Rourke outlining the precise contours of Europe's mess. One key passage is this:

Rather than promoting pan-European growth strategies, the institutions of the Union have been enthusiastically promoting pro-cyclical fiscal adjustments in the periphery, even as they insist that heavily indebted governments repay private creditors of private banks in full. Not only is the policy incoherent, making sovereign default more likely on the one hand, while preaching austerity on the other; the insistence that taxpayers rather than investors pay for bank losses is also setting the stage for a potentially very damaging confrontation between core and periphery taxpayers.

This is a neat way of representing the political economy problem. But following on from this, O'Rourke claims that this

can be seen as proof of the primacy of politics, the problem being that it is national politics which are currently dominant, and that are making an effective common response impossible. If the nation state remains dominant within the Eurozone, then the trilemma suggests that there are two logical possibilities. Either public opinion is successfully ignored in countries like Germany, Greece and Ireland; or European Monetary Union will come under threat in the longer run. Something has got to give.

It's hard to see any other way this can end but with a fundamental restructuring of EMU. If not, the consequences will surely be even worse.

It's British politics, but not as we know it.

Some pretty big stuff is happening in British politics. Here's my instant reaction.

1. Scotland has jumped pretty dramatically in the direction of confrontation with the UK government. A weird outcome, given that Labour were leading until a month ago. I've no idea what happened in the campaign to provoke this, but it's the first sign of major upheaval resulting from the crisis. Scotland, I guess, is saying that you touch our budget at your peril. Cameron, of course, would probably be happy with independence.

2. The Liberal Democrats are in free-fall. The loss of the referendum is probably even worse than the loss of half its local councillors. It now has nothing at all to show for its concessions on big issues like immigration, the deficit, and tuition fees. It's Conservative party or bust for Nick Clegg.

3. Labour has taken a battering in Scotland. Elsewhere it's done OK. My guess is that its best hope is for Britain to slide into contraction as a result of the cuts, and be able to say I told you so. If that doesn't happen, we'll lose the next election to the Tories, although we'll grab a bunch of Lib Dem votes for sure.

4. Nobody seems to perceive any connection between electoral institutions and dissatisfaction with politics. The English (NB, English) people may moan about politics and politicians, but they show no inclination to do anything about it. In a crisis, it's back to Mummy - the constitution, the monarchy, and the good old Tory party. It's official: England is a teenager.

Wednesday, May 4, 2011

Daddy, should I become an economist?

Brad DeLong suggests the answer should be no. Citing Larry Summers' recent comments at the Bretton Woods Mark II conference, DeLong says

perhaps academic economics departments will lose mindshare and influence to others – from business schools and public-policy programs to political science, psychology, and sociology departments. As university chancellors and students demand relevance and utility, perhaps these colleagues will take over teaching how the economy works and leave academic economists in a rump discipline that merely teaches the theory of logical choice.

Hear hear to that. But of course the danger is that political science, which is hurtling towards the same mistakes economics has made, could be making itself just as incapable of making sense of the political economy. And we don't even have the brand recognition.