Sunday, 31 August 2014

End August Links

# Chris Dillow's Repressive Diversity makes the point that it is possible that as 'opinion-former talent' is drawn from more disparate sources (variable cultures, ethnicity, genders, and sexuality), the opinions of these opinion formers may become more homogeneous. This sounds possible to me: if you don't share some strong cultural bond with the person you're about to hire, then you're more likely to select on intellectual conformity. This contrasts with points made by Lesley Riddoch in her book, Blossom: "The exclusion of women doesn't just narrow the pool of talent available to play the existing game - it excludes the most likely game changers" - and again it's certainly true that variation in life experience will lead to variation in opinion. So there're two mechanisms going on here, one which represses and one which promotes diversity of opinions as the diversity of the talent pool rises. It would be interesting to know which mechanism is dominant.

# This series on welfare economics from Interfluidity was great. From the 5th in the series:
"You might, think, then, that I’d advocate abandoning those diagrams entirely. I don’t. All I want is a set of caveats added. The diagrams are redeemable if we assume that all individuals have similar wealth, that they share the similar indirect utility with respect to wealth while their detailed consumption preferences might differ, and the value of the goods being transacted is small relative to the size of market participants’ overall budget. Under these assumptions (and only under these assumptions), if we interpret indirect utilities as summable welfare functions, consumer and producer surplus become (approximately) commensurable across individuals, and the usual Econ 101 catechism holds. Students should learn that the economics they are taught is a special case — the economics of a middle class society. They should understand that an equitable distribution is prerequisite to the version of capitalism they are learning, that the conclusions and intuitions they develop become dangerously unreliable as the dispersion of wealth and income increases."

# Simon Jenkins in the Guardian says that Northern cities need more than 'powerhouse' rhetoric: "... lively group of local executives.... Their obsession was simple, how to stop their brighter employees, not to mention their own children, vanishing to the bright lights of London. Their problem was not industry, it was image.... An English provincial revival will never lie in pre-election promises of half-hearted localism. The wealth and subsidy gap between London and the rest is now ludicrous and impossible to defend. The cliche, implied again by Miliband today, that the provinces make widgets while London makes money, will not close it.... These places must acquire some of the glamour that is attached to York, Oxford, Winchester and Brighton, cultural magnets for young and old. Cities must fizz or die. That means big government should move itself out of town. Big art should disperse if it wants subsidy. Big media should become geographically pluralist."

Sir Harry Burns says Yes vote could be 'positive' for health - but how do I put that in an economic model!!

Dinner with No Voters or “What I wanted to say before the Pudding hit the fan” - this is the best description of the politics of independence that I've seen

# This is maybe an issue which doesn't translate well across the Atlantic: How The Public Funding Of Elections Increases Candidate Polarization at Marginal Revolution. Tyler Cowan seems to be suggesting that proponents of public funding of political parties say that it would reduce the political distance between the parties, and that this is a good thing (divergence causing gridlock in American politics). Whereas the evidence seems to show that public funding increases the polarisation, and so public funding is a bad thing. My British view of this is that the evidence is unsurprising - I'd expect it to promote polarisation - and that therefore public funding is likely to be a good thing if it means that the two main parties who fight it out (in England) don't attempt to occupy the same ideological ground.

# Interesting: A marriage made in hell: Housing and foreign demand

# I have a mention in Full Fact's article on Scotland’s international trade under independence

# I entirely agree with de Zeeuw & van der Ploeg, Climate tipping requires precautionary accumulation of capital and an additional price for carbon emissions, but in the context of this I do get a bit annoyed that no-one would publish my A Balance of Questions: what can we ask of climate change economics? paper!

# A great simple description by Noah Smith, Chris House on stimulus spending, of why it is highly likely that increased government investment is a better form of fiscal stimulus than tax cuts.

# Also from Noah Smith, a description of two papers, RBC models we can believe in, in which network effects and a complex economy, mean that local idiosyncratic shocks combine to produce aggregate fluctuations (rather than cancelling in a law of large numbers type way). My interest is not so much on how complexity underlies the business cycle, but rather the impact such complexity has on issues of optimal size and scale. However, these papers do sound like something I should know about.

# Paul Cairney, from a completely different perspective, also discusses complexity: Scottish Independence: Will Anything Really Change? In particular, this is about the tension between the "inescapable trade-off between a desire to harmonise national policies and to encourage local discretion."

# Paul Krugman reports that "Vox has a great explanation of the Roman Empire in 40 maps". Like Krugman, I love this sort of stuff.

Citizens are happier in countries where the government intervenes more frequently in the economy

38 maps that explain the global economy

Friday, 22 August 2014

"Borders" Workshop materials

The SIRE ‘Country Size and Border Effects in a Globalised World’ workshop keynote speaker presentations are available:

Keynote Lecture 1: JAMES E. ANDERSON (Boston College) – "Border Effects: Canada-US Lessons"

Keynote Lecture 2: ENRICO SPOLAORE (Tufts University) – “The Political Economy of National Borders”

Wednesday, 13 August 2014

Deutsch Hausaufgaben

Translating an article from 20 Minuten (Zürich equivalent of the Metro) - but it is borders and independence/union related...

What the new Swiss superpower looks like
Always more neighbouring regions want to join Switzerland. Over 80% of 20 Minuten readers find this a good idea. We have put the pros and cons together.



After Baden-Württemberg and Lombardia, South Tirole now also shows interest in joining Switzerland.

A non-representative survey of more than 44,000 participants shows that over 80% of 20 Minuten readers want Switzerland to receive these new cantons from abroad. "They are a great expansion for a great country," writes reader Bruno, 13. Mike finds "These are all "cantons" which would do well in Switzerland."

Some of the readers would be willing even to barter: "We take the Welshland from the French" or "For this we let Zürich belong to Germany".

Reasons for letting border regions join:
- Bath seaside holidays: Switzerland gets a seaport due to the "Maritime Canton" of Sardinia.
- Pizza, Pasta and Veltliner wines become the official Swiss cuisine.
- Thanks to the friendly South Tyrol, we can score even more points with the tourists.
- Thanks to the Germans, Switzerland can be football world champions in four years time.
- The Brenner Pass would belong to Switzerland. Therefore, it would have a monopoly on the (Alpine) "North-South axis"
- The new economy in Switzerland-Baden-Wuerttemberg-South Tirole strengthens Switzerland.

Reasons against letting border regions join
- When Baden-Württemberg is in Switzerland, we can no longer go abroad for cheap shopping.
- The "original" Swiss population would be outvoted against the interests of the big cantons of Bavaria and Baden-Württemberg.
- Armed conflicts threaten: in the example of Ukraine one sees the devastating effects that expansionary policy can have.
- Bavaria or Baden-Württemberg do not fit - in terms of the language - in Switzerland.
- Swiss motorcyclists in South Tyrol would have to gamble with nasty speed traps.

Monday, 11 August 2014

Towards a Citizens' / Basic Income

Bit of self promotion here - but in a good cause...

The Scottish Green Party have published their Green Yes Briefing Note on a Citizens' Income for Scotland (press release here) - and I was responsible for the numerical calculations. These were done using the same model as was used in Comerford & Eiser (2014) "Constitutional change and inequality in Scotland" - which is forthcoming in the Oxford Review of Economic Policy.

I have no idea how politically feasible a Citizens' Income is, but it's interesting that this issue also seems to be being discussed in the US econ blogs at the moment - see e.g. Noah Smith: Basic Income is good because it's basic.

Tuesday, 1 July 2014

End June Links

# Having just moved to Zürich in Switzerland, this post, Alive and awake in the dreaming time from the Wee Ginger Dug, makes me a bit wistful and homesick! "Sleepwalking? This country has never been more alive. ... We’re excited at the countless possibilities that are springing up like Scottish bluebells after a long cold winter of the soul. We’re not sleeping walking to independence, we’re casting off our crutches and getting up on our own two feet, we’re running towards the future with hope in our hearts, we’re dancing towards it with our own rhythm, we’re singing dreams into being with our own tunes. We’re following the songlines to a future we seize in our own hands. It’s good to be alive in the Scottish summer, and it’s even better being awake. Alive and awake in the dreaming time."

# I never liked Angela Knight when she used to feature in the media on behalf of the British Bankers Association, so I'm kind of pleased to have my prejudices confirmed by finding that she is a former tory MP who opposes renewable energy: time to rethink 'green' power policies in Brussels. The article shows that Scotland's huge comparative advantage in renewable energy is objectively ill-served by the UK political establishment.

# I think I agree with Matthew Kahn that Krugman is wrong (!!!) on Carbon Mitigation, Self Interest and Ideology: sub-urbanites with a high rate of time preference (and no infinitely negative utility attached to civilisational risks) rationally oppose carbon pricing. Krugman's point is that the cost is low in aggregate GDP terms, but those individual sub-urbanites stand to lose a lot.

# Research on VoxEU to read: Are large headquarters unproductive?

Thursday, 5 June 2014

'Pooling & Sharing' versus 'Local Control'

The BBC has an interesting article up entitled Why is Glasgow the UK’s sickest city? Harry Burns's theory is particularly striking: "Harry Burns ... raised a few eyebrows when he compared Glaswegians to Australia's Aboriginal people. Yet he believes deindustrialisation in a city where tens of thousands once worked in the factories and the shipyards has deeply wounded local pride. As a result, people here have much in common with demoralised indigenous communities."

This I think allows us to consider an alternative history which may be informative about the visions presented in the SNP (White Paper) & Labour (particularly the pronouncements of Gordon Brown) contributions to the referendum campaigns. Suppose we were back in the early to mid 1970s. It is widely recognised that Glasgow's shipbuilding capability is becoming uncompetitive and that the capital stock is in need of major investment. Likewise London needs a great deal of investment, and some are forecasting a major growth in financial services worldwide that London will be well placed to take advantage of. Let's assume for simplicity that the investment required for both these projects is roughly the same, and that when the civil servants crunch the numbers, the expected returns on the London project are higher. Assume the risk premiums associated with both projects are the same.

Finally, let's assume that investment funds are in short supply such that borrowing for both projects pushes up the rate at which you can borrow. The impact of this is such that, while the NPV of both projects (considered separately), each under the higher rate (charged by capital markets for funding both projects), is still positive; combined it is lower than the NPV of the London project done in isolation at the lower rate (charged by capital markets for funding only one of the projects).

The pooling and sharing vision set out by the Labour party is consistent with funding only the London project. This maximises value (in NPV terms) at the UK level, and some of the surplus is distributed to Glasgow to pay the unemployment, disability and health costs that result. Maximise wealth, pool it to some extent, and share from rich to poor. This is a fair description of what actually happened.

Given the importance of Glasgow to Scotland (Greater Glasgow is 2 5ths of the total population), it is inconceivable that this is what would have happened if there had been sufficient local control at the time. [Clearly the independence argued for in the SNP's White Paper constitutes a sufficient degree of local control (though other constitutional options may also meet this description).] The Glasgow project would have been funded, and NPV would not have been maximised. Economic contribution would have a more even geographical distribution, as would the location of talent and human capital, and likely the destination of investment capital too. Self esteem in Glasgow would be enhanced - without, I'd argue, damaging the self-esteem of communities in London.

Without specifying a social welfare function it is impossible to say which of the two paths maximises welfare. But I know which path I prefer...