tag:blogger.com,1999:blog-84529717724366536642024-03-15T07:17:10.480-07:00dcomerfan economics blog by david comerforddcomerfhttp://www.blogger.com/profile/18378883188453226827noreply@blogger.comBlogger123125tag:blogger.com,1999:blog-8452971772436653664.post-62812538459968567112022-12-01T09:30:00.003-08:002022-12-01T09:32:20.295-08:00Achieving Independence<p>
Following the <a href="https://www.supremecourt.uk/cases/uksc-2022-0098.html" target="_blank">UK Supreme Court ruling on 23rd November 2022</a>, the stated policy of the Scottish Government is to claim that the next Westminster election (likely in 2024) will be a “de facto independence referendum”. This won’t work (<a href="https://robinmcalpine.org/when-lost-stop-following-what-led-you-here/" target="_blank">for all the reasons stated elsewhere</a>)!
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However, what the Supreme Court ruling said was that the right to self determination applied “<i>where a definable group is denied meaningful access to government to pursue their political, economic, social, and cultural development</i>”. This suggests a route that is at least consistent with the ruling and so provides fewer opportunities for the opponents of independence to claim it is illegitimate.
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The first crucial aspect of this route is that the platform adopted by the pro-independence candidates in the next Westminster election, as well as demanding a Section 30 order for a new independence referendum, <b>has</b> to be abstentionist: if elected they promise not to take up their seats (and consequently also not to receive their salaries and short monies). If more than 50% of Scottish seats are held by abstentionist candidates then “<i>a definable group is denied meaningful access to government to pursue their political, economic, social, and cultural development</i>”! The Supreme Court upheld that the appropriate forum for discussing the constitution was at Westminster and yet Scots have no representation there. A referendum must be held to resolve this unsustainable position.
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If the UK Government denies this, then that is the moment for the Scottish Government to resign, precipitate a new Holyrood election, with candidates standing on the platform of forming an independent government - basically UDI. Note that both of these elections would only require a majority of members elected rather than a majority of the electorate: that’s fine - the demand is for a referendum in which a majority of the electorate is required; if this demand is refused though then no need to fight with one arm tied behind your back.
</p><div style="text-align: left;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgTs6Xo1tt1jmIzA2MCHDlufJY2Zx6IXav-v88II79Vj4j6D_zLu3DwDM1M8neS722bwOiFvHeNnnFQRCjzwU6Y-axdykREuJUBUBiJOqtlyiKz2HMbrVsLhPvya3HAmlDRzPYUHO0qo4cBzTN9mdZxNX5vHHO7xFdLAEgISHGMY-DSZ4FKKrr9U4dZ/s1281/flowchart.png" style="clear: left; margin-bottom: 1em;"><img border="0" data-original-height="684" data-original-width="1281" height="256" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgTs6Xo1tt1jmIzA2MCHDlufJY2Zx6IXav-v88II79Vj4j6D_zLu3DwDM1M8neS722bwOiFvHeNnnFQRCjzwU6Y-axdykREuJUBUBiJOqtlyiKz2HMbrVsLhPvya3HAmlDRzPYUHO0qo4cBzTN9mdZxNX5vHHO7xFdLAEgISHGMY-DSZ4FKKrr9U4dZ/w479-h256/flowchart.png" width="479" /></a></div><br /><p><br /></p>
dcomerfhttp://www.blogger.com/profile/18378883188453226827noreply@blogger.com0tag:blogger.com,1999:blog-8452971772436653664.post-58435158463646691962017-10-03T10:10:00.000-07:002018-01-19T01:07:44.504-08:00End of nations: Is there an alternative to countries?<a href="https://www.newscientist.com/article/mg22329850-600-end-of-nations-is-there-an-alternative-to-countries/" target="_blank">This article</a> from the New Scientist is fantastic. Reposted here so that it can be accessed without a subscription.<br />
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<span style="color: #333333; font-family: "lato" , serif; font-size: 16.5pt; letter-spacing: -0.45pt;">Nation states cause some of
our biggest problems, from civil war to climate inaction. Science suggests
there are better ways to run a planet<o:p></o:p></span><br />
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<span style="color: #333333; font-family: "lato" , serif; font-size: 7.5pt;">Map: Norman Kirby; Photograph:
Tatsuro Nishimura<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "lato" , serif; font-size: 11.5pt;">By <b><span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0cm; padding: 0cm;">Debora MacKenzie</span></b><o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Try, for a moment, to envisage a
world without countries. Imagine a map not divided into neat, coloured patches,
each with clear borders, governments, laws. Try to describe anything our
society does – trade, travel, science, sport, maintaining peace and security –
without mentioning countries. Try to describe yourself: <a href="http://www.un.org/en/documents/udhr/"><span style="border: none 1.0pt; color: #179cce; padding: 0cm;">you
have a right</span></a> to at least one nationality, and the right to
change it, but not the right to have none.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;"><br /></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Those coloured patches on the map may
be democracies, dictatorships or too chaotic to be either, but virtually all
claim to be one thing: a nation state, the sovereign territory of a “people” or
nation who are entitled to self-determination within a self-governing
state. <a href="http://www.un.org/en/documents/charter/chapter1.shtml"><span style="border: none 1.0pt; color: #179cce; padding: 0cm;">So says the United Nations</span></a>, which now numbers 193 of
them.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;"><br /></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">And more and more peoples want their
own state, from <a href="https://www.newscientist.com/special/scotland"><span style="border: none 1.0pt; color: #179cce; padding: 0cm;">Scots voting for independence</span></a> to jihadis declaring
a new state in the Middle East. Many of the big news stories of the day, from
conflicts in Gaza and Ukraine to rows over immigration and membership of the
European Union, are linked to nation states in some way.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Even as our economies globalise,
nation states remain the planet’s premier political institution. Large votes
for nationalist parties in this year’s EU elections prove nationalism remains
alive – even as the EU tries to transcend it.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Yet there is a growing feeling among
economists, political scientists and even national governments that the nation
state is not necessarily the best scale on which to run our affairs. We must
manage vital matters like food supply and climate on a global scale, yet
national agendas repeatedly trump the global good. At a smaller scale, city and
regional administrations often seem to serve people better than national
governments.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">How, then, should we organise
ourselves? Is the nation state a natural, inevitable institution? Or is it a
dangerous anachronism in a globalised world?<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">These are not normally scientific
questions – but that is changing. Complexity theorists, social scientists and
historians are addressing them using new techniques, and the answers are not
always what you might expect. Far from timeless, the nation state is a recent
phenomenon. And as complexity keeps rising, it is already mutating into novel
political structures. Get set for neo-medievalism.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Before the late 18th century there
were no real nation states, says John Breuilly of the London School of
Economics. If you travelled across Europe, no one asked for your passport at
borders; neither passports nor borders as we know them existed. People had
ethnic and cultural identities, but these didn’t really define the political
entity they lived in.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">That goes back to the anthropology,
and psychology, of humanity’s earliest politics. We started as wandering,
extended families, then formed larger bands of hunter-gatherers, and then,
around 10,000 years ago, settled in farming villages. Such alliances had
adaptive advantages, as people cooperated to feed and defend themselves.<o:p></o:p></span></div>
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<a href="https://www.blogger.com/blogger.g?blogID=8452971772436653664" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8452971772436653664" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8452971772436653664" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8452971772436653664" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8452971772436653664" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8452971772436653664" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8452971772436653664" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><b><span style="color: #111111; font-family: "lato" , serif; font-size: 14.5pt;">War and peace<o:p></o:p></span></b></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">But they also had limits. Robin
Dunbar of the University of Oxford has shown <a href="https://www.newscientist.com/special/instant-expert-social_networks"><span style="border: none 1.0pt; color: #179cce; padding: 0cm;">that one individual can keep track of social interactions linking
no more than around 150 people</span></a>. Evidence for that includes studies
of villages and army units through history, and the average tally of Facebook
friends.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">But there was one important reason to
have more friends than that: war. “In small-scale societies, between 10 and 60
per cent of male deaths are attributable to warfare,” says Peter Turchin of the
University of Connecticut at Storrs. More allies meant a higher chance of
survival.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Turchin has found that <a href="http://www.socionauki.ru/journal/files/seh/2009_2/evolution_of_complex_hierarchical_societies.pdf"><span style="border: none 1.0pt; color: #179cce; padding: 0cm;">ancient Eurasian empires</span></a> grew largest where
fighting was fiercest, suggesting war was a major factor in political
enlargement. Archaeologist <a href="https://www.newscientist.com/article/mg22229650-200-whats-war-good-for-its-made-a-more-peaceful-world"><span style="border: none 1.0pt; color: #179cce; padding: 0cm;">Ian Morris</span></a> of Stanford University in California
reasons that as populations grew, people could no longer find empty lands where
they could escape foes. The losers of battles were simply absorbed into the
enemy’s domain – so domains grew bigger.<o:p></o:p></span><br />
<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;"><br /></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">How did they get past Dunbar’s
number? Humanity’s universal answer was the invention of hierarchy. Several
villages allied themselves under a chief; several chiefdoms banded together
under a higher chief. To grow, these alliances added more villages, and if
necessary more layers of hierarchy.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Hierarchies meant leaders could
coordinate large groups without anyone having to keep personal track of more
than 150 people. In addition to their immediate circle, an individual
interacted with one person from a higher level in the hierarchy, and typically
eight people from lower levels, says Turchin.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">These alliances continued to enlarge
and increase in complexity in order to perform more kinds of collective
actions, says Yaneer Bar-Yam of the New England Complex Systems Institute in
Cambridge, Massachusetts. For a society to survive, its collective behaviour
must be as complex as the challenges it faces – including competition from
neighbours. If one group adopted a hierarchical society, its competitors also
had to. Hierarchies spread and social complexity grew.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Larger hierarchies not only won more
wars but also fed more people through economies of scale, which enabled
technical and social innovations such as irrigation, food storage,
record-keeping and a unifying religion. Cities, kingdoms and empires followed.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">But these were not nation states. A
conquered city or region could be subsumed into an empire regardless of its
inhabitants’ “national” identity. “The view of the state as a necessary
framework for politics, as old as civilisation itself, does not stand up to
scrutiny,” says historian Andreas Osiander of the University of Leipzig in
Germany.<o:p></o:p></span></div>
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<b><span style="color: #222222; font-family: "lato" , serif; font-size: 16.5pt;">“The
view of the state as a necessary framework for politics does not stand up”<o:p></o:p></span></b></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">One key point is that agrarian
societies required little actual governing. Nine people in 10 were peasants who
had to farm or starve, so were largely self-organising. Government intervened
to take its cut, enforce basic criminal law and keep the peace within its
undisputed territories. Otherwise its main role was to fight to keep those
territories, or acquire more.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Even quite late on, rulers spent
little time governing, says Osiander. In the 17th century Louis XIV of France
had half a million troops fighting foreign wars but only 2000 keeping order at
home. In the 18th century, the Dutch and Swiss needed no central government at
all. Many eastern European immigrants arriving in the US in the 19th century
could say what village they came from, but not what country: it didn’t matter
to them.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Before the modern era, says Breuilly,
people defined themselves “vertically” by who their rulers were. There was
little horizontal interaction between peasants beyond local markets. Whoever
else the king ruled over, and whether those people were anything like oneself,
was largely irrelevant.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Such systems are very different from
today’s states, which have well-defined boundaries filled with citizens. In a
system of vertical loyalties, says Breuilly, power peaks where the overlord
lives and peters out in frontier territories that shade into neighbouring
regions. Ancient empires are coloured on modern maps as if they had firm
borders, but they didn’t. Moreover, people and territories often came under
different jurisdictions for different purposes.<o:p></o:p></span></div>
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<b><span style="color: #111111; font-family: "lato" , serif; font-size: 14.5pt;">Simple societies<o:p></o:p></span></b></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Such loose control, says Bar-Yam,
meant pre-modern political units were only capable of scaling up a few simple
actions such as growing food, fighting battles, collecting tribute and keeping
order. Some, like the Roman Empire, did this on a very large scale. But
complexity – the different actions society could collectively perform – was
relatively low.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Complexity was limited by the energy
a society could harness. For most of history that essentially meant human and
animal labour. In the late Middle Ages, Europe harnessed more, especially water
power. This boosted social complexity – trade increased, for example– requiring
more government. A decentralised feudal system gave way to centralised
monarchies with more power.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">But these were still not nation
states. Monarchies were defined by who ruled them, and rulers were defined by
mutual recognition – or its converse, near-constant warfare. In Europe, however,
as trade grew, monarchs discovered they could get more power from wealth than
war.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">In 1648, Europe’s Peace of Westphalia
ended centuries of war by declaring existing kingdoms, empires and other
polities “sovereign”: none was to interfere in the internal affairs of others.
This was a step towards modern states – but these sovereign entities were still
not defined by their peoples’ national identities. International law is said to
date from the Westphalia treaty, yet the word “international” was not coined
until 132 years later.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">By then Europe had hit the tipping
point of the industrial revolution. Harnessing vastly more energy from coal
meant that complex behaviours performed by individuals, such as weaving, could
be amplified, says Bar-Yam, producing much more complex collective behaviours.<o:p></o:p></span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhGjXnbVT8fK6yvLyz-Kgh1OLC6Bt9cBk9efeBC-abGjEoX-pOi65x2VRuLits1XBb8bV09tUPMaN-WnjIJrxEKrOzv3NcQ0bpk9jwA1QnjCv-Y7PfIDmYDtV3DAq3mjYKy_qxCprIblMo/s1600/1800.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="655" data-original-width="800" height="327" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhGjXnbVT8fK6yvLyz-Kgh1OLC6Bt9cBk9efeBC-abGjEoX-pOi65x2VRuLits1XBb8bV09tUPMaN-WnjIJrxEKrOzv3NcQ0bpk9jwA1QnjCv-Y7PfIDmYDtV3DAq3mjYKy_qxCprIblMo/s400/1800.jpg" width="400" /></a></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">This demanded a different kind of
government. In 1776 and 1789, revolutions in the US and France created the
first nation states, defined by the national identity of their citizens rather
than the bloodlines of their rulers. According to one landmark history of the
period, says Breuilly, “in 1800 almost nobody in France thought of themselves
as French. By 1900 they all did.” For various reasons, people in England had an
earlier sense of “Englishness”, he says, but it was not expressed as a
nationalist ideology.<o:p></o:p></span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhhdu8Foo57h6GSQOD3fPZhbOtCa3yBcgm1s-g9PUxDz7biVWdkz1KShmtmienF-9xD51ukd-SCbZBYdNfjJa_XJiwuqh5HBmjIPyr7IoFjfZPlVy3x5G7xsMtZ3MfG5P0K2HmQ7qGFp_k/s1600/1900.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="655" data-original-width="800" height="327" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhhdu8Foo57h6GSQOD3fPZhbOtCa3yBcgm1s-g9PUxDz7biVWdkz1KShmtmienF-9xD51ukd-SCbZBYdNfjJa_XJiwuqh5HBmjIPyr7IoFjfZPlVy3x5G7xsMtZ3MfG5P0K2HmQ7qGFp_k/s400/1900.jpg" width="400" /></a></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">By 1918, with the dismemberment of
Europe’s last multinational empires such as the Habsburgs in the first world
war, European state boundaries had been redrawn largely along cultural and
linguistic lines. In Europe at least, the nation state was the new norm.<o:p></o:p></span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi-0v2CQTdPtQ7Pkd0KFYECzAvZU64MZt7Mk3FuDtiXUt1PexjTdSjMXnDeehvBw2s9fExYEHsy-VOroKE5P9c9fYY2fj1TNjA2MEXsFWxGLmazCCSFp48BHR6O88DGK8EjDtppiap3q8E/s1600/1920.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="655" data-original-width="800" height="327" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi-0v2CQTdPtQ7Pkd0KFYECzAvZU64MZt7Mk3FuDtiXUt1PexjTdSjMXnDeehvBw2s9fExYEHsy-VOroKE5P9c9fYY2fj1TNjA2MEXsFWxGLmazCCSFp48BHR6O88DGK8EjDtppiap3q8E/s400/1920.jpg" width="400" /></a></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Part of the reason was a pragmatic
adaptation of the scale of political control required to run an industrial
economy. Unlike farming, industry needs steel, coal and other resources which
are not uniformly distributed, so many micro-states were no longer viable.
Meanwhile, empires became unwieldy as they industrialised and needed more
actual governing. So in 19th-century Europe, micro-states fused and empires
split.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">These new nation states were
justified not merely as economically efficient, but as the fulfilment of their
inhabitants’ national destiny. A succession of historians has nonetheless
concluded that it was the states that defined their respective nations, and not
the other way around.<o:p></o:p></span></div>
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<a href="https://www.blogger.com/blogger.g?blogID=8452971772436653664" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8452971772436653664" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8452971772436653664" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8452971772436653664" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8452971772436653664" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8452971772436653664" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8452971772436653664" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">France,
for example, was not the natural expression of a pre-existing French nation. At
the revolution in 1789, half its residents did not speak French. In 1860, when
Italy unified, only 2.5 per cent of residents regularly spoke standard Italian.
Its leaders spoke French to each other. One famously said that, having created
Italy, they now had to create Italians – <a href="http://www.psmag.com/navigation/politics-and-law/soccer-sports-fifa-anyone-italian-beyond-world-cup-83255/"><span style="border: none 1.0pt; color: #179cce; padding: 0cm;">a process many feel is still taking place</span></a>.<o:p></o:p></span></div>
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<b><span style="color: #222222; font-family: "lato" , serif; font-size: 16.5pt;">“At
the revolution in 1789, half of France’s residents did not speak French”<o:p></o:p></span></b></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Sociologist <a href="http://www.ucd.ie/sociology/staff/profiles/malesevicsinisa"><span style="border: none 1.0pt; color: #179cce; padding: 0cm;">Siniša Maleševic</span></a> of University College Dublin in
Ireland believes that this “nation building” was a key step in the evolution of
modern nation states. It required the creation of an ideology of nationalism
that emotionally equated the nation with people’s Dunbar circle of family and
friends.<o:p></o:p></span><br />
<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;"><br /></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">That
in turn relied heavily on mass communication technologies. In an influential
analysis, <a href="https://www.uio.no/english/research/interfaculty-research-areas/culcom/news/2005/anderson.html"><span style="border: none 1.0pt; color: #179cce; padding: 0cm;">Benedict Anderson</span></a> of Cornell University in New
York described nations as “imagined” communities: they far outnumber our
immediate circle and we will never meet them all, yet people will die for their
nation as they would for their family.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Such nationalist feelings, he argued,
arose after mass-market books standardised vernaculars and created linguistic
communities. Newspapers allowed people to learn about events of common concern,
creating a large “horizontal” community that was previously impossible.
National identity was also deliberately fostered by state-funded mass
education.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">The key factor driving this
ideological process, Maleševic says, was an underlying structural one: the
development of far-reaching bureaucracies needed to run complex industrialised
societies. For example, says Breuilly, in the 1880s Prussia became the first government
to pay unemployment benefits. At first they were paid only in a worker’s native
village, where identification was not a problem. As people migrated for work,
benefits were made available anywhere in Prussia. “It wasn’t until then that
they had to establish who a Prussian was,” he says, and they needed bureaucracy
to do it. Citizenship papers, censuses and policed borders followed.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">That meant hierarchical control
structures ballooned, with more layers of middle management. Such bureaucracy
was what really brought people together in nation-sized units, argues
Maleševic. But not by design: it emerged out of the behaviour of complex
hierarchical systems. As people do more kinds of activities, says Bar-Yam, the
control structure of their society inevitably becomes denser.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">In the emerging nation state, that
translates into more bureaucrats per head of population. Being tied into such
close bureaucratic control also encouraged people to feel personal ties with
the state, especially as ties to church and village declined. As governments
exerted greater control, people got more rights, such as voting, in return. For
the first time, people felt the state was theirs.<o:p></o:p></span></div>
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<b><span style="color: #111111; font-family: "lato" , serif; font-size: 14.5pt;">Natural state of affairs?<o:p></o:p></span></b></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Once Europe had established the
nation state model and prospered, says Breuilly, everyone wanted to follow
suit. In fact it’s hard now to imagine that there could be another way. But is
a structure that grew spontaneously out of the complexity of the industrial
revolution really the best way to manage our affairs?<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">According to Brian Slattery of York
University in Toronto, Canada, nation states still thrive on a widely held
belief that “the world is naturally made of distinct, homogeneous national or
tribal groups which occupy separate portions of the globe, and claim most people’s
primary allegiance”. But anthropological research does not bear that out, he
says. Even in tribal societies, ethnic and cultural pluralism has always been
widespread. Multilingualism is common, cultures shade into each other, and
language and cultural groups are not congruent.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Moreover, people always have a sense
of belonging to numerous different groups based on region, culture, background
and more. “The claim that a person’s identity and well-being is tied in a
central way to the well-being of the national group is wrong as a simple matter
of historical fact,” says Slattery.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Perhaps it is no wonder, then, that
the nation-state model fails so often: since 1960 there have been more than 180
civil wars worldwide.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Such conflicts are often blamed on
ethnic or sectarian tensions. Failed states, such as Syria right now, are
typically riven by violence along such lines. According to the idea that nation
states should contain only one nation, such failures have often been <a href="https://www.newscientist.com/article/dn25745-colonial-borders-not-the-problem-in-syria-iraq-crisis"><span style="border: none 1.0pt; color: #179cce; padding: 0cm;">blamed on the colonial legacy of bundling together many peoples
within unnatural boundaries</span></a>.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;"><br /></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">But for every Syria or Iraq there is
a Singapore, Malaysia or Tanzania, getting along okay despite having several
“national” groups. Immigrant states in Australia and the Americas, meanwhile,
forged single nations out of massive initial diversity.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">What makes the difference? It turns
out that while ethnicity and language are important, what really matters is
bureaucracy. This is clear in the varying fates of the independent states that
emerged as Europe’s overseas empires fell apart after the second world war.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">According to the mythology of
nationalism, all they needed was a territory, a flag, a national government and
UN recognition. In fact what they really needed was complex bureaucracy.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Some former colonies that had one
became stable democracies, notably India. Others did not, especially those such
as the former Belgian Congo, whose colonial rulers had merely extracted
resources. Many of these became dictatorships, which require a much simpler
bureaucracy than democracies.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Dictatorships exacerbate ethnic
strife because their institutions do not promote citizens’ identification with
the nation. In such situations, people fall back on trusted alliances based on
kinship, which readily elicit Dunbar-like loyalties. Insecure governments
allied to ethnic groups favour their own, while grievances among the disfavoured
groups grow – and the resulting conflict can be fierce.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Recent research confirms that the
problem is not ethnic diversity itself, but not enough official inclusiveness.
Countries with little historic ethnic diversity are now having to learn that on
the fly, as people migrate to find jobs within a globalised economy.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">How
that pans out may depend on whether people self-segregate. Humans like being
around people like themselves, and ethnic enclaves can be the result. Jennifer
Neal of Michigan State University in East Lansing has used agent-based
modelling to look at the effect of this in city neighbourhoods. Her work
suggests that enclaves promote social cohesion, but at the cost of decreasing
tolerance between groups. <a href="https://www.msu.edu/~zpneal/publications/neal-diversitysoc.pdf"><span style="border: none 1.0pt; color: #179cce; padding: 0cm;">Small enclaves in close proximity may be the solution</span></a>.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;"><br /></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">But at what scale? Bar-Yam says
communities where people are well mixed – such as in peaceable Singapore, where
enclaves are actively discouraged – tend not to have ethnic strife. Larger
enclaves can also foster stability. Using mathematical models to correlate the
size of enclaves with the incidences of ethnic strife in India, Switzerland and
the former Yugoslavia, he found that enclaves 56 kilometres or more wide make
for peaceful coexistence – especially if they are separated by natural
geographical barriers,<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Switzerland’s 26 cantons, for
example, which have different languages and religions, meet Bar-Yam’s spatial
stability test – except one. A French-speaking enclave in German-speaking Berne
experienced the only major unrest in recent Swiss history. It was resolved by
making it a separate canton, Jura, which meets the criteria.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Again, though, ethnicity and language
are only part of the story. Lars-Erik Cederman of the Swiss Federal Institute
of Technology in Zurich argues that Swiss cantons have achieved peace not by
geographical adjustment of frontiers, but by political arrangements giving
cantons considerable autonomy and a part in collective decisions.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Similarly, using a recently compiled
database to analyse civil wars since 1960, Cederman finds that strife is indeed
more likely in countries that are more ethnically diverse. But careful analysis
confirms that trouble arises not from diversity alone, but when certain groups
are systematically excluded from power.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Governments with ethnicity-based
politics were especially vulnerable. The US set up just such a government in
Iraq after the 2003 invasion. Exclusion of Sunni by Shiites led to insurgents
declaring a Sunni state in occupied territory in Iraq and Syria. True to
nation-state mythology, it rejects the colonial boundaries of Iraq and Syria,
as they force dissimilar “nations” together.<o:p></o:p></span></div>
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<b><span style="color: #111111; font-family: "lato" , serif; font-size: 14.5pt;">Ethnic cleansing<o:p></o:p></span></b></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 9.0pt; vertical-align: baseline;">
<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Yet the solution cannot be imposing
ethnic uniformity. Historically, so-called ethnic cleansing has been uniquely
bloody, and “national” uniformity is no guarantee of harmony. In any case,
there is no good definition of an ethnic group. Many people’s ethnicities are
mixed and change with the political weather: the numbers who claimed to be
German in the Czech Sudetenland territory annexed by Hitler changed
dramatically before and after the war. Russian claims to Russian-speakers in
eastern Ukraine now may be equally flimsy.<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 9.0pt; vertical-align: baseline;">
<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Both Bar-Yam’s and Cederman’s
research suggests one answer to diversity within nation states: devolve power
to local communities, as multicultural states such as Belgium and Canada have
done.<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 9.0pt; vertical-align: baseline;">
<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">“We need a conception of the state as
a place where multiple affiliations and languages and religions may be safe and
flourish,” says Slattery. “That is the ideal Tanzania has embraced and it seems
to be working reasonably well.” Tanzania has more than 120 ethnic groups and
about 100 languages.<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 9.0pt; vertical-align: baseline;">
<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">In the end, what may matter more than
ethnicity, language or religion is economic scale. The scale needed to prosper
may have changed with technology – tiny Estonia is a high-tech winner – but a
small state may still not pack enough economic power to compete.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">That is one reason why Estonia is
such an enthusiastic member of the European Union. After the devastating wars
in the 20th century, European countries tried to prevent further war by
integrating their basic industries. That project, which became the European
Union, now primarily offers member states profitable economies of scale,
through manufacturing and selling in the world’s largest single market.<o:p></o:p></span><br />
<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;"><br /></span>
<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhHOQvR1885hfUPYdyksCBLMzCHfZRKus0KVZQS-wd_TUSnb67fY1kCmknN0aMjKoDpS5ljTLub_k8yk6njaF6kYoEF-0lTpNK2sAjbe-nHZuBu3vHuKbwzH1Adrj1KG2vhSC0oi6Vwp2U/s1600/2000.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="655" data-original-width="800" height="327" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhHOQvR1885hfUPYdyksCBLMzCHfZRKus0KVZQS-wd_TUSnb67fY1kCmknN0aMjKoDpS5ljTLub_k8yk6njaF6kYoEF-0lTpNK2sAjbe-nHZuBu3vHuKbwzH1Adrj1KG2vhSC0oi6Vwp2U/s400/2000.jpg" width="400" /></a></div>
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</v:shape><![endif]--><!--[if !vml]--><!--[endif]--></span><span style="color: #cb4e06; font-family: "lato" , serif; font-size: 13.0pt;"><o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">What the EU fails to inspire is
nationalist-style allegiance – which Maleševic thinks nowadays relies on the
“banal” nationalism of sport, anthems, TV news programmes, even song contests.
That means Europeans’ allegiances are no longer identified with the political
unit that handles much of their government.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Ironically, says Jan Zielonka of the
University of Oxford, the EU has saved Europe’s nation states, which are now
too small to compete individually. The call by nationalist parties to “take
back power from Brussels”, he argues, would lead to weaker countries, not
stronger ones.<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 9.0pt; vertical-align: baseline;">
<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">He sees a different problem. Nation
states grew out of the complex hierarchies of the industrial revolution. The EU
adds another layer of hierarchy – but without enough underlying integration to
wield decisive power. It lacks both of Maleševic’s necessary conditions:
nationalist ideology and pervasive integrating bureaucracy.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Even so, the EU may point the way to
what a post-nation-state world will look like.<o:p></o:p></span></div>
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<a href="https://www.blogger.com/blogger.g?blogID=8452971772436653664" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8452971772436653664" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8452971772436653664" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8452971772436653664" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8452971772436653664" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8452971772436653664" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8452971772436653664" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Zielonka
agrees that <a href="http://www.eutopiamagazine.eu/en/jan-zielonka/speakers-corner/do-we-need-eu-integrate"><span style="border: none 1.0pt; color: #179cce; padding: 0cm;">further integration of Europe’s governing systems</span></a> is
needed as economies become more interdependent. But he says Europe’s
often-paralysed hierarchy cannot achieve this. Instead he sees the replacement
of hierarchy by networks of cities, regions and even non-governmental
organisations. Sound familiar? Proponents call it neo-medievalism.<o:p></o:p></span><br />
<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;"><br /></span>
<br />
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</v:shape><![endif]--><!--[if !vml]--><!--[endif]--></span><span style="color: #cb4e06; font-family: "lato" , serif; font-size: 13.0pt;"><o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">“The future structure and exercise
of <a href="http://www.polity.co.uk/book.asp?ref=9780745683966"><span style="border: none 1.0pt; color: #179cce; padding: 0cm;">political power will resemble the medieval model</span></a> more
than the Westphalian one,” Zielonka says. “The latter is about concentration of
power, sovereignty and clear-cut identity.” Neo-medievalism, on the other hand,
means overlapping authorities, divided sovereignty, multiple identities and
governing institutions, and fuzzy borders.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;"><br /></span></div>
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<b><span style="color: #222222; font-family: "lato" , serif; font-size: 16.5pt;">“The
future exercise of power will resemble the medieval model”<o:p></o:p></span></b></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; vertical-align: baseline;">
<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;"><a href="http://www.princeton.edu/~slaughtr"><span style="border: none 1.0pt; color: #179cce; padding: 0cm;">Anne-Marie
Slaughter</span></a> of Princeton University, a former US assistant
secretary of state, also sees hierarchies giving way to global networks
primarily of experts and bureaucrats from nation states. For example,
governments now work more through flexible networks such as the G7 (or 8, or
20) to manage global problems than through the UN hierarchy.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;"><br /></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;"><a href="http://www.oxfordmartin.ox.ac.uk/director-dividednations"><span style="border: none 1.0pt; color: #179cce; padding: 0cm;">Ian Goldin</span></a>, head of the Oxford Martin School at the
University of Oxford, which analyses global problems, thinks such networks must
emerge. He believes existing institutions such as UN agencies and the World
Bank are structurally unable to deal with problems that emerge from global
interrelatedness, such as economic instability, pandemics, climate change and
cybersecurity – partly because they are hierarchies of member states which
themselves cannot deal with these global problems. He quotes Slaughter:
“Networked problems require a networked response.”<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 9.0pt; vertical-align: baseline;">
<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;"><br /></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 9.0pt; vertical-align: baseline;">
<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Again, the underlying behaviour of
systems and the limits of the human brain explain why. Bar-Yam notes that in
any hierarchy, the person at the top has to be able to get their head around
the whole system. When systems are too complex for one human mind to grasp, he
argues that they must evolve from hierarchies into networks where no one person
is in charge.<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; vertical-align: baseline;">
<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Where does this leave nation states?
“They remain the main containers of power in the world,” says Breuilly. And we
need their power to maintain the personal security that has permitted <a href="https://www.newscientist.com/article/mg21228340-100-steven-pinker-humans-are-less-violent-than-ever"><span style="border: none 1.0pt; color: #179cce; padding: 0cm;">human violence to decline to all-time lows</span></a>.<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; vertical-align: baseline;">
<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;"><br /></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; vertical-align: baseline;">
<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Moreover,
says <a href="http://www.project-syndicate.org/print/dani-rodrik-explains-why-the-super-rich-are-mistaken-to-believe-that-they-can-dispense-with-government"><span style="border: none 1.0pt; color: #179cce; padding: 0cm;">Dani Rodrik</span></a> of Princeton’s Institute for Advanced
Study, the very globalised economy that is allowing these networks to emerge
needs something or somebody to write and enforce the rules. Nation states are
currently the only entities powerful enough to do this.<o:p></o:p></span></div>
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<a href="https://www.blogger.com/blogger.g?blogID=8452971772436653664" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8452971772436653664" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8452971772436653664" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8452971772436653664" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8452971772436653664" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8452971772436653664" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8452971772436653664" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;"><br /></span></div>
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<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Yet their limitations are clear, both
in solving global problems and resolving local conflicts. One solution may be
to pay more attention to the scale of government. Known as subsidiarity, this
is a basic principle of the EU: the idea that government should act at the
level where it is most effective, with local government for local problems and
higher powers at higher scales. There is empirical evidence that it works:
social and ecological systems can be better governed when their users
self-organise than when they are run by outside leaders.<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 9.0pt; vertical-align: baseline;">
<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">However, it is hard to see how our
political system can evolve coherently in that direction. Nation states could
get in the way of both devolution to local control and networking to achieve
global goals. With climate change, it is arguable that they already have.<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; vertical-align: baseline;">
<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">There is an alternative to evolving
towards a globalised world of interlocking networks, neo-medieval or not, and
that is <a href="https://www.newscientist.com/article/mg19826501-500-why-the-demise-of-civilisation-may-be-inevitable"><span style="border: none 1.0pt; color: #179cce; padding: 0cm;">collapse</span></a>. “Most hierarchical systems tend to become
top-heavy, expensive and incapable of responding to change,” says <a href="https://www.wageningenur.nl/en/Persons/prof.dr.-M-Marten-Scheffer.htm"><span style="border: none 1.0pt; color: #179cce; padding: 0cm;">Marten Scheffer</span></a> of Wageningen University in the
Netherlands. “The resulting tension may be released through partial collapse.”
For nation states, that could mean anything from the renewed pre-eminence of
cities to Iraq-style anarchy. An uncertain prospect, but there is an upside.
Collapse, say some, is the creative destruction that allows new structures to
emerge.</span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 9.0pt; vertical-align: baseline;">
<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;"><br /></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 9.0pt; vertical-align: baseline;">
<span style="color: #333333; font-family: "pt serif" , serif; font-size: 11.5pt;">Like it or not, our societies may
already be undergoing this transition. We cannot yet imagine there are no
countries. But recognising that they were temporary solutions to specific
historical situations can only help us manage a transition to whatever we need
next. Whether or not our nations endure, the structures through which we govern
our affairs are due for a change. Time to start imagining.<o:p></o:p></span></div>
dcomerfhttp://www.blogger.com/profile/18378883188453226827noreply@blogger.com0tag:blogger.com,1999:blog-8452971772436653664.post-14629609010322930932016-04-11T04:49:00.000-07:002016-04-11T07:58:33.109-07:00The Carbon Bubble vs The Financial CrisisThere have been a <a href="http://www.theguardian.com/environment/2016/apr/04/climate-change-will-blow-a-25tn-hole-in-global-financial-assets-study-warns" target="_blank">slew of recent news articles</a> reporting on a new paper published in Nature Climate Change, <a href="http://www.nature.com/articles/nclimate2972.epdf?referrer_access_token=pVU3lVe-gO7VPgAAefm-PdRgN0jAjWel9jnR3ZoTv0N9_HdJUYfIhZkh1qLX-q03xapsx3ngOQ2nuTZ2baMG1n6druC8b6tgrJJ5CMFMNxprpfpU29NKBFdgk21eOGmpNh8nn7a5mee8NCM0ecq3UbAeS03oIiJ5pIMEOv9vodYNYnfSzraYdtEQ5hTlZHuV06Fho86AQj1bWJqRVcLpit0VuOwGt0BrRNB27kGZYvDpgnEzmIeR1fluBxrmaZMyTzPwCHO_GJutrfNK0FQeBw%3D%3D&tracking_referrer=www.theguardian.com" target="_blank">Dietz et al (2016) "‘Climate value at risk’ of global financial assets"</a>. This paper described modelling work on the asset value implications of both climate policy and climate change. Its calculations include the fossil fuel asset write-downs required to implement a particular emissions path, and a <a href="https://en.wikipedia.org/wiki/DICE_model" target="_blank">DICE climate-economy model</a> is used to project a damaged global output path given this emissions path. The impact of this path on asset values is estimated assuming a constant profit share of GDP. It is found that "<i>the expected value of global financial assets is 0.2% higher along the mitigation scenario </i>[2oC limit]<i> ... this reflects the reduction in asset values brought about by paying abatement costs in the economy—including, for instance, the stranded assets of fossil-fuel companies</i>".<br />
<br />
This paper therefore goes beyond the "Carbon Bubble" warnings of the <a href="http://www.carbontracker.org/" target="_blank">Carbon Tracker Initiative</a>, which are about the fossil fuel asset write-offs required to be consistent with stated climate change policy, in the dimension of also considering the damages to asset values caused by climate change itself. In <a href="https://www.dropbox.com/s/y6urtmib9h74cj7/Carbon%20Bubble.pdf" target="_blank">forthcoming work</a>, I consider another dimension: what about the business cycle response to writing-off all these fossil fuel assets? The <a href="https://en.wikipedia.org/wiki/Financial_accelerator" target="_blank">financial accelerator mechanism</a> would suggest that writing-off so many assets would induce a large recession, and impede the investment needed in alternative energy infrastructure. <a href="http://www.newyorker.com/business/currency/the-climate-summit-of-money" target="_blank">Katy Lederer has an article in the New Yorker</a> describing some other work along the same lines.<br />
<br />
The Dietz et al paper provides a couple of useful numbers to help calibrate the "bursting of the Carbon Bubble" against the 2008 Financial Crisis. They say that "<i>the total stock market capitalization today of fossil-fuel companies has been estimated at US$5 trillion</i>", and that the "<i>Financial Stability Board ... puts the value of global non-bank financial assets at US$143.3 trillion in 2013</i>". So fossil fuel company valuations represent perhaps 3.5% of total financial assets. To validate this figure we could note that fossil fuels represent 80% of energy generation[1], and that energy is around 7.4% of expenditures[2] so fossil energy assets should represent 5.9% of total assets if they have the same term as the average of other assets, and less if they are shorter duration. Further, many fossil fuel assets (e.g. the Saudi oil industry) are wholly state owned and so may not be in the $5tn figure (although likewise they also will not be in the denominator in this case too).<br />
<br />
The financial crisis began with the realisation that the fundamental value of subprime mortgages (and the CDOs into which they were bundled) was much lower than had previously been recognised. <a href="http://econpapers.repec.org/article/kapdecono/v_3a157_3ay_3a2009_3ai_3a2_3ap_3a129-207.htm" target="_blank">Hellwig (2009)</a> estimated that the total value of subprime mortgages outstanding was $1.2tn in the second quarter of 2008. Whilst this is a big number, even a complete loss of this value should represent a relatively mild adverse event to a well diversified investor. Instead we saw the financial crisis in which the stock market lost almost half its value, and corporate debt also saw negative returns (although non-PIIGS government bonds performed very well as yields collapsed). A well diversified investor lost perhaps 20% of the value of their portfolio[3], and Global GDP fell by 6%[4].<br />
<br />
So given the financial crisis, what would the impact be of "bursting the Carbon Bubble"? The <a href="http://www.carbontracker.org/report/carbon-bubble/" target="_blank">Carbon Tracker Initiative</a> estimate "<i>Only 20% of the total reserves can be burned unabated</i>", while the <a href="http://www.iea.org/publications/freepublications/publication/English.pdf" target="_blank">International Energy Agency say</a> "<i>No more than one-third of proven reserves of fossil fuels can be consumed</i>". Consistent with these estimates (since the financial value of resources and low quality reserves will be less than the financial value of high quality reserves, per unit carbon), let's assume that the total value that must be written-off is 60% of the value of fossil fuel companies. Assuming that the Financial Crisis was precipitated by a $1tn write-off, then we compare this to a Carbon Bubble figure of 60% of $5tn = $3tn, and we see that the balance sheet impact of the credible implementation of the climate policy needed to keep global temperatures 2oC above pre-industrial levels, may be around three times that which caused the Financial Crisis. If fossil fuel assets are 5% of the global asset base, then the Carbon Bubble necessitates writing-off 3% of assets. What will be the impact of this given that we saw total asset price falls of 20% and GDP falls of 6% in response to the Financial Crisis when investors realised that the repricing of their subprime mortgage holdings had caused a 1% fall in the value of their assets?<br />
<br />
Without deliberate policy to recapitalise investors or to socialise investment, implementing climate policy that "bursts the carbon bubble" risks seriously damaging the economy, and specifically harming the very sector of the economy that should be investing in replacing the present fossil fuel infrastructure.<br />
<br />
<span style="font-size: xx-small;">[1] See either <a href="http://papers.nber.org/tmp/51932-w22075.pdf" target="_blank">Newell, Qian & Raimi (2016) "Global Energy Outlook 2015"</a> or Table 1.2 Primary Energy Production by Source of </span><a href="http://www.eia.gov/totalenergy/data/monthly/pdf/mer.pdf" style="font-size: x-small;" target="_blank">http://www.eia.gov/totalenergy/data/monthly/pdf/mer.pdf</a><br />
<span style="font-size: xx-small;"><br /></span>
<span style="font-size: xx-small;">[2] The 20 year average for Energy Expenditures as Share of GDP, from </span><span style="font-size: xx-small;">Table 1.7 "Primary Energy Consumption, Energy Expenditures, and Carbon Dioxide Emissions Indicators" of </span><span style="font-size: xx-small;"><a href="http://www.eia.gov/totalenergy/data/monthly/pdf/mer.pdf" target="_blank">http://www.eia.gov/totalenergy/data/monthly/pdf/mer.pdf</a> is 7.4%</span><br />
<span style="font-size: xx-small;"><br /></span>
<span style="font-size: xx-small;">[3] Approximate calculation: assuming asset values are split 80% private and 20% public; public asset value proxied by government debt value which rose as yields fell (assume +10% return); funding of private assets is split by capital structure of firms: assume 40% corporate bonds (-10% return) and 60% equities (-40% return); gives overall return of -20%.</span><br />
<span style="font-size: xx-small;"><br /></span>
<span style="font-size: xx-small;">[4] <a href="https://research.stlouisfed.org/fred2/series/NYGDPPCAPKDWLD" target="_blank">Constant GDP per capita for the World, from FRED</a>: "normal" times have real growth per capita of between 2% and 3% per annum, but this fell to less than -3% per annum during the Financial Crisis i.e. around 6% lower than normal.</span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjscE-SjOaYqM0e0jL_nFygahYmhq971hFes12LYekReuj1SkZT86aMPXpYKYDW4NgLO1SHG_jCQARX7LrWSlAgZFU9RKDT9X5tyStaz33VYxEiMD6ajbKxsyYKBEpiratHeGPLEF5otkg/s1600/globalgdp2.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="212" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjscE-SjOaYqM0e0jL_nFygahYmhq971hFes12LYekReuj1SkZT86aMPXpYKYDW4NgLO1SHG_jCQARX7LrWSlAgZFU9RKDT9X5tyStaz33VYxEiMD6ajbKxsyYKBEpiratHeGPLEF5otkg/s320/globalgdp2.png" width="320" /></a></div>
<br />dcomerfhttp://www.blogger.com/profile/18378883188453226827noreply@blogger.com0tag:blogger.com,1999:blog-8452971772436653664.post-86787895973176579572016-03-14T13:55:00.000-07:002016-08-25T06:04:13.930-07:00Talent and/or agglomeration<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><a href="http://thema.u-cergy.fr/IMG/documents/Document%20de%20travail_2016-02.pdf">Bosquet
& Overman (2016)</a> find, using data from the British Household Panel
Survey clustered by local labour markets, that the elasticity of wages with
respect to birthplace size is 4.6%, which is around two thirds of the 6.8%
elasticity of wages with respect to current city size. So the size of place of
birth “explains” most of the well-known productivity enhancing size effects.<o:p></o:p></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;">The authors claim that their results suggest that (1) the
effect of birthplace on current location (clearly a high correlation between
the two); and (2) inter-generational transmission (i.e. the correlation between
incomes across generations); largely explain the effect of birthplace. In
contrast, they find no role for (3) human capital formation (it’s not the case
that people born in a high wage location gain better school results,
conditional on parental income etc). Their results “<i>highlight the importance of intergenerational sorting in helping
explain the persistence of spatial disparities</i>”, and show that “<i>there is a geographic component to the
inheritance of inequality</i>”. <o:p></o:p></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">What does this tell us? Well (1) is just the usual
agglomeration story: people can be, on average, identical across locations, but
in bigger locations they are more productive through greater scope for specialisation
etc. Given the high correlation between where people are born and where they
end up, birthplace size will statistically “explain” the extra wages that
actually come from pure size effects. And (3) tells us that educational quality
does not vary systematically with size.<o:p></o:p></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">(2) however, is about talent. Talent is heritable, and
partially explains the relatively high positive correlation between the
earnings of parents and their children (though advantage and privilege also
play a role in explaining this correlation). This paper is measuring a
geographical concentration of talent. Highly paid talented workers are clustering
in larger locations, and producing talented children who, on average, also stay
in these locations and go on to earn high wages.<o:p></o:p></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">(1) is potentially a positive sum game: on the production
side, productivity is higher if everyone clusters in a single large location, rather
than spreading out evenly, because the scope for specialisation is higher; and
on the consumption side, product variety is higher because it is much more
worthwhile to supply niche products in a large market<a href="file:///C:/Users/David/Dropbox/projects/quick%20work/ScotFES%20Blog%20etc/Bosquet%20&%20Overman.docx#_ftn1" name="_ftnref1" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="line-height: 107%;">[1]</span></span><!--[endif]--></span></a>.
It is easy to imagine that the consumption benefits of size may be scale
invariant: city 2, twice the size of city 1, will be able to support <i>x</i>% more niche markets than city 1,
independent of the absolute size of city 1<a href="file:///C:/Users/David/Dropbox/projects/quick%20work/ScotFES%20Blog%20etc/Bosquet%20&%20Overman.docx#_ftn2" name="_ftnref2" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="line-height: 107%;">[2]</span></span><!--[endif]--></span></a>.
On the production side however, it seems that the positive externalities are more
highly localised and hence less scale invariant. <a href="http://onlinelibrary.wiley.com/doi/10.3982/ECTA10876/abstract">Ahlfeldt
et al (2015)</a> find that “<i><a href="http://www.voxeu.org/article/economics-density-evidence-berlin-wall">externalities
are highly localised within the city and after around 10 minutes of travel
time, … externalities fall to close to zero</a></i>”. This seems to imply that
once a city is big enough to support some highly productive cluster, sector or
industry, then doubling the size of the city cannot be expected to further
increase productivity.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Conversely, (2) is a zero sum game: talent in one location
is talent that is not located anywhere else.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Further, it is not clear that increased size ends up providing benefits to the
inhabitants of a location since increased size also increases congestion,
pollution and land costs. <a href="http://spatial-economics.blogspot.ch/2016/02/bigger-cities-are-more-productive-but.html">Paul
Cheshire</a> claims that the current literature suggests that “<i>doubling a city’s size produces about a 5%
increase in total factor productivity, holding everything else constant</i>”,
but points to <a href="https://ideas.repec.org/p/cpr/ceprdp/9240.html">French
research</a> that suggests that the benefits from this higher productivity are
entirely swallowed by increased land costs if land supply is fixed, and 40%
absorbed by increased land costs if land is elastically supplied.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;">To the extent that large cities are exploiting potentially positive
sum gains from (1), it is possible that it is worthwhile, at the margin, to have
public policy that encourages the movement of people from smaller places to the
largest cities (so long as we ensure open-access and freedom to build so that
the land costs are more like the 40% of agglomeration benefits, rather than the
100% of agglomeration benefits under inelastic supply of housing). But to the
extent that the gains from size are actually due to the zero sum game of moving
talent around, then it would be stupid for public policy to encourage talent to
move to large congested, expensive cities and so not be present in places where
land is cheaper.<o:p></o:p></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;">And, of course, the UK seems to take the potentially less intelligent
option. The Centre for Cities 2014 report, <a href="http://www.centreforcities.org/wp-content/uploads/2014/01/14-01-27-Cities-Outlook-2014.pdf">Cities
Outlook 2014</a>, had some fascinating statistics on migration flows within the
UK. The following picture was particularly striking:<o:p></o:p></span></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjX4if0BXS8NYJdRn4MhOBWWeSbH6xJhsKYt-j9cxip4oZJ2t6oOPtP30SAruFoK_AFBT8VGMwp18-5m6K_n9a9-JitqBXpged8t29vC8ufilxUTBVBgNcSK1znDkbD4GnSSI3Fjsq2LMs/s1600/Cities_Outlook_2014_graph.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjX4if0BXS8NYJdRn4MhOBWWeSbH6xJhsKYt-j9cxip4oZJ2t6oOPtP30SAruFoK_AFBT8VGMwp18-5m6K_n9a9-JitqBXpged8t29vC8ufilxUTBVBgNcSK1znDkbD4GnSSI3Fjsq2LMs/s400/Cities_Outlook_2014_graph.png" width="390" /></a></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"> <v:shapetype coordsize="21600,21600" filled="f" id="_x0000_t75" o:preferrelative="t" o:spt="75" path="m@4@5l@4@11@9@11@9@5xe" stroked="f">
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</v:imagedata></v:shape><o:p></o:p></span></div>
<span style="color: #222222; line-height: 107%;"><span style="font-family: "arial" , "helvetica" , sans-serif;">And
this is not the only way things can work: in Switzerland for example talented
young people who want a career in finance move to Zurich, but if you want to be
an engineer then Basel is likely your destination, while for diplomacy it’s Geneva,
and for government it’s Bern. The highly localised production externalities
created by creating a cluster of firms in a particular sector can still be exploited, but everyone
does not all try to move to the same place, land price differentials and
congestion can be minimised, talent is spread out, and geographical inequality is much much lower.</span></span>
<br />
<span style="color: #222222; line-height: 107%;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span>
<span style="color: #222222; line-height: 107%;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><i>Update: <a href="http://www.centreforcities.org/multimedia/city-talks-paul-cheshire-challenging-conventional-urban-policy-wisdom/" target="_blank">The Paul Cheshire CityTalks episode from 23rd June</a> is good. Don't agree with everything he says (in particular he only focuses on the benefits to the people who move, not the costs on the people who don't) but it is interesting throughout.</i></span></span><br />
<div>
<!--[if !supportFootnotes]--><br clear="all" />
<hr align="left" size="1" width="33%" />
<!--[endif]-->
<br />
<div id="ftn1">
<div class="MsoFootnoteText">
<span style="font-size: x-small;"><a href="file:///C:/Users/David/Dropbox/projects/quick%20work/ScotFES%20Blog%20etc/Bosquet%20&%20Overman.docx#_ftnref1" name="_ftn1" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; line-height: 107%;">[1]</span></span><!--[endif]--></span></a> The
impact of higher productivity will show up in GVA statistics, but the gains
from enhanced product variety do not show up in GVA statistics: rather £1 of
expenditure on consumer goods buys more utility in a larger market because of
this wider product variety.<o:p></o:p></span></div>
</div>
<div id="ftn2">
<div class="MsoFootnoteText">
<span style="font-size: x-small;"><a href="file:///C:/Users/David/Dropbox/projects/quick%20work/ScotFES%20Blog%20etc/Bosquet%20&%20Overman.docx#_ftnref2" name="_ftn2" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; line-height: 107%;">[2]</span></span><!--[endif]--></span></a> Although
an individual’s utility likely increases by less when product variety rises by
x% from an initial high level of product variety compared with an initial low
level of product variety.</span><o:p></o:p></div>
</div>
</div>
dcomerfhttp://www.blogger.com/profile/18378883188453226827noreply@blogger.com0tag:blogger.com,1999:blog-8452971772436653664.post-42004044177974454752016-03-03T01:15:00.002-08:002016-03-03T01:15:45.159-08:00Asymmetric thinking on Council Tax revaluation<a href="https://twitter.com/GlennBBC/status/704963505015930882" target="_blank">Glenn Campbell tweets</a>:<br />
<blockquote class="twitter-tweet" data-lang="en">
<div dir="ltr" lang="en">
LOCAL TAX: 1991 property values will still be used. <a href="https://twitter.com/NicolaSturgeon">@NicolaSturgeon</a> says she has "no plans" for revaluation as it would hit some hard</div>
— Glenn Campbell (@GlennBBC) <a href="https://twitter.com/GlennBBC/status/704963505015930882">March 2, 2016</a></blockquote>
<script async="" charset="utf-8" src="//platform.twitter.com/widgets.js"></script>
But there are as many winners from revaluation as losers (there are as many properties that are in currently too high a band as in too low a band). These "revaluation winners" are being "<i>hit hard</i>" by the decision not to revalue.<br />
<br />
And something for the SNP to think about: <a href="http://electionsetc.com/2014/09/19/what-the-scottish-independence-referendum-results-tell-us/" target="_blank">the Yes vote in 2014 was correlated with levels of deprivation</a> i.e. it was highest in precisely those areas which have not seen the big house price rises since the last revaluation in 1991. A revaluation would, on average, benefit Yes voters and cost No voters. Therefore the decision to not revalue is effectively a gift to No voters - though perhaps that's the point since the SNP still need to convince people in these areas...dcomerfhttp://www.blogger.com/profile/18378883188453226827noreply@blogger.com0tag:blogger.com,1999:blog-8452971772436653664.post-52140675825320867212016-03-01T03:16:00.001-08:002016-03-01T03:16:31.498-08:00'Helicopter Money' and 'Fee & Dividend'Helicopter money is being increasingly discussed as the economic outlook darkens with policy rates still extremely low. Simon Wren-Lewis discusses <a href="http://mainlymacro.blogspot.ch/2016/03/two-related-confusions-about-helicopter.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+MainlyMacro+(mainly+macro)" target="_blank">Two related confusions about helicopter money</a> and Miles Kimball says that <a href="http://blog.supplysideliberal.com/post/139894253546/helicopter-drops-of-money-are-not-the-answer" target="_blank">Helicopter Drops of Money Are Not the Answer</a>. Both these pieces define Helicopter Money as QE + Fiscal Policy i.e. central banks create new money and use to buy government bonds, whilst governments run deficits, effectively giving taxpayers money via reduced tax bills (SWL: "<i>HM is a large fiscal expansion</i>", MK: "<i>Printing money and sending it to people is equivalent to printing money to buy Treasury bills and then selling those Treasury bills to raise funds to send to people</i>").<br />
<br />
I think this is too broad a view of helicopter money, which effectively incorporates the QE that we've seen over the past decade. HM could be differentiated from this QE by considering it to be new issues of central bank money that are not used to purchase any assets, but are rather given away. This would mean the exercise of a HM policy would be much more aggressive monetary policy than QE since it would be much more irreversible (the central bank would have fewer assets relative to liabilities with which to defend the value of the currency, unless it were to be recapitalised by the fiscal authorities).<br />
<br />
If the view of helicopter money could be narrowed to: the central bank creating new money, all citizens having an account at the central bank, and the new money being deposited on an equal per capita basis in these individual accounts; then there are two further issues that such a putative HM architecture could clarify:<br />
<br />
1) Central bank independence in terms of the output-inflation trade-off from the level of fiscal policy. Suppose the monetary authorities have lowered interest rates to zero, and still inflation is below target; the central bank decides to engage in QE, creating money to buy government bonds; demand for bonds rises. However the fiscal authorities do not change their tax and spending plans; There is a mild stimulatory impact from lowered long term borrowing rates, but there has been no "<i>Printing money and sending it to people</i>". Under HM = QE + Fiscal Policy, the central bank cannot decide the level of monetary stimulus without some agreement with the fiscal authorities. If instead HM was a distribution into citizens' individual accounts, then there would be a monetary expansion without any reference to the fiscal authorities. The central bank could exercise this policy lever autonomously in line with its (inflation targeting or other) mandate.<br />
<br />
2) Central bank independence in terms of the distributional effects of monetary policy. If the fiscal policy under HM = QE + Fiscal Policy was eliminating corporation tax, capital gains tax, and higher rates of income tax, then this would meet the definition of HM as "<i>Printing money and sending it to people</i>". But "<i>the people</i>" chosen is a highly political choice (in this case the very wealthy). A technocratic monetary authority should not be making, or party to, such political choices: and it would be if monetary objectives mandated QE that gave "windfall" resources to a particular government at a particular point in time with which to make a politicised distribution of this money. Per capita distribution i.e. a lump sum transfer, would of course be a political choice as well. But if this were the instrument specified in legislation and in the political process that set up the HM architecture, then that political choice would have been made appropriately <i>ex ante</i>, and the exercise of the policy lever could be made entirely on grounds of meeting monetary objectives.<br />
<br />
Anyway, those are my thoughts on helicopter money. It struck me recently though that setting up a HM architecture of this form would also enable the climate change policy advocated by <a href="http://csas.ei.columbia.edu/2015/11/11/environment-and-development-challenges-the-imperative-of-a-carbon-fee-and-dividend/" target="_blank">James Hansen: Fee & Dividend</a>. This is a carbon tax policy, the revenues from which are distributed on a per capita basis. This means that climate policy doesn't cost the average citizen anything (they get back all the extra money they spend) but it changes prices in a way to incorporate the carbon externalities of their consumption choices. The individual accounts at the central bank are a perfect vehicle for paying the dividends associated with the F&D policy.<br />
<br />
Always nice to present a single proposal that solves multiple problems... dcomerfhttp://www.blogger.com/profile/18378883188453226827noreply@blogger.com0tag:blogger.com,1999:blog-8452971772436653664.post-16811524211850404812015-12-01T01:24:00.000-08:002015-12-01T01:25:06.249-08:00End November Links# Brilliant: <a href="http://www.thedailymash.co.uk/news/society/northern-powerhouse-relocated-to-london-20151117103906" target="_blank">Northern Powerhouse relocated to London</a><br />
<br />
# <a href="http://www.ft.com/cms/s/0/a44bae1c-82fe-11e5-8e80-1574112844fd.html#axzz3qbpCM4uH" target="_blank">UK’s high-wire act on power supplies laid</a> bare says the FT. Amazing given the reductions in renewables subsidies and the end of the CCS competition, the prioritisation of new nuclear capacity which has extremely long development timescales, and the fact that the transmission charging regime is directly causing the early closure of generation capacity like Longannet.<br />
<br />
# At some point in the near future (hopefully) the <a href="http://localtaxcommission.scot/" target="_blank">Commission on Local Tax Reform</a> will publish it's report (cue another self-aggrandising link to my own contribution: <a href="https://www.dropbox.com/s/1q1ikts5gx2rn4i/Land_property%20tax%20opportunity.pdf?dl=0" target="_blank">The Opportunity for Land & Property Taxes in Scotland</a>). On this topic, I was reiterating <a href="http://scotfes.com/2015/11/20/the-politics-economics-of-council-tax-reform/" target="_blank">the political economy aspects at ScotFES</a> which I think are backed up by the <a href="http://www.thenational.scot/news/public-demands-an-end-to-council-tax-as-survey-reveals-most-brand-the-system-unfair.10346" target="_blank">results of the survey</a> run by the Commission which unsurprisingly shows that the general public lean towards income taxes; Brian Ashcroft, in <a href="http://www.scottisheconomywatch.com/brian-ashcrofts-scottish/2015/11/business-rates-and-the-scottish-economy.html#" target="_blank">Business rates and the Scottish economy</a>, makes the point that Business Rates optimally should not tax the buildings element - they should face a pure land value tax - but also that lobbyists really should not be listened to!<br />
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# I love the whimsical scenarios economists use to clarify thinking. Nick Rowe has a good example this month with "<a href="http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/11/vortigerns-immigration-policy.html" target="_blank">Vortigern's immigration policy</a>", and the most famous example is likely Krugman recounting the tale of the <a href="http://www.slate.com/articles/business/the_dismal_science/1998/08/babysitting_the_economy.html" target="_blank">Babysitting Co-op</a> to explain countercyclical monetary policy. I was reminded of this recently by a decent post, which was followed by a dreadful argument in the comments, on <a href="http://scotgoespop.blogspot.ch/2015/11/full-fiscal-autonomy-for-smarties.html" target="_blank">the GERS figures, on the Scot Goes Pop blog</a>. The author tries to use analogy to explain his ideas (and does a reasonable job I think) but this is clearly laughable in the eyes of his detractors, for whom I imagine the world is a blinding mess of facts, and expertise involves knowing the detail of all these facts (rather than cutting straight through to an understanding of the main points, by being able to simplify and realise what's important and what's not).<br />
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# Interesting<a href="http://www.washingtonmonthly.com/magazine/novemberdecember_2015/features/bloom_and_bust058470.php?page=all" target="_blank"> article in Washington Monthly</a> on trends in American regional inequalities:<br />
"<i>a story of incomes converging across regions to the point that people commonly and appropriately spoke of a single American standard of living. This regional convergence of income was also a major reason why national measures of income inequality dropped sharply during this period. ... Few forecasters expected this trend to reverse, since it seemed consistent with the well-established direction of both the economy and technology. With the growth of the service sector, it seemed reasonable to expect that a region’s geographical features, such as its proximity to natural resources and navigable waters, would matter less and less to how well or how poorly it performed economically. Similarly, many observers presumed that the Internet and other digital technologies would be inherently decentralizing in their economic effects. Not only was it possible to write code just as easily in a tree house in Oregon as in an office building in a major city, but the information revolution would also make it much easier to conduct any kind of business from anywhere. Futurists proclaimed “the death of distance.” Yet starting in the early 1980s, the long trend toward regional equality abruptly switched. Since then, geography has come roaring back as a determinant of economic fortune, as a few elite cities have surged ahead of the rest of the country in their wealth and income. ... Adding to the anomaly is a historic reversal in the patterns of migration within the United States. Throughout almost all of the nation’s history, Americans tended to move from places where wages were lower to places where wages were higher. ... </i><i>But over the last generation this trend, too, has reversed. Since 1980, the states and metro areas with the highest and fastest-growing per capita incomes have generally seen hardly, if any, net domestic in-migration, and in many notable examples have seen more people move away to other parts of the country than move in. Today, the preponderance of domestic migration is from areas with high and rapidly growing incomes to relatively poorer areas where incomes are growing at a slower pace, if at all.</i>"<br />
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The explanation offered in the article for these these trends is policy which either allows or restricts monopolies: "<i>Throughout most of the country’s history, American government at all levels has pursued policies designed to preserve local control of businesses and to check the tendency of a few dominant cities to monopolize power over the rest of the country.</i>" - this rings true as the likely driver of similar trends in the UK too.<br />
An alternative explanation, which again rings true but probably has less UK relevance (because almost everywhere in the UK is a "closed market") is that offered by <a href="http://idiosyncraticwhisk.blogspot.ch/2015/11/housing-series-part-84-two-housing.html" target="_blank">Idiosyncratic</a> <a href="http://idiosyncraticwhisk.blogspot.ch/2015/11/housing-series-part-86-regional.html" target="_blank">Whisk</a>: "<i>We had two housing markets - a closed market where there was massive price appreciation, and an open market where there was healthy expansion of the real housing stock. ... the added gross income for the highest income cities frequently goes to housing expenses.</i>"<br />
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# Some more links on geographical mobility, inequality and housing<br />
- <a href="http://equitablegrowth.org/housing-supply-rents-and-economic-mobility/" target="_blank">Housing supply, rents, and economic mobility</a> from the Washington Centre for Equitable Growth<br />
- <a href="http://www.citymetric.com/politics/britains-debate-social-mobility-stuck-its-time-city-perspective-1613" target="_blank">Britain's debate on social mobility is stuck. It's time for a city perspective</a> from CityMetric/Centre for Cities<br />
- <a href="http://idiosyncraticwhisk.blogspot.ch/2015/11/housing-series-part-89-low-interest.html" target="_blank">Low Interest Rates, the Housing Supply Constraint, and Picketty's Concern</a> from Idiosyncratic Whisk<br />
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# In <a href="http://idiosyncraticwhisk.blogspot.ch/2015/11/automatic-destabilizers.html" target="_blank">Automatic Destabilizers</a>, Idiosyncratic Whisk makes a great point about tax design. A good system would encourage investment when factors were abundant and wages and interest rates were low. But the fact that corporate losses can be offset against tax means that corporations face their highest tax burden at the start of a downturn (when they don't have any losses to offset), exactly when expectations of future (medium term) consumer demand is falling, therefore when their investment demand even in the absence of tax disincentives is low, and at the same time as interest rates and wages are falling, and unemployment is rising. Conversely, corporations face their lowest tax burden at the start of a boom because at this point they have a deferred tax asset which offsets their tax payments - but at this point their expectations of future consumer demand is high and so their investment demand before tax incentives is is high anyway, and they are competing for relatively scarce and expensive labour and investment capital. This is a pro-cyclical, destabilising, tax design.<br />
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# I've started a new project - just to get into the habit of looking at data, even when I don't have any particular reason to. U.S.E. (Understanding the Scottish Economy) will summarise Scottish economic data, and posting will likely be on a monthly basis. The first post is now up: <a href="https://undscotecon.wordpress.com/2015/11/30/november-2015-data-release-summary/" target="_blank">November 2015 Data Release Summary</a>.dcomerfhttp://www.blogger.com/profile/18378883188453226827noreply@blogger.com0tag:blogger.com,1999:blog-8452971772436653664.post-19381063801408831242015-11-05T01:15:00.001-08:002015-11-05T01:20:31.873-08:00End October LinksSlightly late with the end of the month links this month...<br />
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# Chris Dillow makes a good point in <a href="http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2015/10/trident-the-limits-of-rationality.html" target="_blank">Trident & the limits of rationality</a>: "<i>I'd expect people who disagree about the case for Trident to differ in other ways. I'd expect advocates of Trident to be more risk- and ambiguity-averse than its opponents: if they are keener to buy nuclear insurance they should also be keener to buy other forms of insurance and be less inclined to gamble or invest in equities. Empirically, though, this seems doubtful.</i>" This rings true - and cuts both ways. An argument within climate change economics is about whether the cost is small or large: it's small if you assume the world continues to grow and that the impacts occur a long time from now, because a relatively small investment made now will accumulate nicely to pay out at the same time as the future loss; but the cost is large (willingness to pay to avoid the risk is approaching 100% of GDP) if it's the insurance value against civilisational collapse or human extinction (at which point we have infinite marginal utility, see <a href="http://dash.harvard.edu/bitstream/handle/1/3693423/Weitzman_OnModeling.pdf?sequence=2" target="_blank">Weitzman (2009)</a>). So there should be a positive correlation between your support for nuclear weapons and your support for strong climate change action? I don't think so! I expect the nuclear supporters are not so keen on climate change action, and I'm certainly all for spending the £100bn Trident replacement-cost on zero carbon energy infrastructure!<br />
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# In discussing John McDonnell's suggestion for regional members of the MPC of the BoE, <a href="https://longandvariable.wordpress.com/2015/10/19/john-mcdonnells-boe-mandate-review/" target="_blank">Tony Yates says</a> "<i>This would be a retrograde step. Multiple committee places should be there to allow for controversies to play out about the appropriate diagnosis of the aggregate economic state, and the aggregate monetary policy. And they should not be there to set up a tug of war between regional members trying to tilt interest rate decisions towards their own regions.</i>". I think this misses the point: I would hope that there would not be any systematic difference in the advice offered by regional members, but the fact that they were based somewhere else might reduce groupthink and widen the perspectives that were brought to the MPC. And indeed, Tony Yates almost brings up this point: "<i>the regionalism </i>[in the USA] <i>is not really regionalism anyway. The multiple local Feds, in my view, mostly serve as a way to generate competing talent pools that produce potential FOMC members.</i>" - if the proposed regional members of the MPC were from offices of the BoE that each provided a proportional share of the BoE's analytical capability, then the UK's Central Bank would be contributing to building capacity in expertise across the UK (and might lower its costs due to the relative cost of labour and real estate outside of London).<br />
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# I recommend this <a href="http://www.monbiot.com/2015/10/21/home-ground/" target="_blank">George Monbiot article, Home Ground</a>, and I can use it to plug my new local tax working paper: <a href="https://www.dropbox.com/s/1q1ikts5gx2rn4i/Land_property%20tax%20opportunity.pdf?dl=0" target="_blank">The opportunity for land & property taxes in Scotland</a>.<br />
"<i>Joan Bakewell, ... argued that it would be “mean-spirited” to encourage “old people living alone in big houses … to sell up and make room for young and aspiring families.” I would argue that holding onto such houses while families are homeless is, in aggregate, far meaner. </i><i>But she has a solution: “Let them build more houses.” ... Let’s not look back at the profligate use of the space we already possess. Let’s not change the policies that encourage it. Let’s just keep building. It’s like dumping half our food in landfill then demanding that food production rises. ...</i><i> the idea that building alone will solve the problem is pure fantasy. There are 26.7 million households in the UK. In 2014, 1,219,000 homes were traded. So even if the government were to achieve its aim of building 200,000 homes a year, which some housebuilding experts consider impossible, it would add less than 1% a year to the total stock, and increase the volume of transactions by only one sixth. ... we cannot build our way out of this crisis. If we really want to solve it, the greatest contribution must come from the redistribution of existing stock.</i>"<br />
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# A further link related to my local tax paper is related to the point that savings directed towards housing may reduce investments in productive capital (and at the same time, due to frictions in the housing market, this leads only to increased land and house prices rather than to expanded supply of housing) at a cost to the level of output that the economy can produce. <a href="http://bankunderground.co.uk/2015/10/16/will-there-really-be-a-pensions-spending-spree/" target="_blank">The BoE discuss changes in pension rules and asks whether the reduced requirements to save for an annuity will lead to a "spending spree"</a>. They find that while "<i>greater pension freedom is likely to have only a small impact on household spending. There could be a larger impact on property investment</i>". Aye, cheers very much George.<br />
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# <a href="http://www.voxeu.org/article/housing-cost-disease" target="_blank">VoxEU: The housing cost disease</a> describes a fascinating paper by Borri & Reichlin, linking the relative productivity in production of housing against that in producing the rest of the economy's output, to the increasing Wealth-to-income ratios described by Piketty.dcomerfhttp://www.blogger.com/profile/18378883188453226827noreply@blogger.com0tag:blogger.com,1999:blog-8452971772436653664.post-10085555033956808582015-11-03T01:33:00.001-08:002015-11-03T01:33:54.422-08:00The Opportunity for Land & Property Taxes in Scotland<a href="http://www.spreaker.com/user/michaelgreenwell/scotindypod-114-on-land-ownership-reform?clickid=wY7R1RVfwyUI3nNVtw2dGTPwUkXT%3AyWRVzPhwo0&irpid=10078&sharedid=&mp_value1=" target="_blank">Lesley Riddoch was on Michael Greenwell's podcast in October</a> discussing land reform. From around 22 minutes in, they discuss the non-development of vacant and derelict land in cities.<br />
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"<i>When developers get their hands on land, they land-bank it, so that they can wait ... until they get permission to build high-end residential flats, because that's where the biggest profits are ... Now generally a lot of these areas are not zoned for that ... Developers are hanging out for what will make the most money for them, and in the meantime they have no penalty on it ... You either have to intervene in statutory ways, or you start to impose taxes on land which does it for you.</i>"<br />
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As an economist, it's no surprise that I favour imposing taxes rather than what's labelled here as statutory intervention. And I have a <a href="https://www.dropbox.com/s/1q1ikts5gx2rn4i/Land_property%20tax%20opportunity.pdf?dl=0" target="_blank">new working paper</a> that makes the argument for land and property taxes entirely in keeping with the quote above. The paper will form part of the evidence base for a report by the <a href="http://localtaxcommission.scot/" target="_blank">Commission on Local Tax Reform</a> which should be released in the coming months.<br />
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The paper makes the case for land and property taxes promoting economic activity - the release of vacant and derelict land being one of the channels for this. The main results of the paper are that a tax on property values, set at a rate to replace the current council tax revenues, would be progressive (i.e. would reduce net household income inequality) and would result in a large majority of the population being better off - so a council tax to property tax policy change should be a vote winner.<br />
<br />dcomerfhttp://www.blogger.com/profile/18378883188453226827noreply@blogger.com0tag:blogger.com,1999:blog-8452971772436653664.post-10756766323219614332015-10-01T01:24:00.000-07:002015-10-01T01:24:36.956-07:00End September Links# Arc of Prosperity asks <a href="http://www.arcofprosperity.org/did-universal-bilingualism-give-scots-an-advantage-in-the-past/" target="_blank">Did universal bilingualism give Scots an advantage in the past?</a> - I've had this idea ever since I read Billy Kay's <a href="http://www.billykay.co.uk/pages/scotsthemithertongue2.asp" target="_blank">The Mither Tongue</a>. It should be possible to examine further (at least to look at correlations if not necessarily causation) by looking at regions of countries which have a lot of bilingualism (e.g. Catalan and Spanish in Catalonia) against regions of the same country which don't.<br />
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# The <a href="http://www.bbc.co.uk/news/science-environment-34147192" target="_blank">BBC reports</a> on encouraging news from about the potential for a climate deal to include relatively undamaged countries accepting responsibility for those suffering a lot of damage. The article does quote Julie-Anne Richards from the campaign group, Climate Justice, saying that "<i>the current situation being experienced with migrants in the Mediterranean was stiffening the resolve of poorer countries to make sure that an agreement on people displaced by climate change was part of any new deal. Right now if you are a low lying country you'd be looking at the Mediterranean and not having a lot of confidence that your future was guaranteed unless you could get something locked into the Paris agreement that acknowledged that vulnerable countries are going to face the worst impacts</i>". This is an issue that those objecting to taking large numbers of Syrian refugees on the grounds that the solution should actually be to deal with ISIS, are not considering. The proximate cause of the Syria crisis was ISIS, but between 2007 and 2010, <a href="http://robertscribbler.com/2015/09/04/everything-i-dreamed-of-is-gone-how-climate-change-is-spurring-a-global-refugee-crisis-to-rapidly-worsen/" target="_blank">Syria had its worst drought in the instrumental record</a>. The social upheaval that allowed ISIS to take control (while obviously helped by 2003 Iraq War) may be related to climate change, consistent with the theory of <a href="https://www.newscientist.com/article/mg21128270-200-complexity-theorist-my-formula-predicts-social-unrest/" target="_blank">Yaneer Bar-Yam of the New England Complex Systems Institute who finds links between food prices and revolutions</a>.<br />
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# <a href="http://mainlymacro.blogspot.ch/2015/09/media-myths.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+MainlyMacro+(mainly+macro)" target="_blank">Simon Wren-Lewis links</a> to research showing that <a href="http://www.democraticaudit.com/?p=15857" target="_blank">Voters respond to the the ‘reported’ rather than the ‘real’ economy</a> with obvious implications to be drawn about the media in terms of their reporting of the 2015 General Election. (I can't help feeling that many of the same points could also be charged at the reporting of the 2014 Independence Referendum though too.) "<i>Voters ... respond to how the economy ... is reported to be. ... </i><i>the media really matters. ... </i><i>The discussion of issues involving the economy ... among most of the ‘political class’ is often so removed from reality that it deserves the label myth. ... I do not believe I was exaggerating in suggesting that the ... myth was in good part responsible for the Conservatives winning the election</i><i>. </i><i>The media is vital in allowing myths to be sustained or dispelled. That does not mean that the media itself creates myths out of thin air. These myths on the economy were created by the Conservative party and their supporters, and sustained by the media’s reliance on City economists. ... </i><i>Myths ... do come from real concerns... But who can deny that much of the media ... have stoked that</i>"<br />
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# Again on refugees & migration, some cool maps from <a href="http://bigthink.com/strange-maps/the-refugee-map-of-europe" target="_blank">BigThink</a> and <a href="http://i100.independent.co.uk/article/this-great-map-lets-you-explore-the-history-of-migration-for-every-country-in-the-world--b1xiciWtpBe" target="_blank">The Independent</a><br />
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# <a href="http://www.voxeu.org/article/neolithic-roots-economic-institutions" target="_blank">Cereals, appropriability, and hierarchy</a> discusses the neolithic roots of current cross-country differences in economic productivity. In contrast to <a href="http://www.amazon.co.uk/Guns-Germs-Steel-history-everybody/dp/0099302780" target="_blank">Jared Diamond</a> (geography determined where high farming productivity and the availability of food surpluses were), it is argued that it is not food surpluses, but rather the appropriability of crops that determines development through the incentives this creates for the emergence of complex social institutions: "<i>increasing returns to scale in the provision of protection from theft, early farmers had to aggregate and to cooperate to defend their stored grains. Food storage and the demand for protection thus led to population agglomeration in villages and to the creation of a non-food producing elite that oversaw the provision of protection. Once a group became larger than a few dozen immediate kin, it is unlikely that those who sought protection services were as forthcoming in financing the security they desired. This public-good nature of protection was resolved by the ability of those in charge of protecting the stored food to appropriate the necessary means.</i>"<br />
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# This month's <a href="http://www.centreforcities.org/multimedia/city-talks-the-future-of-urban-jobs/" target="_blank">CityTalks podcast from the CentreForCities</a> had a great contribution from FT Leader Writer Giles Wilkes on how power breeds success: "<i>We're talking here about incentives ... What mobile businesses want ... is that they're dealing with the local leadership, that is really going to have their interests in mind ... </i>[in the UK outside London, local leaders have little incentive to deal positively with business]<i> and the trouble is that all of this is self-fulfilling: if you want to be, if you're a thrusting, active kind of bureaucrat or politician who wants to get ahead and improve things, you go to Westminster nowadays - that's where the power is, that's where the glory is</i>"<br />
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# <a href="http://www.thenational.scot/comment/george-kerevan-is-george-osborne-ready-to-sell-off-the-profitable-green-investment-bank.7788" target="_blank">George Kerevan's article in the National</a> also describes how London's dominance makes it impossible for other locations to get started (on the agglomeration process) in the context of the Green Investment Bank: "<i>a Green Bank ... located in Edinburgh, which has a strong banking infrastructure and is located close to where many big renewables projects were likely to be built. ... Certainly the GIB has its formal HQ in Morrison Street in Edinburgh, next to the Conference Centre. But on enquiring you will discover that the GIB has only 50 of its current 113 staff based in the Scottish capital, handling administrative and backroom functions. The dealmakers are all based in… er, Millbank Tower in London. GIB’s chief executive is Shaun Kingsbury, ... He is based in London, lives in the Home Counties, and commutes to Scotland a couple of days a week. ... Kingsbury argues that putting together funding deals would require his people travelling to the City of London, so it makes sense to have them live there rather than commute from Edinburgh. It is an excuse I’ve heard all my life to justify London’s clammy grip on decision-making.</i>"<br />
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# Mark Carney generated headlines about the so-called "Carbon Bubble": <a href="https://commonspace.scot/articles/2551/mark-carney-unless-world-leaders-act-climate-change-could-trigger-financial-crisis" target="_blank">Unless world leaders act, climate change could trigger financial crisis</a>. This is a good opportunity for me to link again to my paper on the subject, which is currently Revise & Resubmit at The Economic Journal: <a href="https://www.dropbox.com/s/y6urtmib9h74cj7/Carbon%20Bubble.pdf" target="_blank">The Carbon Bubble: Climate Policy in a Fire-Sale Model of Deleveraging</a>dcomerfhttp://www.blogger.com/profile/18378883188453226827noreply@blogger.com1tag:blogger.com,1999:blog-8452971772436653664.post-76054633163661810882015-08-30T23:58:00.000-07:002015-08-31T00:07:34.831-07:00End August Links# "<i><a href="http://www.citymetric.com/business/economically-speaking-britain-losing-three-or-four-cities-year-blame-longer-commutes-1366" target="_blank">Economically speaking, Britain is losing three or four cities a year. Blame longer commutes</a></i>" shows a map of the ONS's Travel To Work Areas<br />
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# The <a href="http://crookedtimber.org/2015/08/12/up-and-down-left-and-right/" target="_blank">Up and down, left and right</a> post on Crooked Timber has a fascinating chart showing the relative influence of Thatcher compared to almost every other UK Prime Minister in recent history:<br />
<img alt="rawlschart" src="http://crookedtimber.org/wp-content/uploads/2015/08/rawlschart.png" height="326" width="400" /><br />
NB x-axis is mislabelled: should say 10th percentile disposable income rather than median.<br />
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# <a href="http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2015/08/the-london-paradox.html" target="_blank">Chris Dillow speculates</a> on London's productivity advantage over the the rest of the UK: "<i>The fact is that London is far more productive than the rest of the country - 29.2 per cent more so ... How can this be? The obvious possibility is that ... cities do indeed benefit from agglomeration effects: people learn from living and working alongside each other. ... But there's a problem here. If this were the case, we'd expect that cities generally would have higher productivity than less densely populated areas. But in the UK, this is not so. ... our other major cities such as Birmingham and Manchester have below-average productivity. This is consistent with another theory - that London's wealth is due not to benevolent agglomeration effects but to parasitism. It might be that big legal and financial industries actually depress economic activity elsewhere, in part by sucking talent away from other uses. ... wealthy traders want to sit on top of each other - but this could be because doing allows them to benefit from insider dealing, front-running and rigging markets rather than because of genuine productivity improvements.</i>"<br />
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# The FT has a related article which anecdotally shows the impact of a region's status - talented people go high-status and help to build the status of the place that the go, but many of the other benefits that talented people bring to an area are zero-sum - if talented person A goes to region X, then benefits accrue to that region that therefore don't accrue to the other regions. <a href="http://www.ft.com/cms/s/0/30bd5340-3206-11e5-8873-775ba7c2ea3d.html#axzz3hse3NsgF" target="_blank">Executives erode the north-south divide</a> "<i>the ... company has made several announcements supporting tech start-ups, and cultural and charitable initiatives near its home in north-east England. ... the global group, one of only six English FTSE 100 companies with headquarters north of Birmingham, remains rooted in Newcastle ... and is reinvesting there. The location of company headquarters matters greatly for regional economies but in the UK there is a north-south imbalance. The majority are in London and the south east. As well as conferring kudos, company headquarters support high-level, well-paid jobs internally and in a plethora of professional firms. They can underpin schools, charities, cultural and sporting venues and help maintain a balanced demographic. They can also play a vital role in fostering start-ups and promoting economic activity. These “agglomeration” effects then make it easier to attract skilled people to an area. ... Roger Whiteside ... has noticed a behavioural change among top managers. Instead of relocating their families when they clinch a top job, nowadays, he says, executives “don’t move the family, they move themselves”. Mr Whiteside lives in London but spends three days a week in Newcastle. He says Heathrow’s Terminal 5 is packed with senior executives at 6am on Mondays. ... “I think we are very close to London,” he says. But he adds; “I don’t think people in London think we are close to them.” Getting investors to visit Vertu’s Gateshead base is like pulling teeth, he says.</i>"<br />
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# Written before the Greek Referendum on 5th July, <a href="http://www.interfluidity.com/v2/5965.html" target="_blank">this piece from Interfluidity</a> is great:<br />
"<i>Among creditors, a big catchphrase now is “moral hazard”. We cannot be too kind to Greece, we cannot forgive their debt with few string attached, because what kind of precedent would that set? If bad borrowers, other sovereigns, got the idea that they can overborrow without consequence, if Spanish and Portuguese populists perceive perhaps a better deal is on offer, they might demand that. They might continue to borrow and expect forgiveness, and where would it end except for the bankruptcy of the good Europeans who actually produce and save? ... the term moral hazard traditionally applies to creditors. It describes the hazard to the real economy that might result if investors fail to discriminate between valuable and not-so-valuable projects when they allocate society’s scarce resources as proxied by money claims. Lending to a corrupt, clientelist Greek state that squanders resources on activities unlikely to yield growth from which the debt could be serviced? That is precisely, exactly, what the term “moral hazard” exists to discourage. You did that. Yes, the Greek state was an unworthy and sometimes unscrupulous debtor. Newsflash: The world is full of unworthy and unscrupulous entities willing to take your money and call the transaction a “loan”. It always will be. That is why responsibility for, and the consequences of, extending credit badly must fall upon creditors, not debtors.</i>"<br />
; and<br />
"<i>But don’t the Greeks want to borrow more? Isn’t that what all the fuss is about right now? No. The Greeks need to borrow money now only because old loans are coming due that they have to pay, and they have been trying to come to an agreement about that, rather than raise a middle finger and walk away. The Greek state itself is not trying to expand its borrowing.</i>"<br />
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# Chris Dillow's <a href="http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2015/07/the-something-for-nothing-culture.html" target="_blank">Something for nothing culture</a> makes some similar points to my <a href="http://scottishpropertytaxreform.org/?p=81" target="_blank">economic efficiency arguments for property tax reform</a>. He makes the empirical point that I had not included that: "<i>across countries, high home ownership is associated with poor macroeconomic performance; Greeks and Italians are far more likely to own houses than Swiss or Germans</i>"<br />
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# <a href="http://www.voxeu.org/article/market-economy-s-stability" target="_blank">The market economy’s stability</a> by Beaudry, Galizia, & Portier is interesting. It "<i>suggests that the market economy is inherently unstable and booms and busts arise endogenously as the results of market incentives. ... In the current dominant paradigm </i>[Stable-with-shocks]<i>, there is a tendency to see monetary policy as the central tool for mitigating the business cycle. This view makes sense if excessive macroeconomic fluctuations reflect mainly the slow adjustment of wages and prices to outside disturbances within an otherwise stable system. However, if the system is inherently unstable and exhibits forces that favour recurrent booms and busts of about seven to ten years intervals, then it is much less likely that monetary policy is the right tool for addressing macroeconomic fluctuations. Instead, in such a case we are likely to need policies aimed at changing the incentives that lead households to bunch their purchasing behaviour in the first place.</i>" Although the article does not then go on to say it, one of the major mechanisms through which households' purchasing behaviour becomes bunched is through the correlating influence of the housing (and land) markets.dcomerfhttp://www.blogger.com/profile/18378883188453226827noreply@blogger.com0tag:blogger.com,1999:blog-8452971772436653664.post-56246801714094468752015-08-19T07:33:00.000-07:002015-08-19T07:35:57.923-07:00Benefits of Longannet Closure?It was announced yesterday that Longannet is to close next year. `<a href="http://www.thenational.scot/news/pm-blamed-as-end-of-longannet-looms.6553" target="_blank">PM blamed as end of Longannet looms</a>': ScottishPower have blamed high transmission costs, which Scottish Government Ministers have labelled "discriminatory".<br />
<br />
I <a href="http://www.centreonconstitutionalchange.ac.uk/blog/dirty-business-longannet" target="_blank">wrote about this issue</a> prior to the General Election, and I received a response from National Grid. This response stated that "<i>It is true that while there is an excess of generation in Scotland, compared to local demand, then generators in Scotland pay more in transmission charges than those in England and Wales. ... It is worth noting that as the generation portfolio changes, the transmission charges will automatically adjust to reflect the direction of flows on the system – e.g. if further existing generation in Scotland closed that would cause the transmission charges for generation in Scotland to reduce and ultimately reverse.</i>"<br />
<br />
This is not a point that I've seen in any of the coverage of Longannet's closure. Hopefully someone will be able to find the answer: by how much will transmission charges in Scotland fall as a result of the closure of Longannet? By how much (perhaps in £s per MW of installed capacity) can a windfarm (in Fife maybe) expect to improve its revenues? Could the impact of this closure on transmission charges perhaps mitigate some of the wind subsidy cuts announced by the UK Government?<br />
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<br />dcomerfhttp://www.blogger.com/profile/18378883188453226827noreply@blogger.com1tag:blogger.com,1999:blog-8452971772436653664.post-58717480593057512692015-07-06T00:08:00.003-07:002015-07-06T00:09:45.406-07:00Land Tax Footnotes<div class="separator" style="clear: both; text-align: center;">
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<span style="font-family: inherit;">I have a post up at Scottish Property Tax Reform - </span><a href="http://scottishpropertytaxreform.org/?p=81" target="_blank">The economic efficiency arguments for property tax reform</a>. <span style="font-family: inherit;">This quick post is to provide some notes, links and qualifications on that longer piece.</span><br />
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<b><span style="font-family: inherit;">The fixed supply of land</span></b><br />
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<span style="font-family: inherit;">It's not 100% accurate to say that no land is withdrawn from supply with high land taxes - it would certainly disincentivise land-owners from funding resource and mineral prospecting on their land which could be considered a form of "land creation". It also disincentivises land-owners from seeking land use re-designations (from agricultural use to residential use say). And I suppose that if someone owned a shallow seabed at the coast that could be reclaimed from the sea given investment, then a land tax would make this investment less profitable. Bryan Caplan raises this issue in <a href="http://econlog.econlib.org/archives/2012/02/a_search-theore.html" target="_blank">A Search-Theoretic Critique of Georgism</a>.</span><br />
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<span style="font-family: inherit;">It can be claimed that taxing land taxes positive spillovers created by other private investment (your land value depends positively upon how nice your neighbours land is and upon private amenities close by) and that this may reduce the supply of such investment: <a href="http://www.forbes.com/sites/modeledbehavior/2015/03/29/the-problem-with-100-land-value-taxes/" target="_blank">The Problem With 100% Land Value Taxes</a>. The anecdotal example given to describe the issue is "<i>Real estate developers who move into neighborhoods with high vacancies, low demand, and high crime are often hoping that positive spillovers from their investment will spur additional investments from others, which will in turn make their investment more valuable.</i>" <a href="http://noahpinionblog.blogspot.ch/2015/03/a-misguided-attack-on-land-value-taxes.html" target="_blank">Noah Smith disagrees</a> that land taxes are an issue here: "<i>the problem of neighborhood externalities is a thorny one, but the LVT does not make it worse (or better)</i>".</span><br />
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<b><span style="font-family: inherit;">Land as an asset class</span></b><br />
<b><span style="font-family: inherit;"><br /></span></b>
<span style="font-family: inherit;">In an OLG model, the introduction of land crowds out productive capital formation - see <a href="https://www.princeton.edu/rpds/papers/Deaton_Laroque_Housing_Land_Prices_and_the_Link_between_Growth_and_Savings_JEG.pdf" target="_blank">Deaton & Laroque (2001)</a></span><br />
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<b><span style="font-family: inherit;">Sounds good – let’s go</span></b><br />
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<span style="font-family: inherit;"><span style="font-size: 14.6666669845581px; line-height: 15.6933336257935px;">Chris Dillow posts a depressing Venn Diagram in </span><a href="http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2012/10/the-economic-policy-dilemma.html" style="font-size: 14.6666669845581px; line-height: 15.6933336257935px;" target="_blank">The Economic Policy Dilemma</a><span style="font-size: 14.6666669845581px; line-height: 15.6933336257935px;">:</span></span><br />
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<span style="font-family: inherit; margin-left: 1em; margin-right: 1em;"><a href="http://stumblingandmumbling.typepad.com/.a/6a00d83451cbef69e2017c32c52018970b-pi" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="http://stumblingandmumbling.typepad.com/.a/6a00d83451cbef69e2017c32c52018970b-pi" height="223" width="400" /></a></span></div>
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<span style="font-size: 14.6666669845581px; line-height: 15.6933336257935px; text-align: start;">Finally, worth posting another link to Noah Smith's fantastic summary: </span><span style="font-size: 14.6666669845581px; line-height: 15.6933336257935px; text-align: start;"><a href="http://qz.com/169767/the-century-old-solution-to-end-san-franciscos-class-warfare/" target="_blank">This 100-year-old idea could end San Francisco’s class war</a></span></div>
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dcomerfhttp://www.blogger.com/profile/18378883188453226827noreply@blogger.com0tag:blogger.com,1999:blog-8452971772436653664.post-48711691063331294892015-06-30T06:23:00.000-07:002015-06-30T06:23:59.379-07:00End June Links# <a href="http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2015/06/secular-stagnation-as-wising-up.html" target="_blank">Secular Stagnation As Wising Up</a><br />
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# <a href="http://niesr.ac.uk/blog/government-borrowing-and-long-term-interest-rates-natural-experiment#.VXF2J8-qqko" target="_blank">Government borrowing and long-term interest rates: a natural experiment</a><br />
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# <a href="http://www.washingtonpost.com/blogs/wonkblog/wp/2015/06/08/bitcoin-isnt-the-future-of-money-its-either-a-ponzi-scheme-or-a-pyramid-scheme/" target="_blank">Bitcoin isn’t the future of money — it’s either a Ponzi scheme or a pyramid scheme</a><br />
<br />
# <a href="https://growthecon.wordpress.com/2015/06/13/what-assumptions-matter-for-growth-theory/" target="_blank">What Assumptions Matter for Growth Theory?</a> is the best summary of the "Mathiness" discussion in econ blogs<br />
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# Glick & Rose <a href="http://www.voxeu.org/article/currency-union-effect-trade-redux" target="_blank">The currency union effect on trade: Redux</a>: it used to be estimated and presumed that currency union had a strong effect on trade, but recent empirical work has found much weaker effects. Basically the data <i>hint</i> that there are positive effects, but the size of any such effect is a strong function of the econometric technique used, and so we cannot say with any confidence that there is much of an effect on trade from CU.<br />
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# 2 pieces of great news from the Netherlands:<br />
- <a href="https://theconversation.com/dutch-courts-climate-ruling-may-force-other-states-to-cut-emissions-or-else-43882" target="_blank">Dutch court’s climate ruling may force other states to cut emissions – or else</a><br />
- <a href="https://commonspace.scot/articles/1729/dutch-city-of-utrecht-to-experiment-in-citizens-income" target="_blank">Dutch city of Utrecht to experiment in citizen’s income</a><br />
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# Not such good news on the effectiveness of energy efficiency when done in reality rather than under ideal conditions: <a href="http://www.vox.com/2015/6/23/8834341/weatherization-energy-efficiency" target="_blank">A new study looks at federal energy-efficiency efforts — and the results are grim</a><br />
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# <a href="https://theconversation.com/why-onshore-wind-isnt-as-cheap-as-it-should-be-in-the-uk-43560" target="_blank">Andrew ZP Smith asks</a>, among other things, if wind energy is actually subsidised: "<i>The chief assistance for onshore windfarm operators comes in the form of top-up payments from bill-payers, above what the operators receive from selling their electricity in the wholesale markets. ... An electricity grid tends to rank different generators in order of marginal cost, prioritising the cheapest forms of generation. ... Cheap electricity is brought online first, and the plants with the highest marginal generation cost are saved till last. ... Wind is never the most expensive fuel on the grid, because its fuel is free. The cost of wind power is almost entirely in construction; marginal generation cost is next to nothing. Therefore when the wind blows and power is generated, it knocks out the most expensive generator (and whether that’s coal or gas, depends on their relative prices, the carbon price, and the relative efficiency of the generators) and it lowers prices across the whole market. Previous research in Germany and Spain has found that these cost reductions outweigh the revenue support paid to wind. Wind is not subsidised in those two countries – indeed, quite the reverse, wind lowers total costs for consumers.</i>"<br />
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# Evidence on the costs of Brexit? <a href="http://www.voxeu.org/article/european-integration-benefits-deep-versus-shallow-integration" target="_blank">Campos, Coricelli, & Moretti</a> conduct econometric exercises on Norway (which was able to join the EU in 1994, but chose not to) and the other 1994 candidate countries (who did join) Sweden, Finland and Austria. They find that the decision not to join the EU has reduced Norway's productivity by 6%.<br />
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# It's not often Celtic and Scottish football get a mention on VoxEU! <a href="http://www.voxeu.org/article/sutton-esque-dominance-football" target="_blank">Dominance in football: An application of Sutton’s theory of endogenous sunk costs</a><br />
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# People often say that lefties support Keynesian demand management because they support big government. <a href="http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/06/fiscal-policy-and-indifference-about-the-size-of-government.html" target="_blank">Nick Rowe makes a good point</a> that this doesn't make sense: "<i>My beliefs about the optimal size of government don't matter for my beliefs about fiscal policy. My belief that the size of government matters and that there is an (interior*) optimum does matter for my beliefs about fiscal policy. It's why I'm against it.</i>" i.e. belief in big government should bias you against Keynesian demand management (all else equal).<br />
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# This <a href="http://www.enlightenmenteconomics.com/blog/index.php/2015/06/cities-infrastructure-and-growth/" target="_blank">Diane Coyle post</a> is a bit rambling, but the maps are cool, there are some links that I should go back to, and it ends with a point that I entirely agree with about CBA for transport projects: "<i>standard cost-benefit analysis does not do a good job when it comes to big infrastructure projects ... because it is a tool for assessing marginal changes, not ones which might involve large non-linearities – behaviour changes or network effects. ... it isn’t about saving 20 minutes on your journey time to increase the amount of time you can spend in a meeting at the other end.</i>"dcomerfhttp://www.blogger.com/profile/18378883188453226827noreply@blogger.com0tag:blogger.com,1999:blog-8452971772436653664.post-24662902538929724052015-06-26T04:51:00.000-07:002015-06-26T04:55:07.031-07:00Is fiscal austerity contractionary under floating exchange rates?<a href="http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/06/mark-sadowskis-correlations-deserve-a-response.html" target="_blank">Nick Rowe</a> points to <a href="http://www.themoneyillusion.com/?p=29692" target="_blank">Scott Sumner</a> pointing to research by Mark Sadowski: basically austerity is strongly associated with weaker economic activity in the Eurozone (so country implementing it does not have control over monetary policy with which to offset the fiscal austerity), but not associated with weaker economic activity in countries with their own currency.<br />
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Graphs pinched from Scott Sumner's blog:<br />
# Eurozone/no independent monetary policy -<br />
<img alt="Screen Shot 2015-06-18 at 11.54.06 AM" src="http://www.themoneyillusion.com/wp-content/uploads/2015/06/Screen-Shot-2015-06-18-at-11.54.06-AM.png" /><br />
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# Independent monetary policy -<br />
<img alt="Screen Shot 2015-06-18 at 11.55.00 AM" src="http://www.themoneyillusion.com/wp-content/uploads/2015/06/Screen-Shot-2015-06-18-at-11.55.00-AM.png" /><br />
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Scott Sumner uses this result to claim support for the "Market Monetarist" position (that monetary offset is always possible and so there is no reason to use fiscal policy), over the Keynesian position (that monetary policy is exhausted when interest rates reach their ZLB and fiscal policy should be used). The application of this result to the UK might be that the combination of austerity (to eliminate the government's budget deficit) and expansionary monetary policy (to boost the economy) is a perfectly coherent and practical policy choice.<br />
<br />
Is this a valid conclusion to draw? As Nick Rowe says "<i>It's 6 days now, which is a long time in the blogosphere. I have seen posts about who said what about who said what. What I want to see are posts that interpret those correlations. And other interpretations/explanations are always possible (though econometricians bravely try to minimise the number of plausible interpretations). How would you explain them?</i>"<br />
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I would guess that an important explanation here is relative devaluation: Using data from <a href="http://www.bis.org/statistics/eer/" target="_blank">BIS</a>, there is a strong negative correlation between the degree of austerity and the devaluation experienced for the floating rate countries. If devaluation is associated with economic expansion (which seems plausible), but under floating exchange rates devaluation occurs at the same time as fiscal austerity, then austerity could be ceteris paribus contractionary, but we would not see the actual contraction under floating rates - so e.g. in Iceland we see austerity (contractionary) and devaluation (expansionary) and overall not much impact. In Eurozone countries we see only the ceteris paribus contractionary effect of fiscal austerity.<br />
<br />
The problem for the policy conclusions that you might draw if this is the explanation is that in times of depression, not everyone can devalue against everyone else - it is by definition a zero sum game. So devaluation worked well for Iceland which was small and could achieve lots of relative price movement against e.g. the US, but it cannot work in general. There's still a need for fiscal policy - especially in relatively large currency zones like UK (which is certainly large relative to the Icelandic Krona).<br />
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Technical results:<br />
<br />
# Regression for eurozone/fixed rate countries. Note negative and significant coefficient for degree of austerity (capb) upon economic performance (ngdp): point estimate = -2.12, p_value = 0.1%<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjNgfhFCj1ow2fqrtj6vAckHakfhWkeKbE8p-1telV_oVIOtTJ_BOuECMm53Ub62rDFlKc_wdyARoEoZKG7affiG_hRSUzF3y6DjhB549o8aYXKcynYY9RWTRR5pP3pXFOW8jMnyS88-48/s1600/fixed_regres.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="162" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjNgfhFCj1ow2fqrtj6vAckHakfhWkeKbE8p-1telV_oVIOtTJ_BOuECMm53Ub62rDFlKc_wdyARoEoZKG7affiG_hRSUzF3y6DjhB549o8aYXKcynYY9RWTRR5pP3pXFOW8jMnyS88-48/s400/fixed_regres.png" width="400" /></a></div>
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# Regression for floating rate countries. Insignificant relationship (p_value = 88.4%) between degree of austerity and economic performance.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj8bSXPRGrHPqN6N8KO_rs-h6qb5eAG25MARU1fODS9e1zukDSbEIVy4K3dPx5Ba4VVQzYuFNDApkuNS2W-cDLLq4cGeRSESreNqDMnkEUhyphenhyphenZhJg2XYKiQnLlud7zDOCGd-di3K_57kn3g/s1600/floating_regres.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="162" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj8bSXPRGrHPqN6N8KO_rs-h6qb5eAG25MARU1fODS9e1zukDSbEIVy4K3dPx5Ba4VVQzYuFNDApkuNS2W-cDLLq4cGeRSESreNqDMnkEUhyphenhyphenZhJg2XYKiQnLlud7zDOCGd-di3K_57kn3g/s400/floating_regres.png" width="400" /></a></div>
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# Adding trade weighted exchange rate movement over the period (xrchg) changes the picture. The correlation between the capb and xrchg variables is -63%, and the observed variation in the combination of the two variables enhances the observed negative effect of austerity upon economic activity. The austerity variable is still not significant but its 95% confidence interval includes the point estimate for the fixed rate eurozone economies. <br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhWHumadKdSn3py1Zeac8c0fhZQss1RiWG-oFKDTcirIQ0HWgZQrvME2hKueyanxzwrXPEXho49wFq4d5BMEOO7Fdv-j_n58EDzgt-hplCeYTYl5KXH1LPNVkpR9THlpBG4J97eIlOqsq4/s1600/floatwxr_regres.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="173" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhWHumadKdSn3py1Zeac8c0fhZQss1RiWG-oFKDTcirIQ0HWgZQrvME2hKueyanxzwrXPEXho49wFq4d5BMEOO7Fdv-j_n58EDzgt-hplCeYTYl5KXH1LPNVkpR9THlpBG4J97eIlOqsq4/s400/floatwxr_regres.png" width="400" /></a></div>
<br />dcomerfhttp://www.blogger.com/profile/18378883188453226827noreply@blogger.com3tag:blogger.com,1999:blog-8452971772436653664.post-40301960743714537172015-06-19T04:13:00.002-07:002015-06-19T04:26:02.930-07:00I think effort is required to be this technically illiterate!<a href="http://www.bbc.co.uk/news/uk-scotland-tayside-central-33184623" target="_blank">BBC Scotland reports today</a> on a new hydro scheme: "<i>Plans lodged with Dumfries and Galloway Council said the scheme will generate about 700 megawatts a year.</i>" Now obviously a scheme that delivered energy output at a rate that was accelerating by 700 MW per year would be fantastic: if initial output was zero, within a decade it could be generating all the electricity used in Scotland (less than 6GW) - but I knew the BBC must have got this wrong and presumably the plans were either for a big 700MW scheme, or for a small scheme that generated 700MWhrs per year. They helpfully provided a link.<br />
<br />
In a moment of prevarication,<a href="http://eaccess.dumgal.gov.uk/online-applications/files/5D275F82FD6753337F814C22A47FA53B/pdf/15_P_2_0181-Chapter_1_-_Non_Technical_Summary-489907.pdf" target="_blank"> I clicked through and saw that the plans said neither</a>! They actually said 100kW. So the journalist must have converted 100kW to 100kWhrs per hour, then multiplied by approximately 350 days per year, and by approximately 20hrs per day to get 700MWhrs per year, and then reported it as 700MW "a" year.<br />
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This is mind blowing semi-competent incompetence!dcomerfhttp://www.blogger.com/profile/18378883188453226827noreply@blogger.com0tag:blogger.com,1999:blog-8452971772436653664.post-64081884769750035342015-06-01T02:11:00.000-07:002015-06-01T02:11:10.394-07:00End May Links# <a href="http://www.taxresearch.org.uk/Blog/2015/05/10/myths-vs-evidence-tax-cuts-for-the-10/" target="_blank">Richard Murphy</a> highlights some interesting research which suggests that tax cuts only promote employment growth if they're directed at the lower end of the household income distribution, with no change on employment if directed towards the top of the income distribution. (Of course I'm only linking to this as confirmation bias - it's the sort of thing I'd like to be true!)<br />
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# In terms of SNP policy priorities for Westminster, I agree with <a href="http://bellacaledonia.org.uk/2015/05/21/true-grid/" target="_blank">Mike MacKenzie's True Grid on Bella</a>: gaining a regulatory and subsidy regime that allows a full exploitation of Scotland's renewable energy resources should be the top priority. The news that <a href="https://commonspace.scot/articles/1426/snp-takes-charge-of-energy-and-scottish-affairs-committees-at-westminster" target="_blank">the SNP has the chairmanship of the Energy and Climate Change select committee</a> is therefore particularly welcome.<br />
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# Wow! No idea is this is feasible or not, but the scale of the idea from ScottishScientist is jaw-dropping: <a href="https://scottishscientist.wordpress.com/2015/04/15/worlds-biggest-ever-pumped-storage-hydro-scheme-for-scotland/" target="_blank">World’s biggest-ever pumped-storage hydro-scheme, for Scotland?</a> <a href="http://euanmearns.com/the-loch-ness-monster-of-energy-storage/" target="_blank">Euan Mearns</a> provides some criticism.<br />
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# <a href="http://mainlymacro.blogspot.ch/2015/05/recognising-success-of-macroeconomic.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+MainlyMacro+(mainly+macro)" target="_blank">Simon Wren-Lewis provides</a> the best election post-mortem on the macro-economic arguments that played out in the media, and Labour's abject failure in this regard.dcomerfhttp://www.blogger.com/profile/18378883188453226827noreply@blogger.com0tag:blogger.com,1999:blog-8452971772436653664.post-29056662061795677222015-04-30T02:38:00.002-07:002015-04-30T02:40:42.350-07:00A dirty business at LongannetA Scottish political issue, for which the responsibility lies at Westminster, is electricity network transmission charges. The present arrangements mean that suppliers pay to access the grid, and consumers face fairly uniform prices (across geographical areas) for their electricity. This made perfect sense in a world in which suppliers were indifferent about where they invested their capital (output for a given investment in a coal power station is independent of where the coal plant is). We now however live in a world in which yields on renewable infrastructure at some locations (e.g. windy Scotland) are vastly superior to the yields on the same infrastructure built at other locations. Do we now want to maintain this pricing structure? The polar opposite alternative is for suppliers to face the same grid access fees at each location, and for consumers to differentially pay for their electricity at a rate commensurate with their choice to locate either close to or far away from the fixed renewable resource. Given the current infrastructure, such a change in pricing would leave the average costs for the UK consumer unchanged, but the incentives for the purchasers of energy would be vastly different (which would of course change the infrastructure and hence the average costs after some time).<br />
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Differential consumer prices would, at the margin, provide an incentive for population movement from the congested South to the depopulated North. A larger effect is likely to be on industrial users of energy in capital intensive but low labour input facilities. Data centres, super-computers, server farms, aluminium smelters etc which do not currently get built anywhere because investment is preferentially going towards less efficient locations predicated upon patterns of existing demand, could be built specifically to consume the cheap energy produced in locations with great resources but which are far from current population centres.<br />
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Despite the relevance of this issue for Scottish voters in a Westminster election, it has not featured highly in the campaign. The SNP manifesto does say "<i>transmission arrangements should work to support, rather than undermine, production of renewable energy in the most favourable locations</i>", but the focus of this issue in the manifesto is to "<i>press for a change to the transmission charging </i><i>system that is penalising Scottish generators and threatening the future of Longannet power station</i>". The closure of Longannet comes with job losses - so of course it's an emotive election issue.<br />
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But Longannet is a coal fired power station (one of Europe's biggest polluters), and by the argument above, it's appropriate for them to be cited on the basis of existing demand. So is the current pricing structure appropriate here, and hence the looming closure of the site? Stations like Longannet supply baseload power to balance out the peaks and troughs of renewable supply. It makes sense, from the point of view of minimising transmission losses, that the supply of baseload power in Scotland should equal the expected demand in Scotland less the expected renewable supply. If the closure of Longannet makes Scotland's supply of baseload electricity lower than the gap between its demand and expected renewable supply, then the current pricing structure is unreasonably discriminating against generators in Scotland. But if not, then a Scottish polity that has agreed to "<i>ambitious commitments to carbon reduction</i>" should be willing to let Longannet go, and focus purely upon gaining "<i>transmission arrangements </i>[that]<i> work to support, rather than undermine, production of renewable energy in the most favourable locations</i>".dcomerfhttp://www.blogger.com/profile/18378883188453226827noreply@blogger.com0tag:blogger.com,1999:blog-8452971772436653664.post-30294117263611857632015-04-30T00:56:00.000-07:002015-04-30T00:56:03.274-07:00End April Links# Krugman discusses Brad DeLong's additional criteria, other than public good provision, for government expenditure in <a href="http://krugman.blogs.nytimes.com/2015/04/06/the-fiscal-future-i-the-hyperbolic-case-for-bigger-government/?module=BlogPost-Title&version=Blog%20Main&contentCollection=Opinion&action=Click&pgtype=Blogs&region=Body" target="_blank">The hyperbolic case for bigger government</a>. The collective outcome of individual long term choices is not what we might choose, so it's better for public institutions to be designed democratically to offset some of the flaws we make when making intertemporal decisions if the time period these are over is "long". This sounds reasonable to me. I would add that similar reasoning applies to the spatial dimension and there is a rationale for government due to the fact that it may be that democratic allocation of land resources could be more "efficient" (in the sense of maximising ex-post satisfaction with the outcomes) than decentralised private choices. Krugman describes the desirability of public schooling provision by claiming that we might under allocate resources to schooling because we overly discount the benefits that may be received in the very long term. Another rationale for public provision is that left to individual priorities, sufficient schooling may not be provided in my area because of the choices of others. These spatial externalities are a reason why goods like schools cannot be treated like tins of beans and left to the private sector, despite the fact that they are certainly rival (a place taken at a school is a place not available to another) and excludable (you don't have the automatic ability to gain access to schooling just because a school is there if they don't let you in), and so do not fit the definition of <a href="http://en.wikipedia.org/wiki/Public_good" target="_blank">public goods</a>.<br />
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# <a href="http://www.vox.com/2015/4/10/8379917/germany-budget-deficit" target="_blank">Germany is imperiling the world economy by refusing to accept free money</a>: "<i>fixing the problem requires absolutely zero sacrifice on Germany's part. What the world needs from Berlin is for Germany to buy itself a bunch of nice shiny new transportation and energy infrastructure, or else for Germany to give itself a huge tax cut. Not only would shiny new projects and lower taxes be fun, but the message of the negative interest rates story is that by borrowing more money today Germany will improve its long-term fiscal situation.</i>" Not sure it's logically certain that it would improve Germany's long term fiscal position - but any positive return project makes economic sense if you can borrow at negative rates, and it's certainly possible that long term fiscal position is improved relative to the case with continued depressed demand and negative rates, where tax revenues likely to be lower than they otherwise would be because of general depressed environment.<br />
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# <a href="http://johnhcochrane.blogspot.ch/2015/04/gdefault-needs-not-grexit.html" target="_blank">John Cochrane</a> & <a href="http://slackwire.blogspot.ch/2015/04/default-drachma.html" target="_blank">JW Mason</a> are exactly right when they say that while Greece needs to default, this is (or should be) entirely unrelated to whether is stays, or should stay, in the Euro.<br />
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# Roger Farmer says <a href="http://rogerfarmerblog.blogspot.ch/2015/04/there-is-no-evidence-that-economy-is.html" target="_blank">There is No Evidence that the Economy is Self-Correcting</a>, showing that the unemployment rate seems to exhibit a unit root. As <a href="http://krugman.blogs.nytimes.com/2015/04/25/choose-your-heterodoxy-wonkish/" target="_blank">Krugman</a> and <a href="http://johnhcochrane.blogspot.ch/2015/04/unit-roots-redux.html" target="_blank">Cochrane</a> both say, this is ridiculous (it would have to go above 100% or below 0% eventually if that was actually the case). But I think Cochrane pretty much makes the point that Farmer trying to approximate with his model: "<i>unemployment like other stationary ratios in macro (consumption/GDP, hours/day, etc.) have important and frequently overlooked low-frequency movements</i>".<br />
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# I'm in the Herald: <a href="http://www.heraldscotland.com/comment/columnists/why-the-consequences-of-inequality-really-are-severe.123463600" target="_blank">Why the consequences of inequality really are severe</a><br />
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# Interfluidity's <a href="http://www.interfluidity.com/v2/5876.html" target="_blank">Tangles of pathology</a> proposes that Liberalism, Inequality, and the "Nonpathology" of the lowest section of society into an despised underclass, form a trilemma: a society can exhibit 2 of these but not all 3. So the Nordic economies avoid pathology, but cannot offer a large spread in economic rewards; the US does offer such unequal rewards, but its losers are treated as an underclass.<br />
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# <a href="http://www.forbes.com/sites/francescoppola/2015/04/25/the-swiss-have-eliminated-the-zero-lower-bound/" target="_blank">The Swiss Have Eliminated The Zero Lower Bound</a>!<br />
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<br />dcomerfhttp://www.blogger.com/profile/18378883188453226827noreply@blogger.com0tag:blogger.com,1999:blog-8452971772436653664.post-15709861496775980422015-03-31T04:58:00.000-07:002015-03-31T04:58:21.793-07:00End March Links# The New Scientist says <a href="http://www.newscientist.com/article/mg22530100.200-to-save-the-rainforest-let-the-locals-take-control.html#.VPQX8fnF_YA" target="_blank">To save the rainforest, let the locals take control</a> - I think there's a general principle involved with this local control issue<br />
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# <a href="http://aeon.co/magazine/technology/on-the-high-seas-of-the-hidden-internet/" target="_blank">The Silk Road might have started as a libertarian experiment, but it was doomed to end as a fiefdom run by pirate kings</a><br />
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# My gut feel is that <a href="http://www.project-syndicate.org/commentary/negative-nominal-interest-rates-by-nouriel-roubini-2015-02" target="_blank">The Negative Way to Growth? by Nouriel Roubin</a> [lowering rates should boost demand and hence inflation if run into supply constraints] is "more correct" than <a href="http://johnhcochrane.blogspot.ch/2015/02/doctrines-overturned.html" target="_blank">Doctrines Overturned by John Cochrane</a> [given long run stability, low rates must be associated with low inflation, so perhaps central banks should be raising rates to get inflation away from zero]. Not saying Cochrane's made any sort of mistake in analysing the model, but I suspect the model is not a good map to the real world.<br />
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# Krugman learns something about reality from introspection in <a href="http://krugman.blogs.nytimes.com/2015/03/03/how-negative-can-rates-go/?module=BlogPost-Title&version=Blog%20Main&contentCollection=Opinion&action=Click&pgtype=Blogs&region=Body" target="_blank">How negative can rates go?</a>: we don't have to take the convenience values of cash or bank deposits into account once interest rates hit zero because at this point the marginal holder of cash or bank deposits is using them as a store of value rather than for their liquidity.<br />
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# I wanted to read this, I really did: <a href="http://www.resilience.org/stories/2015-03-05/the-paradox-of-oil-the-cheaper-it-is-the-more-it-costs" target="_blank">The Paradox of Oil: The Cheaper it is, the More it Costs</a>. But in the introduction it said: "<i>it becomes clear that oil is a commodity that defies reductive analysis and which cannot be understood unless one looks through a multi-dimensional, interdisciplinary lens</i>", and I gave up. To understand anything we need to reduce its description to its important features ("<i>reductive analysis</i>") - it's the only way to do it (other than simulating the real world over and over again to see how the full complex system behaves, i.e. conduct experiments, but this is often not possible). Obviously different people (especially from different disciplines) can disagree about which are the important features to consider. But this wishy-washy "we must think holistically and multi-dimensionally" pish is just an excuse for a non-rigorous verbal model (which is equally reductionist, but just not very good) to obscure more than it reveals.<br />
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# Climate change economics too often simply calculates the "social cost of carbon" and proclaims this to be the appropriate rate for a carbon tax. The impacts on incentives for replacement zero carbon infrastructure are rarely considered. So Adam Ozimek's thoughts in <a href="http://www.forbes.com/sites/modeledbehavior/2015/03/22/dirty-energy/" target="_blank">Dirty Energy Taxes And Clean Energy Innovation</a> are important. However, I think the economies of scale and learning by doing points that he makes at the end are likely important enough to mean that his main point is not crucial though.<br />
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# <a href="http://www.voxeu.org/article/myth-europe-s-little-ice-age" target="_blank">The myth of Europe's little ice age</a><br />
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# <a href="http://reidfoundation.org/2015/03/serious-criticism-of-smith-commision-tax-proposals/" target="_blank">Dr Jim Cuthbert on behalf of the Reid Foundation</a> has the <a href="http://dcomerf.blogspot.ch/2014/12/hmt-says-it-has-has-no-intention-of.html" target="_blank">same concerns as me</a> about the lack of tax hypothecation between whole UK and rUK/England following implementation of Smith proposals on further devolution to Scotland.<br />
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<br />dcomerfhttp://www.blogger.com/profile/18378883188453226827noreply@blogger.com0tag:blogger.com,1999:blog-8452971772436653664.post-8417760235716819942015-03-01T12:56:00.001-08:002015-03-01T12:56:59.341-08:00End February Links# From the Guardian, <a href="http://www.theguardian.com/business/economics-blog/2015/feb/04/brain-drain-which-uk-regions-hold-on-to-their-graduates" target="_blank">Brain drain: which UK regions hold on to their graduates?</a><br />
<img src="http://i.guim.co.uk/static/w-1430/h--/q-95/sys-images/Guardian/Pix/pictures/2015/2/3/1422986931880/40867963-6be3-4894-8af5-4375f16b1ab6-1020x793.png" height="310" width="400" /><br />
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# We live in interesting times: <a href="http://www.vox.com/2015/2/5/7981461/negative-interest-rates-europe" target="_blank">Something economists thought was impossible is happening in Europe</a> (negative interest rates). And despite negative nominal interest rates being reality, George Monbiot proposes resurrecting previous monetary schemes which had structurally negative interest rates: <a href="http://www.theguardian.com/commentisfree/2015/feb/17/currency-scheme-1930s-save-greek-economy-eurozone-crisis?CMP=EMCNEWEML6619I2" target="_blank">A maverick currency scheme from the 1930s could save the Greek economy</a>.<br />
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# Good to see English econ bloggers taking an interest in Nicola Sturgeon's anti-austerity speech.<br />
- Chris Dillow makes a typically insightful comment in <a href="http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2015/02/austerity-fear-and-bubblethink.html" target="_blank">Austerity, Fear and Bubblethink</a>, explaining her ability to take this position: "<i>it's no accident that one of the few prominent politicians to see things as they really are works outside the Westminster bubble</i>".<br />
- <a href="http://mainlymacro.blogspot.ch/2015/02/nicola-sturgeons-ucl-speech.html" target="_blank">Simon Wren-Lewis</a> is a bit grudging claiming that since, in his view, independence would have been accompanied by more fiscal tightening, a sensible policy now must be hypocrisy. This is despite the SNP being fairly consistent in calling for expansionary fiscal policy since 2009, and doing more than the UK government to shift from revenue expenditure into capital expenditure within the constraints of a fixed budget.<br />
- <a href="http://blogs.independent.co.uk/2015/02/13/nicola-sturgeon-with-fiscal-friends-like-these/" target="_blank">Tony Yates writing in the Independent</a> is mendacious in the extreme. He claims that an anti-austerity position from the SNP is damaging to the anti-austerity cause! In his view the SNP are so beyond the pale (<a href="http://en.wiktionary.org/wiki/beyond_the_pale" target="_blank">an apt phrase in this context</a>) that policy positions they espouse may automatically be deemed less credible. But they are the government of Scotland, winning a majority under PR! They are polling between 40% and 50% of the vote in Scotland. Given this, their policy positions have to be treated as fairly centrist.<br />
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# More good Stumbling and Mumbling posts:<br />
- In <a href="http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2015/02/origins-of-bad-policy.html" target="_blank">Origins of bad policy</a> Chris Dillow points out that "<i>in German 'debt' and 'guilt' are the <a href="http://www.bbc.co.uk/news/business-31369185" target="_blank">same</a> words</i>" - I can label this as German homework!<br />
- Some economics in the Hari Seldon/Psychohistory mould in <a href="http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2015/02/created-by-history.html" target="_blank">Created by History</a><br />
- Individual rationality versus ecological diversity, and why British politics might be due to undergo a step change, in <a href="http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2015/02/heading-for-extinction.html" target="_blank">Heading for Extinction</a><br />
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# Simon Wren-Lewis's <a href="http://mainlymacro.blogspot.ch/2015/02/endogenous-supply-and-depressed-demand.html" target="_blank">Endogenous supply and depressed demand</a> makes a fairly convincing case that, despite the <a href="http://research.stlouisfed.org/fred2/graph/?id=LREM64TTGBQ156S" target="_blank">UK's employment rate being back to pre-crisis levels</a>, we may still be in a depressed economic environment, and that the appropriate policy is to loosen until we are clearly in a regime in which wage inflation is consistent with monetary targets: "<i>after a severe recession which appears to result in a loss of capacity, you use policy to explore the boundaries of just how much capacity has really been lost, and run the risk that inflation may rise as you do so. You do not sit back, tell yourself that below target inflation is probably temporary, and do nothing. And, of course, you do not plan for more fiscal austerity.</i>"dcomerfhttp://www.blogger.com/profile/18378883188453226827noreply@blogger.com0tag:blogger.com,1999:blog-8452971772436653664.post-43445486498606543702015-02-16T01:53:00.001-08:002015-02-16T01:53:36.935-08:00Let clear thinking blossomI love <a href="http://www.luath.co.uk/blossom.html" target="_blank">Lesley Riddoch's Blossom</a>. It contains lots of ideas that I really want to spend time thinking about on the interplay between local autonomy and productivity. Eventually I may write a proper review... However, even towards things that you really like, it's often easiest to react to aspects you don't like. And I don't like the confusion between investment in human capital, and the use of capital spending as countercyclical fiscal policy. So I'm going to react...<br />
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As Nick Rowe makes clear in <a href="http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/02/human-capital-and-land-capital.html" target="_blank">"Human Capital" and "Land Capital"</a>, the term capital is used to capture a concept related to time. Spending on early years' intervention, in the sense that it produces a "return" 20 years + later in the form of a more productive and educated next generation, is capital spending. Spending on childcare, in the sense that it allows parents to improve and maintain their skills in the workplace, which will boost their income into their 40s, 50s & 60s, is capital spending. No doubt about it.<br />
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However, Riddoch says "<i>when capital investment is under discussion, childcare is rarely mentioned. ... Scottish politicians and civil servants have backed construction projects as the best way to kick start the economy, restore optimism and provide jobs. ... in 2013, Scotland's Finance Secretary, John Swinney, published a list of preferred 'shovel-ready' projects including £34 million worth of trunk road schemes, a £5.7 million revamp of ferry ports, £308 million for NHS buildings and £65 million on college upgrades. ... 2013 could just as easily have been the Year of the Soft Hat - with £394 million invested in human capital, not road junctions.</i>"<br />
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The rationale for using "capital spending" as countercyclical fiscal policy is that it can be lumpy, not that there is something magical about capital spending relative to revenue spending in terms of boosting the economy (at the margin). If the government wants to build a public physical asset which has a lifetime of 40 years, it doesn't really matter whether it does it this year or next year, therefore it is best to do it when private demand is low to stabilise overall economic activity. However, if a programme of early years' intervention is deemed valuable, then we cannot wait for the economic cycle to implement it - it has to be done at specific ages of the children. Childcare programmes could be shut down in a booming economy - but this wouldn't be consistent with expectations of parents, and would likely be very politically unpopular. The inflexibility over time of the spending decisions on such programmes means that they are very properly regarded as revenue spending programmes - even if they do build human capital.<br />
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Lesley Riddoch is absolutely correct to argue for such spending programmes, but not to present them as alternatives to construction projects for countercyclical fiscal policy: such programmes cannot be used countercyclically.dcomerfhttp://www.blogger.com/profile/18378883188453226827noreply@blogger.com0tag:blogger.com,1999:blog-8452971772436653664.post-45156727217929635352015-02-01T12:46:00.000-08:002015-02-01T12:46:57.485-08:00End January Links# Several great posts from Chris Dillow:<br />
- <a href="http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2014/12/the-diversity-paradox.html" target="_blank">The Diversity Paradox</a>: "<i>there are (at least) three distinct meanings of the term </i>[Diversity]<i>. One is ethnic and gender diversity - ensuring that women and minorities are fairly represented in positions of power and prominence. A second is cognitive diversity - giving space to different intellectual perspectives. And a third is ecological diversity: having a variety of strategies and business models. </i><i>I would argue very strongly for diversity in the last two senses.A multiplicity of perspectives ... can be a solution to the problems of (tightly) bounded knowledge and rationality; ... And ecological diversity can protect economies from shocks... In a changing environment, mixed strategies help ensure survival.</i>" He's not arguing against the first type of diversity, but making the point that the other two are very important and are given much less attention.<br />
- <a href="http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2014/12/in-praise-of-complexity-economics.html" target="_blank">In praise of complexity economics</a> which has a lot of good links<br />
- <a href="http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2015/01/who-bears-risk.html" target="_blank">Who bears risk?</a> "<i>it is workers rather than capitalists who are risk-takers</i>"<br />
- <a href="http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2015/01/heterodox-economics-the-left-.html" target="_blank">Heterodox economics and The Left</a><br />
- <a href="http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2015/01/basic-income-some-issues.html" target="_blank">Basic Income: Some issues</a><br />
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# Interesting post from <a href="http://www.interfluidity.com/v2/5822.html" target="_blank">Interfluidity</a> on economics of Uber: economists' knee-jerk assumption that rationing taxi-cab space using price is the optimal mechanism is, at the very least, dodgy.<br />
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# Interesting research highlighted by RES: <a href="http://www.res.org.uk/details/mediabrief/7135901/INEQUALITY-IN-BIG-CITIES-Why-urbanisation-makes-the-world-more-unequal.html" target="_blank">Inequality in big cities: Why urbanisation makes the world more unequal</a><br />
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# I like the whimsical way Nick Rowe thinks, and his <a href="http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/01/inflation-targeting-destroyed-its-own-signal.html" target="_blank">Did inflation targeting destroy its own signal?</a> post with apples, bananas and inflation targets is a good example (followed up with <a href="http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/01/a-model-where-ngdplt-beats-it.html" target="_blank">A simple model where NGDP targeting beats inflation targeting</a>)<br />
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# Some economics in the Hari Seldon/Psychohistory mould from globalinequality: <a href="http://glineq.blogspot.ch/2015/01/can-black-death-explain-industrial.html" target="_blank">Can Black Death explain the Industrial Revolution?</a><br />
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# The "Carbon Bubble" is in the news: <a href="http://www.bbc.co.uk/news/science-environment-30709211" target="_blank">Most fossil fuels 'unburnable' under 2C climate target</a>, & <a href="http://www.bbc.co.uk/news/science-environment-30716664" target="_blank">Fossil fuels: The 'untouchable reserves'</a> - I need to get <a href="https://www.dropbox.com/s/y6urtmib9h74cj7/Carbon%20Bubble.pdf" target="_blank">my paper</a> published!<br />
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# Simon Wren-Lewis discusses <a href="http://mainlymacro.blogspot.ch/2015/01/when-central-bank-losses-matter.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+MainlyMacro+(mainly+macro)" target="_blank">When central bank losses matter</a>: "<i>the effectiveness of QE is highly uncertain compared to the effectiveness of direct transfers to citizens or public works </i>[as a means of stimulating the economy in the short run]<i>. We seem to be stuck with an ineffective form of stimulus, because something more effective is taboo, or goes by a different name. To repeat it in a simple but more provocative way: a central bank giving money to people or governments is out of the question, but a central bank giving money to parts of the financial sector is just fine. That is a very convenient taboo for some.</i>"<br />
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# <a href="http://www.washingtonpost.com/blogs/wonkblog/wp/2015/01/14/bitcoin-is-revealed-a-ponzi-scheme-for-redistributing-wealth-from-one-libertarian-to-another/" target="_blank">Bitcoin revealed: a Ponzi scheme for redistributing wealth from one libertarian to another</a>: "<i>The key here is that the math problems the miners have to solve get harder the more of them there are. If there's a big influx of miners, say, because of a big bubble that pushes prices into quadruple digits, then there's even more pressure on everybody to upgrade to the latest supercomputers to stay competitive. The thing about the latest supercomputers, though, is that they're expensive to buy and expensive to run. .... So miners had to borrow lots of money to try to keep up in the Bitcoin arms race. But all that borrowing hasn't paid off now that Bitcoin prices are free falling. In fact, it's part of the reason that they're doing so. Bitcoin prices are so low, you see, that miners are spending more money running their supercomputers than they're making from new coins. So why are they still going? Well, they have dollar debts that they need to pay back, and where else are they going to get the money? They're stuck, in other words, in a catch-22: they can't afford to keep mining, but they can't afford to stop mining, either. (This, coincidentally, is the same dilemma that oil drillers who borrowed a lot during the boom face now during the bust). This has already forced one big mining group into default. And it's forced the rest to sell the only assets they have—Bitcoins—to pay back their dollar debts. That, of course, only pushes the price of Bitcoin down even further, which makes even more miners sell their Bitcoins to pay back they owe as mining becomes more unprofitable. And so on, and so on.</i>"<br />
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# Two opposing views of impact of inflation on real wages: MR asks <a href="http://marginalrevolution.com/marginalrevolution/2015/01/why-is-deflation-continuing.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+marginalrevolution%2Ffeed+%28Marginal+Revolution%29" target="_blank">Why is deflation continuing in Europe and Japan?</a> and notes that "<i>Most countries have labor market incumbents with sweet real wage deals, deals which could not be renegotiated anew today because the world has seen a repricing of labor downwards for the wealthy countries. Higher rates of price inflation would cut into those deals and thus high rates of price inflation are unpopular.</i>", whereas Chris Dillow notes that "<i>in the longer-run, real wages aren't affected by inflation. If they were, we could achieve higher wages by (credibly) reducing the inflation target - but nobody believes this</i>". To the extent that expansionary policy would benefit real GDP in a demand-constrained world (without impacting upon the labour share), it has to be the case that average real wages would be boosted by inflation. But I think MR is right and there is a large cohort of incumbants who would be worse off. Rather, expansionary policy is likely to benefit the young, new hires, and the newly promoted.<br />
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# <a href="http://www.taxresearch.org.uk/Blog/2015/01/26/its-scotland-wales-and-northern-ireland-that-can-deliver-new-deal-we-need/" target="_blank">It’s Scotland, Wales and Northern Ireland that can deliver the New Deal we need</a> "<i>the government </i>[should]<i> capitalise investment in the economy by buying bonds issued by regionally controlled investment banks in Scotland, Wales, Northern Ireland and the English regions. Those investment banks would then work with regional governments, local authorities, housing associations, NHS trusts and others to deliver the infrastructure this country needs. Part of that would be green green energy driven, I am sure. Part would be straight need: much of that would be housing. All would be local. And without exception it would create jobs in every constituency in the UK. This could be the economic stimulus Scotland needs on top of its new borrowing powers.</i>"<br />
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# Harry Burns say <a href="http://www.newscientist.com/article/mg22530050.200-social-failure-not-lifestyle-has-made-scots-sick.html?cmpid=RSS|NSNS|2012-GLOBAL|online-news#.VMYdmP54ojx" target="_blank">Social failure, not lifestyle, has made Scots sick</a> "<i>widening health inequality in Glasgow is due to the recent emergence of socially determined causes of early death. What happened to cause this? During most of the 20th century traditional industries, such as shipbuilding and steel, provided secure, meaningful employment for Glasgow. These industries declined in the 1970s as companies shifted production abroad. Skilled people left and those who remained struggled to find jobs. At the same time, communities changed as inner-city tenements were replaced by peripheral housing estates which lacked the same social cohesion. From this emerged a society with a deep sense of alienation. ... what we are seeing in Scotland is the consequence of austerity in the 1970s and 80s, when social change and joblessness led to a breakdown in family life and a cycle of alienation.</i>"<br />
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# A fantastic principle through which to think about the Greek situation: <a href="http://mainlymacro.blogspot.ch/2015/01/debt-restructuring-proposed-principle.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+MainlyMacro+(mainly+macro)" target="_blank">Debt restructuring: a proposed principle</a> "<i>there should be no significant increase in unemployment above its natural rate ... as a direct result of having to pay interest on any government debt. Unemployment above the natural rate when there is no excess core inflation is a waste of resources as well as being damaging to most of those unemployed, so any deal that creates such unemployment, or allows it to persist, should be regarded as the result of creditors acting against the social good. ... it involves creditors acting against their own self-interest, because the more of an economy’s resources you waste, the less is available to pay its debts.</i>"dcomerfhttp://www.blogger.com/profile/18378883188453226827noreply@blogger.com0tag:blogger.com,1999:blog-8452971772436653664.post-28777878173319750202014-12-20T08:00:00.000-08:002014-12-20T08:08:50.358-08:00HMT says it has has no intention of allowing a workable system of real autonomy for ScotlandThe <a href="http://futureukandscotland.ac.uk/blog/smith-commission%E2%80%99s-proposals-%E2%80%93-big-issues-remain-be-resolved" target="_blank">IFS's David Phillips has a post at the Future of the UK and Scotland site</a>, which like the <a href="http://scotfes.com/2014/11/20/how-should-the-barnett-formula-be-adjusted-to-reflect-devolved-taxes-a-question-of-allocating-risk-wonkish/" target="_blank">post by my colleagues David Bell and David Eiser at Scottish Fiscal & Economic Sudies</a>, describes the Byzantine, labyrinthine, systems needed to implement a system that maintains the Barnett Formula whilst implementing significant devolution of revenue powers.<br />
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There is a simpler way to do things: declare some expenditure items as UK responsibilities, with the others as devolved; declare a set of UK taxes to pay for these UK expenditures, and allow the devolved administrations to raise taxes to meet their responsibilities. The UK expenditure responsibilities would include UK debt repayments, any equalisation payments that were agreed, and fiscal transfers in response to business cycle fluctuations and asymmetric shocks.<br />
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The first step to implementing such a system (which might have a chance of being stable in the long term) is for the UK Government to recognise that it wears (at least) two hats: as the sole level of government responsible for UK functions; and as the government of England (and also the government of Wales & Northern Ireland for those areas in which Scotland has devolution but they don't). It needs to know what hat it is wearing at any one time, and what policy levers are associated with that hat.<br />
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In David Phillips' post he notes: "<i>But what if the UK government wanted to spend more money on defence or state pensions, or wanted to increase taxes to reduce borrowing. ... One interpretation of the Smith proposals would be that the UK government could not use an increase in income tax – one of the main taxes it levies – to fund these policies. This would be absurd and the Treasury has informed us that it was not the intention of the Smith Commission to constrain the UK government in this way.</i>"<br />
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Contrary to David Phillips, I don't think that a recognition that some taxes are for funding devolved services, whilst others fund UK services, is absurd. On the contrary, it seems like a pre-requisite for a functioning system. Note also that such a recognition would not preclude the use of income tax for the funding of UK services: for example in <a href="https://www.dropbox.com/s/eipg89wy43glveu/SmithComm_DComerford_Final.pdf?dl=0" target="_blank">my submission to the Smith Commission</a> [*], I recommended that the UK Government have as one of its revenue streams the top rate of income tax (because such a tax base is likely highly mobile in response to differences in the rate). But there would have to be two income taxes: one levied by the UK government for UK expenditure, and one levied by devolved government (which in England may well be just the UK government wearing its English government hat) for devolved expenditure.<br />
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But in any case, the first step towards a workable system is for some self-awareness on the part of HMT.<br />
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[*] Shorter, and better written version is <a href="http://www.futureukandscotland.ac.uk/sites/default/files/pages/beyondsmith_FUS.pdf" target="_blank">Chapter 8 of '<i>Beyond Smith</i>' ebook </a>dcomerfhttp://www.blogger.com/profile/18378883188453226827noreply@blogger.com0tag:blogger.com,1999:blog-8452971772436653664.post-87965999204916351732014-11-30T13:06:00.003-08:002014-12-01T10:19:14.610-08:00End November Links# Chris Dillow makes good points in <a href="http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2014/11/the-heritability-red-herring.html" target="_blank">The Heritability Red Herring</a>, on how cross country evidence shows that the success of the children of rich and bright parents cannot just be due to heritability. In particular the point that "<i>The correlation between parental education and children's education is higher in more unequal countries. This is consistent with income inequality buying unequal access to education - for example, because rich parents in unequal countries buy private tuition.</i>"<br />
This is not just private tuition or private education though. I suspect that there will be greater variance in property values in unequal countries as rich seek to cluster and so buy access to higher than average quality public education. If I'm correct about this, then it will be a multiple equilibrium effect:<br />
<br />
either<br />
1. house prices are highly unequal reflecting a large amenity values from good local schools, and so rich will be willing to pay (thus supporting high prices in such areas); or<br />
2. house prices are much more equal as are schools, and so no-one is willing to pay any house price premium for access to a specific school.<br />
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I further suspect that equilibrium 2 is more fragile, in that the dynamics around it have a much narrower or shallower basin of attraction. But not so shallow that it cannot be stable, given a relatively narrow spread of incomes: as <a href="http://www.amazon.co.uk/Blossom-What-Scotland-Needs-Flourish/dp/1910021709/ref=sr_1_3?ie=UTF8&qid=1417380505&sr=8-3&keywords=blossom" target="_blank">Lesley Riddoch</a> and <a href="http://blogs.lse.ac.uk/politicsandpolicy/support-for-redistribution-will-be-weakened-with-ever-greater-residential-separation-of-rich-and-poor/" target="_blank">others</a> have commented, the segregation by income is much less strong in more equal countries, which I suspect means that these countries are even more equal relative to the UK than their lower GINI coefficient would suggest.<br />
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Nick Rowe is also thinking about this area, in <a href="http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/11/reverse-regression-and-the-great-gatsby-curve.html" target="_blank">Reverse Regression and the Great Gatsby Curve</a><br />
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# My Smith Commission submission is <a href="http://modern.scot/dr-david-comerford/" target="_blank">reported in the <i>Modern Scotsman</i></a> and my article in <a href="https://theconversation.com/scottish-income-tax-control-neednt-raise-uk-borrowing-costs-34724" target="_blank">the Conversation</a><br />
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# Some interesting posts on English devolution:<br />
- <a href="http://blogs.lse.ac.uk/politicsandpolicy/the-greater-manchester-agreement-is-only-a-small-step-on-the-road-to-greater-devolution-in-england/" target="_blank">The Greater Manchester Agreement is only a small step towards greater devolution in England</a><br />
- <a href="http://blogs.lse.ac.uk/politicsandpolicy/the-devo-manc-proposals-represent-centralisation-on-steroids/" target="_blank">The ‘Devo Manc’ proposals represent centralisation on steroids</a><br />
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# Krugman resurrects a fantastic post of his from 1998 on <a href="http://krugman.blogs.nytimes.com/2014/11/13/networks-and-economic-history/?module=BlogPost-ReadMore&version=Blog%20Main&action=Click&contentCollection=Opinion&pgtype=Blogs&region=Body#more-37724" target="_blank">Networks and Economic History</a>. Basically <a href="http://en.wikipedia.org/wiki/Zipf's_law" target="_blank">Zipf's Law</a> offsets <a href="http://en.wikipedia.org/wiki/Metcalfe's_law" target="_blank">Metcalf's Law</a> meaning that increasing returns are limited. I suspect that this is relevant in domains other than the profitability of communication networks.<br />
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# <a href="http://www.pieria.co.uk/articles/on_oil_prices_and_prosperity" target="_blank">On oil prices and prosperity</a> is a generally good article. But I'm more pessimistic than the following paragraph since the rate of innovation must be related in some way to the price of fossil fuels. "<i>The only real concern ... is in regard to the viability of alternative energy. Renewables have become significantly more competitive ... in a world of expensive fossil fuels. ... But the falling price of solar energy is ultimately a long-term trend driven by technology. ... cheaper oil prices could push adoption back to some degree, especially in regard to electric vehicles. But it can't hold back the broad strokes of history, either.</i>" I think it is possible that these broad strokes of history could either feature or not feature the adoption of alternative energies. It is possible that, as a species, we may make catastrophic choices, and the current state of incentives for the development of alternative energy technologies is in no way helpful.dcomerfhttp://www.blogger.com/profile/18378883188453226827noreply@blogger.com0