Brexit may not happen

June 27th, 2016

There is widespread alarm that UK citizens have voted to leave the European Union. FT columnist Gideon Rachman predicts, however, that the exit may never happen. After all, the UK has never participated fully in the EU. It never adopted the euro, and never joined the Schengen passport-free zone. Can the nation “distance itself [further] from the hard core of the bloc, while keeping its access to the single market”? Mr Rachman thinks this is possible.

All good dramas involve the suspension of disbelief. So it was with Brexit. … [B]elatedly, I realised that I have seen this film before. I know how it ends. And it does not end with the UK leaving Europe.

Any long-term observer of the EU should be familiar with the shock referendum result. In 1992 the Danes voted to reject the Maastricht treaty. The Irish voted to reject both the Nice treaty in 2001 and the Lisbon treaty in 2008.

And what happened in each case? The EU rolled ever onwards. The Danes and the Irish were granted some concessions by their EU partners. They staged a second referendum. And the second time around they voted to accept the treaty. So why, knowing this history, should anyone believe that Britain’s referendum decision is definitive? ….

Like all good dramas, the Brexit story has been shocking, dramatic and upsetting. But its ending is not yet written.

Gideon Rachman, “I do not believe that Brexit will happen“, Financial Times, 28 June 2016.

In the case of the UK, the concession needed is on migration. Mr Rachman thinks that a second referendum would easily favour remaining in the EU if the UK were allowed “to limit the number of EU nationals moving to Britain if it has surged beyond a certain level”.

Despite Mr Rachman’s optimism, it is worth noting that no country so far has managed to gain access to the single market without accepting the principle of unrestrained, free migration. (See “Reality Check: Have Leave campaigners changed their minds?“, BBC News, accessed 27 June 2016, 14:25 PST.)

An estimated three million nationals of other EU countries currently live and work in the UK. More than a quarter of these migrants are Polish.

TdJ permalinks are working!

June 26th, 2016

Well, at least some of them. I found a solution from the WordPress forum. Many others have had the same experience following updates of the WordPress software.

I will attempt to get the remaining links to work (links to my own previous blogs; direct links from outside-e.g TdJ emails!). At least the scroll and search functions are working.

McCloskey on Cuba and education

June 24th, 2016

I am reading a fascinating book that covers a wealth of economic history. It is a delightful book, very much in the tradition of Adam Smith. I want to share with you two paragraphs on Cuba, because of my interest in education in general, and that country in particular.

[E]ducation by itself does not yield much. Cubans nowadays go to school, as they did before the Revolution, if now strictly limited in what they are permitted to read …. Yet the Cubans at some points (Fidel repeatedly changed the laws) could not start a restaurant or take their farm produce to markets (Raul has somewhat relented), and so they remain to this day cripplingly poor, disabled from exercising bourgeois virtues–in sharp contrast to their cousins in Miami. Cuba’s income per head in 2001, despite all its alleged investment in human capital, was still about what it had been in 1958, while all around it since the Cuban Revolution income per head had almost doubled. In 2009 the country was malnourished. The cousins in Miami, by contrast, whether much educated or not, were doing a lot better, because they lived in a bourgeois society. And they could read what they wanted.

You will say if you are on the left, “But Cubans as you admit are educated and well cared for in their hospitals,” …. Yet so were they before 1958 well educated and well cared for, by the standards of the day. That’s why Cuba in 1958 was such a promising country, though ruled by a different gang of thugs from the present one. Yet after 1959 the Cubans fled from the workers’ paradise, just as the skilled are fleeing from Venezuela, Bolivia, Ecuador and Nicaragua, to places where economic opportunities are better than at home. A democratic social scientist should be inclined to put weight on how people vote, with their feet, or their boats.

Deirdre N. McCloskey, Bourgeois Dignity: Why Economics Can’t Explain the Modern World (University of Chicago Press, 2010), pp. 164-165.

This is the second volume of six that economic historian Deirdre McCloskey (born Donald McCloskey in 1942) is writing on The Bourgeois Era. The first volume was The Bourgeois Virtues (University of Chicago Press, 2007). The third is Bourgeois Equality (University of Chicago Press, 2016).

When I finish this volume, I will read volume 1, then volume 3.

universal pensions in Hong Kong: the struggle continues

June 21st, 2016

The HK government’s six month “public consultation” is coming to an end. The universal pension scheme recommended in the report commissioned by the government is not likely to be adopted, despite widespread public support for the proposal, much of which could be funded by diverting mandatory retirement savings to the government coffers.

Here are excerpts from three recent articles published in a leading Hong Kong newspaper. Click on the links to read the full columns. (They are not gated; access is free.)

Organizers claimed about 5,000 people marched to the Chief Executive’s Office yesterday to demand universal retirement protection while slamming a public consultation exercise as fake because administration officials have made it clear they want a proposal with a means test. ….

Alliance for Universal Pension spokesman Nicholas Chan Hok- fung pointed out that 300 younger people had volunteered to push the wheelchairs, indicating a willingness to take on responsibilities for looking after seniors.

On that, volunteer Wong, 27, did not agree with the official line being disseminated about a universal pension becoming too much of a load for workers. “With a universal pension scheme it will actually reduce our burden as our parents will be receiving a monthly allowance,” he said. ….

The crowd dispersed after putting stickers outside the Chief Executive’s Office that read “Leung Chun-ying must keep his promise” and “Support the Universal Pension 2064 Scheme.”

The 2064 refers to a scheme drafted by 180 scholars who reject the official claim that a universal pension will not be sustainable.

Carain Yeung, “Pension protesters press their demand for universal formula“, The Standard (Hong Kong), 20 June 2016.

Most representatives from 80 groups who spoke at the last Legislative Council public hearing on retirement protection yesterday said they wanted a universal pension.

The four-hour hearing came on the eve of the deadline for the government’s six-month public consultation. ….

Alliance for Universal Pensions members again slammed the government for its “fake consultation” and said its own consultation conducted from January to May – with 11 public forums held – found that most supported a universal pension scheme.

Carain Yeung, “Legco last words on pensions“, The Standard (Hong Kong), 21 June 2016.

A member of the Commission on Poverty, Law Chi-kwong, says public views on a universal pension are still divided after six months of public consultations.

The exercise ends today and findings will be forwarded to an independent consultancy for analysis. ….

The government had said the universal pension proposal was unsustainable.

The head of the commission, Chief Secretary Carrie Lam, said last week that she hoped the government can finalise a retirement protection policy before its term ends in June next year.

RTHK, “Poverty official questions pension proposals viability“, The Standard (Hong Kong), 21 June 2016.

selecting a UN Secretary-General

June 13th, 2016

A Secretary-General of the United Nations will be selected to succeed Ban Ki-moon, whose term ends on 31 December 2016. Officially the Secretary-General is elected by the UN General Assembly – one country, one vote. In practice, the Security Council selects a candidate for submission the General Assembly, which unanimously approves him (there has never been a ‘her’) without debate.

The selection is subject to veto by any of the five permanent members of the Security Council (Russia, the UK, France, China, and the USA). There are eleven candidates so far. Eight are from Eastern Europe, a region which has never before had a Secretary-General. The other three candidates are from New Zealand, Portugal and Argentina.

For the first time in history, the list of candidates has been made public, and each candidate has responded to questions first from members of the General Assembly, and then from the public at large. To facilitate candidates’ interaction with civil society, the President of the General Assembly set up a web page – “Ask the Candidates” – so interested individuals of any age can submit questions by twitter, video, text or instagram. Selected questions were answered by the candidates, and uploaded to youtube, on 12-14 April. A second round of dialogues took place on 7 June. This is a historic step towards transparency.

The increased openness in the selection process, alas, might amount to little more than window dressing. “There is much more transparency this time, but that does not alter the fundamental political game, which will ultimately come down to the US and the Russians,” Richard Gowan, an expert on the UN at the European Council on Foreign Relations, told the Financial Times. “If any of the candidates say anything remotely controversial about the Middle East peace process, Israel, Syria or Ukraine, they are going to be on the next flight out of JFK.”

An FT reader, in a letter to the editor, expresses his desire “to learn how these candidates propose to deal with two tragic situations in which the UN is implicated and in which it has relied on its immunity to avoid providing a legal remedy to those it has harmed”.

The first [situation] is the sexual abuse scandals involving UN peacekeepers in countries such as the Central African Republic, Bosnia and Haiti. The second is the role that the UN played in bringing cholera back to Haiti after 100 years of being cholera free. Since UN operations brought cholera to Haiti, approximately 8 per cent of the population has been infected by the disease and thousands have died. ….

[L]ike governments, the UN is now in a position where it can harm people and even violate their human rights. In this context, the UN, shamefully, is able and willing to use the immunity that its founders thought would shield it from interfering member state governments as a sword to ward off the claims of those who assert they have been harmed by its actions.

Daniel Bradlow, “UN is now in a position where it can cause real harm — with immunity”, Financial Times, letter to the editor, 13 June 2016 (metered paywall).

Daniel Bradlow is Professor of International Development Law and African Economic Relations at the University of Pretoria, South Africa.

I looked through many questions posted on the “Ask the Candidates” page, but was unable to find any questions that touched on alleged UN abuse of its immunity privileges. In fact, none of the answered questions I saw were even remotely as interesting as the question posed by Mr Bradlow. There might be something of interest in the vast number of questions and answers stored online, but I lack the patience to search.

more on universal basic income

June 13th, 2016

Further to Friday’s post (and earlier ones), financial journalist James Surowiecki (born 1967 in Connecticut) has a great column on universal basic income (UBI) in the current issue of The New Yorker. I have copied and pasted highlights below. Click on the link below to read the full column. (Access is free.)

In the mid-nineteen-seventies, the Canadian province of Manitoba ran an unusual experiment: it started just handing out money to some of its citizens. The town of Dauphin, for instance, sent checks to thousands of residents every month, in order to guarantee that all of them received a basic income. The goal of the project, called Mincome, was to see what happened. Did people stop working? Did poor people spend foolishly and stay in poverty? But, after a Conservative government ended the project, in 1979, Mincome was buried. Decades later, Evelyn Forget, an economist at the University of Manitoba, dug up the numbers. And what she found was that life in Dauphin improved markedly. Hospitalization rates fell. More teen-agers stayed in school. And researchers who looked at Mincome’s impact on work rates discovered that they had barely dropped at all. The program had worked about as well as anyone could have hoped. ….

Critics of the U.B.I. argue that handing people cash, instead of targeted aid (like food stamps), means that much of the money will be wasted, and that a basic income will take away the incentive to work, lowering G.D.P. and giving us a nation of lazy, demoralized people. But … most of the basic-income experiments suggest that the disincentive effect wouldn’t be large; in Manitoba, working hours for men dropped by just one per cent. It’s certainly true that the U.B.I. would make it easier for people to think twice about taking unrewarding jobs. But that’s a good consequence, not a bad one.

A basic income would not be cheap …. Yet the most popular social-welfare programs in the U.S. all seemed utopian at first. Until the nineteen-twenties, no state in the union offered any kind of old-age pension; by 1935, we had Social Security. Guaranteed health care for seniors was attacked as unworkable and socialist; now Medicare is uncontroversial.

James Surowiecki, “The Case For Free Money“, The New Yorker, 20 June 2016.

The results of the UBI experiment in Manitoba are not surprising, since UBI does not pay people to remain unemployed. Beneficiaries collect UBI regardless of whether they work or not. In short, UBI provides strong incentives to remain employed, or look for a job.

equality of opportunity and equality of outcomes

June 12th, 2016

No one argues for perfect equality – of opportunity or of outcomes. That straw man is easily demolished. A realistic argument is for policies to reduce inequality, of outcomes as well as opportunity. What is often overlooked by those who favour equality of opportunity over equality of outcomes is the inconvenient fact that equality of opportunity in one generation depends on equality of outcomes in the previous generation. Children who grow up in poverty, malnourished, with uneducated parents and access restricted to substandard schools, necessarily have fewer opportunities than children who grow up in wealthy families.

This leads to an important question. In looking at inequality, which is the preferred unit of analysis: families or individuals? The question is not an easy one because the two types of equality are intertwined, so answers are often incoherent. Robert Waldmann, who blogs at Angry Bear, explains.

I am very sure that people have incoherent views on what entities are to have equality of opportunity. No one can argue that each person has equal opportunities at birth. But people argue that it’s only fair that those who have worked hard all their life can do something for their children. So the entities which should have equal opportunities are families (really technically called dynasties by economists). No one can argue that White and Black dynasties have had the same opportunity in America since they arrived. The unit is the individual when they want to argue that we should look only at the present not the past. The unit is the family when they call the inheritance tax a death tax. I do not think it is possible to reconcile the arguments. I don’t think anyone who didn’t find both useful could find both convincing.

Robert Waldmann, “What’s so Great about Equality of Opportunity?“, Angry Bear, 11 June 2016.

American economist Robert Waldmann (born 1960) is a professor at the Università Tor Vergata in Rome (Italy).

See also  Dylan Matthews, “The case against equality of opportunity“, Vox, 21 September 2015.

laissez-faire and famine in India

June 11th, 2016

This year marks the 150th anniversary of the Orissa famine, which killed more than a million people in eastern India. The mortality rate (one in three) was higher than that of the Irish Potato Famine of the late 1840s, yet the Orissa famine is often forgotten.

Famine, while no stranger to the subcontinent [in times of drought], increased in frequency and deadliness with the advent of British colonial rule. ….

In the mid-19th Century, it was common economic wisdom that government intervention in famines was unnecessary and even harmful. The market would restore a proper balance. Any excess deaths, according to Malthusian principles, were nature’s way of responding to overpopulation.

Dinyar Patel, “Viewpoint: How British let one million Indians die in famine“, BBC News, 11 June 2016.

Dinyar Patel is an assistant professor of history at the University of South Carolina. His article is well-written, with shocking photos of famine victims.

On this subject, the Indian economist Amartya Sen (born 1933) famously wrote

Famines are easy to prevent if there is a serious effort to do so, and a democratic government, facing elections and criticisms from opposition parties and independent newspapers, cannot help but make such an effort. Not surprisingly, while India continued to have famines under British rule right up to independence …, they disappeared suddenly with the establishment of a multiparty democracy and a free press.

Sen A., “Democracy as a Universal Value”, Journal of Democracy 10:3 (1999), pp. 3-17.

Here is an ungated link to Sen’s article:

when interest rates are low

June 11th, 2016

Savers complain when interest rates are low. Borrowers complain when they are high. Now rates are at historic lows (in nominal terms, before adjusting for inflation). A Financial Times editorial explains that these low interest rates are not the problem. They exist because markets expect “anaemic nominal economic growth, with both real expansion and inflation strikingly low, for decades ahead”. Raising interest rates will not provide the stimulus needed to change these expectations. Why? Because, as Keynes taught us, higher interest rates produce increased savings, with lower investment and consumer spending.

Negative short-term rates are not the problem. They are evidence of central banks’ determination to try to address the problem ….

Bond yields at or below zero are a bad sign. Savers and banks suffering from them should recognise that throwing as much stimulus at the economy as possible is the answer, not raising short-term interest rates to the levels of earlier decades and imagining that the normality of the past will then return.

Central banks should be pushing ahead with monetary stimulus“, Financial Times editorial, 11 June 2016 (metered paywall).

controlling the pay of chief executives

June 10th, 2016

Owners of publicly traded companies everywhere have long complained that they have no control over executive pay, which can increase sharply even as sales and profits fall. This is expected to change this summer in France. The Socialist government has introduced legislation to allow a company’s shareholders to vote on pay packages awarded to its chief executive.

The measure was included in an anti-corruption bill adopted today (10 June) in France’s lower house of parliament.

France is preparing to pass legislation allowing investors in listed companies to have a say in the amount executives are paid, following a dispute pitting the board of Renault against the carmaker’s shareholders. ….

The legislation comes as shareholders and board members at state-backed Renault tussle over the pay of Carlos Ghosn, the chief executive.

Last month, in an unprecedented rebuffal, the company’s shareholders voted against Mr Ghosn’s €7.3m pay package for 2015. The Renault board ignored the vote … and opted to leave the package unchanged. The company’s decision was met with fury by the French government, which has two representatives on the board and has consistently voted against Mr Ghosn’s compensation.

Anne-Sylvaine Chassany, “French shareholders win say on executive pay“, Financial Times, 10 June 2016 (metered paywall).