Thursday 24 February 2011

Spain, February 23, 1981.

The footage below (Spanish) was shot the night of the 22nd of February, 1981, at the Congreso de Diputados (Lower House of the Spanish Parliament):

The video features Lt. Col. Antonio Tejero (Guardia Civil - Spanish national militarized police) interrupting the proceedings, gun in hand and shooting at the ceiling.

Simultaneously, in Valencia, the commander of the Third Military Region, general Jaime Miláns del Bosch, rose up in arms, deploying troops and armoured vehicles, declaring military law and outlawing strikes and public demonstrations.

The attempted coup d'etat was finally aborted in the early hours of the 23rd of February, due to lack of active military support and through the intervention of S.M., King Juan Carlos I.

El País, 23-02-1981 [1]


The last European fascist dictator, Francisco Franco Bahamonde, died in 1975, after over 3 decades in power.

Franco (second right) and Himmler (second left). 1940. [2]

The first democratically elected post-Franco government (1977), headed by Adolfo Suárez, of the centre-right UCD (Spanish acronym for Democratic Centre Union), endeavoured to work in amiable terms with the francoist extreme right (People's Alliance, AP), social democrats (Spanish Socialist Worker's Party, PSOE), and smaller, mostly regional, parties with parliamentarian representation.

Suárez himself started his political career during Franco's long period, as secretary general of the francoist National Movement (sole legal party).

As a consequence of the Atoche 1977 murder of 4 trade unionists, by ultra francoist elements, the Suárez government was forced to legalize the still underground Communist Party.

This, compounded by the economic crisis Spain was going through, led extreme conservative elements in the Armed Forces to plot a coup d'etat.

The first such attempt (Operation Galaxia), in 1978, headed by Lt. Col. Tejero, was put down and its leader, tried and convicted, was sentenced to 7 months and one day in jail.

At his release, Lt. Col. Tejero was reinstated and started plotting again.


After the 23-F failure, Tejero and Miláns del Bosch were tried and convicted for their participation in the attempted putsch. The only civilian co conspirator and participant in the coup tried and convicted was Juan García Carrés (former leader of the sole francoist legal union, the Sindicato Vertical).

Adolfo Suárez was succeeded as Presidente del Gobierno (Prime Minister) by Leopoldo Calvo-Sotelo, who had been solicitor for the francoist Cortes (token Parliament, under Franco).

The Congreso de Diputados session interrupted by Lt. Col. Tejero was in the process of ratifying Calvo-Sotelo as Prime Minister.

So far, the failed 23-F coup d'etat is the last putsch attempt in Western Europe.


Video footage: YouTube.
[1] El País. "Golpe de Estado: El País con la Constitución", 23-02-2011.
[2] Wikipedia/Deutsches Bundesarchiv (German Federal Archive), Bild 183-L15327 / CC-BY-SA

Sunday 20 February 2011

Economists and (Ugly) Models

Well, you know what they say: economists do it with models.

But, no. This is not about Cindy Crawford-like miracles of human genetics (or, if that floats your boat, hunks like ___________; help me out here: fill in the blanks) and little, ugly, nerdish, boring, old men.

No, I'm talking about economic models of the simple variety, which recently appear to have become quite popular in the economic blogosphere and media.

Greg Mankiw (Harvard) proposed one:

"You have a driveway covered in snow and would be willing to pay $40 to have it shoveled. The boy next door can do it in two hours, or he can spend that time playing on his Xbox, an activity he values at $20."

Uwe E. Reinhardt (Princeton), who, as Mankiw, also likes that model, summarizes its conclusion thus:

"So if you pay him $30 to shovel your driveway, you will both be better off by $10. (...) As far as economists are concerned, how can anyone argue with that?"

Don't look at me: I can't argue with that! The conclusion follows from the premises, however unrealistic.

Reinhardt goes one step further, adding competition to the example, presumably to make it more realistic:

"Another boy from the neighborhood comes along and offers to shovel your driveway for $10. (...) You pay him $15. Now you are very much better off [my comment: precisely $25 better off], and that other boy gains, too, because he would have done the job for $10 [my comment: so he's better off by $5]."

As Reinhardt explains, now the first boy is not happy; but the second boy is.

Again, I don't object. However, now I feel a lot less sanguine about the whole thing: following that logic one concludes that the neighborhood kids will be accepting $20.01 $0.01 to do the job. And, believe it or not, one can still say that everybody is still better off!

I am not sure what Reinhardt had in mind with his extension: however, it argues the not surprising point that competition among workers reduces their wages, which is not considered in Mankiw's version.

What seems curious to me is that one could build an obvious variation yielding entirely different outcomes.

Let's modify the example: Anthony and Benjamin need their driveways cleared. Anthony is willing to pay $40 for that; Benjamin, $50. Anthony and Benjamin are, let's say, economics professors and hate shovelling snow.

Charlie, their young neighbour, is willing to do it for $20.

As in Mankiw's scenario, after talking to Anthony, Charlie agrees to do the job for $30.

However, seeing this, Benjamin calls Charlie: "Psst, boy! Over here! I'll pay you $40 to clear my driveway".

Clearly, Charlie is ecstatic (20 bucks ahead, not bad!) and Benjamin is happy, too. Anthony, on the other hand, is not so happy: he's gotta grab the shovel.

This result, diametrically opposed to the Mankiw/Reinhardt's example, isn't surprising either: bosses' competition for labour increases wages.

What's the difference between this situation and the Mankiw/Reinhardt one? In the latter the kids were made to compete against each other to get the job; in the former, it's the economics professors who compete to get the worker.

The first point I'm trying to make is this: Mankiw's example is frankly misleading. By ignoring competition, it doesn't show the kids are really better off with trade.

With Reinhardt's more realistic modification this becomes clear: $0.01 above the monetary equivalent of doing nothing either Mankiw's equivalence worth of playing Xbox ($20), or above $0,  is not an improvement (See Update 22/02/2011).

However, in both cases the economics professors are not only measurably better off, but the worse off the kids are, the better off the professors.

Now with my second point: things don't need to be like that. In my modification, Charlie was measurably better off. In other words, the choice between the 3 set of outcomes is not determined by the example and is arbitrary.

The third and final point I will make is this: as employers (and in this case, economics professors), Anthony and Benjamin have not only the knowledge and incentives to steer the situation away from one where they compete against each other to hire Charlie; they also have the political means to do that.

Let me put it this way: they could talk to Daniel (Charlie's non-democratically elected and mean stepfather) and convince him that he could live quite comfortably by making his stepchildren (the whole 1.3 billion of them) work for a few cents each, which they'll pay Daniel, in exchange for living in Daniel's house.

And that's precisely what Anthony (or is it Benjamin?) does here:

Peter Tasker. Rising wages will burst China’s bubble. Financial Times. 10/01/2011. Requires subscription. Registration required.


21/02/2011. Oopsie, I had forgotten the last link.

22/02/2011. Actually, my logic above is flawed and I noticed the mistake today.

Mankiw established that the first boy had an alternative use for his time (playing with the Xbox); that alternative use was worth the same as $20 for that boy.

But Reinhardt did not establish anything similar for his neighborhood kids; that's why the second boy was happy to work for $10!

On that assumption, the Mankiw/Reinhardt scenario leads not to a top payment of $20.01 (as I wrongly stated above), but to $0.01.

It appears the Financial Times also has a free registration option, for limited access.

So as to leave my mistake on record, I struck through the mistaken text, and added the corrected version, with a reference to this update.

Friday 11 February 2011

Dodgy Scholarship

Recently, a "behavioural economics" paper, by Beaulier and Caplan, has caused some stir around the economic blogosphere; see here, here and here.

Understandably so:

"Critics often argue that government poverty programs perversely make the poor worse off by encouraging (...) 'social pathologies.' (...) The current paper argues that (...) existing empirical evidence suggests that the poor deviate from the rational actor model to an unusually large degree."

These "social pathologies" make "government poverty programs" counterproductive.

According to Beaulier and Caplan, the following is a list of general deviations, present in superlative degree among the poor:

  1. Judgmental biases (including self-serving bias -the tendency to see themselves as better than they really are- and biased risk estimates -which might explain why the poor have a penchant for crime-, all of which could be explained by lower IQ).
  2. Self-control problems (a set of anomalies superficially similar, but in some unexplained way distinct from laziness and short-sightedness).

Although several of the links above are critical of the paper, the most comprehensive criticism I could find, by James Kwak, states (before undertaking the analysis of unstated alternative explanations to the "social pathologies" mentioned in the paper):

"But what Caplan and Beaulier really mean to say is this: (...) the poor are more irrational than 'normal' people."

It strikes me that James's criticism, however valid and demolishing, should have gone farther in the opening questions. By jumping straight into the alternative explanations, James overlooked some fatal flaws in the Beaulier/Caplan paper.

For starters, the paper is a survey of 74 articles and books on the subject of cognition and social consequences. One would expect that, given the subject matter, many of the works cited came from the psychological scholarly literature, social psychology or sociology.

Not so. Only 4 papers cited were published in psychology or social sciences journals, plus one remarkable book.

"The Bell Curve", by Herrnstein and Murray, is the book. To the best of my knowledge, Herrnstein is the main exception to this "psychological" partial omission.

And this predilection for Herrnstein shows in the text: the argument around the importance of IQ is highly dependent on this work (with 8 references or direct quotations). Further, as seen above, lower IQ is advanced by Beaulier and Caplan as cause of judgmental biases (and indirectly of anomalies like criminality among the poor).

"The Bell Curve" has been subject of intense controversy since its publication in 1994, to the extreme that by 1996 the American Psychological Association was forced to publish a non-research paper, rather pedagogical in nature and addressed to the general public "Intelligence: Knowns and Unknowns", at its flagship journal, American Psychologist:

"Concepts of 'intelligence' are attempts to clarify and organize this complex set of phenomena. Although considerable clarity has been achieved in some areas, no such conceptualization has yet answered all the important questions and none commands universal assent. Indeed, when two dozen prominent theorists were recently asked to define intelligence, they gave two dozen somewhat different definitions".

Obviously, where two dozen prominent psychologists failed, it's entirely reasonable to expect two economists turned into amateur psychologists to succeed in defining intelligence, to deal with its effects, to propose social policy, and all that with next to no base in psychology! Bravo!

I will not dwell any deeper in "The Bell Curve" and its infamous "genetic factors", except to say that Beaulier and Caplan (that astutely avoided mentioning them in the text) must explain how they see those genetic factors in their "theory": are they referring to poor blacks only, or all poor people regardless of race? What about wealthy blacks and poor whites?

As I grow weary of this crap (which, as James Kwak said, is indeed offensive), let me quickly deal with two additional observations, related to James's comment that these anomalies were detected studying university students:

First additional observation

I know of at least two instances of biased perception affecting equally the poor and the wealthy (and one of them should be well-known to Caplan):

"Income plays little role; if anything, the wealthy think less like economists, not more." Bryan Caplan. "What Makes People Think Like Economists?"

"Eveyone thinks they are middle-class."

If all these anomalies have a biological base, why on earth will these two equally affect both tails of the distribution, while those mentioned by Beaulier and Caplan affect one tail only?

Second additional observation

The self-perception bias identified by Kruger and Dunning and mentioned by Beaulier and Caplan as self-serving bias (the tendency to see oneself as better than one really is) not only was first identified by studying university students, but also has generated interest in the field of management science (which seems also overlooked by Beaulier and Caplan). And managers are usually not poor:

Some bosses live in a fool's paradise
Self-delusion rife among managers

I wonder if a similar study will ever be conducted on economics professors.

Tuesday 8 February 2011

The Magpie squawks!

Commenting on "Credit Where Credit is Due (II)", a regular from another site (a micro-blogging one) said:

"Magpie - Squawk once if you are being held captive by a journo and being forced to say those words."

It took some more reading to understand what my friend (let's call him Z) meant. Basically the idea is that the "mateship" levy, intended to partially fund the disaster relief measures, is not needed: the additional spending should be funded via budget deficit.

Z certainly has a point there.

For one, public debt in Australia is ridiculously low. Given the amounts set for relief, the Federal Government could simply add to the debt, without any spending cuts, and without any ill effect.

In fact, the Federal Government could probably fund much larger relief measures with no inflationary pressures, according to some local chartalism proponents (chartalism or MMT is a Post-Keynesian school of economics, and I believe Z is a chartalist).

Another reader (let's call him A) wrote to me that "the f%@*%g mining industry should be made to pay, they broke it, they fix it". That idea, I believe, is somewhat related to Bob Brown's proposal. I also think the mining industry is the most likely culprit for the damages and almost surely the ultimate beneficiary of the relief measures, so it would make sense for them to pay.

Bottom line, from very different perspectives, both commentators agree that the levy is a bad idea.

I agree with those criticisms. Further, I'd say one would be justified to conclude the whole idea is no more than window-dressing, designed to:

  1. Show that the Labor Government helps those affected,
  2. Keep Labor's "fiscal conservative" image intact, and
  3. Avoid touching any powerful interests.

However, that's not why the whole thing has been criticized by mainstream media, journalists, politicians and economists.

It has been criticized because:

  1. Australians should freely decide how to help,
  2. It should be funded entirely through spending cuts elsewhere,
  3. It shows that there is "plenty of fat to cut", and
  4. The mining industry is the best thing to happen to Australia since the invention of sandwich bread. (These 4 objections were formulated in the last episode of ABC's Question and Answer, 07-02-2011, here).

And that is naked, shameless ideological bias.

As I see it, Mr. Gittins rightly addressed those 4 criticisms, and for that reason I find it fair to praise him.

True, he did not address the criticisms my friends and correspondents made (or those that yours truly would have added). Still, it's a step, maybe a little vacillating, in the right direction.

Lastly: Guys your comments are welcome here. If they are good, well-thought objections, as they were, I promise (cross my heart and wish to die), I'll be good and behave myself.

Or else, I can always reply, as I did to Z:

"Instead of simply 'squawk, squawk' I'll try a crow's call: 'aw, aw, aw, aaah'!"

Monday 7 February 2011

Credit Where Credit is Due (II)

Media and journalists cover news in a selective way: some news sources receive more coverage, other sources are relatively neglected; the views and opinions of some agents are ubiquitous, others are nowhere to be found; some subjects are covered, others are not.

A valuable illustration of the above is presented in the report "Covering the Great Recession" (October, 2009), hosted by the Pew Center:

"Those in government, and especially Obama administration staffers, dominated the conversation [my comment: about the GFC]. Representatives of business and industry came next, followed by academics and independent observers. But the voices of ordinary citizens and people in the workplace trailed behind, appearing in only about one in every five stories." (see here)

Whatever the reasons, the consequence is that the public gets a biased, partial, view of reality; and a view that is often biased by the perceptions of "academics and independent observers".

Let's leave aside the fact that the ideas and recommendations of many of these "academics and independent observers" were behind the current global financial crisis, and, thus, have demonstrably questionable scientific value. [*]

These ideas, apart from their inability to describe, explain, and predict reality, almost inevitably contain unacknowledged biases, sometimes due to vested interests, sometimes due to the academics' and "independent" observers' ideological backgrounds.

Referring to vested interests, Prof. Nancy Folbre (University of Massachusetts Amherst) asked: "When economists speak, whom do they speak for?"

The answer, suggested by Charles Ferguson (here), Gerald Epstein & Jessica Carrick-Hagenbarth (here) and by The New York Times (here) is that often they could be effectively speaking for private interests, as if it was for the common good.

Referring mainly to ideological bias, Prof. Uwe E. Reinhardt (Princeton University), explains:  

"The problem with welfare analysis [my comment: and economics in general] is not so much that ethical dimensions typically enter into it, but that economists pretend that is not so. They do so by justifying their normative dicta with appeal to the seemly scientific but actually value-laden concept of efficiency."

The astute reader may object that those quotes refer to the US, not Australia.

An old Australian business and economics journalist, whom I have criticised before, has made today the point (to the best of my knowledge, for the first time in Australian mainstream media) that ideological bias is behind the opinions of some local "academics and independent observers":

"The economists don't go on to acknowledge that their almost universal opposition to the levy is based not on value-free (or 'positive') economic reasoning, but on a political philosophy buried so deep within their model - and so deep in the way economists are trained to think - that many of them don't know they're being just as political as the pollies".
While partial, that was a brave first step. Good on you, Mr. Ross Gittins.

The Magpie squawks!

[*] I am pretending to be a civilized middle-class bloke here, and thus I put this in a charitable way. What I really mean to say is that their theories are crap.

Wednesday 2 February 2011

Land, Rent and Wages (IV)

Nathan's feedback (see previous blog entry in this series) and some interesting stuff I've seen, tell me it's time to put some flesh on the shirt-making example's bare bones.

But first, a recap:

  • (1) Mark-ups aren't needed to make a capitalist business profitable. In the example, increased output per worker per day (from 1 to 2 shirts), together with a constant pay rate (Re 65 per day), resulted in a surplus-value (i.e. profit).
  • (2) Two obvious ways to increase workers' physical output are (I) extending the working day or (II) making workers work faster.


  • (3) Output per worker per day is by definition a measure of labour productivity.

Implicit in (2) is the idea that in order for additional surplus value to arise, the gains brought about by labour productivity must offset any additional labour costs.

From the situation described by (1) and (2), one can conclude with Marx that capitalists' and workers' interests often are at loggerheads, or, in Marx's terms, they are antagonistic. By (3), this conflict frequently involves gains due to an increase in labour productivity.

Reconsider the idealized shirt-making example (see also here): the dual interests of workers and capitalists were initially harmonized by the fact that a single person, the proto-capitalist/artisan, played both roles: the worker's unpaid labour became the artisan's surplus-value, and initially the same person was both.

When the proto-capitalist started hiring workers, the conflicting interests remained, but the harmonization mechanism was lost: the workers' additional physical exertion wasn't compensated by additional consumption, or by wealth accumulation. In other words: we have found something similar to a new free lunch, except that workers pay for it. [*]

More generally: following (2), individual capitalists will try to increase working day length/intensity -so as to increase productivity and surplus-value-, workers will oppose this; workers will ask for higher wages, capitalists will resist them.

There are qualifications to the above, of course. Two of them:

  • There are absolute biological constraints at play, resulting in an inverse relationship between extension of the working day and its intensity: to force workers to labour 18 hours, risks lowering their productivity, for example. 
  • In a closed economy, wages cannot fall indefinitely, as individual capitalists would prefer: workers' aggregate consumption and individual productivity would fall. Profits would suffer: lesser sales and lesser productivity.

Enough for today. [**]

Next blog we'll add empirical evidence to this skeleton.


A little homework for the interested reader: you'll remember it took the hero of our little story (let's call him Hans) 20 years of shirt-making to grow considerably wealthy.

Imagine young Fritz (basically, a younger version of Hans: hardworking, smart, etc. and, on top, Hans' number one fan and emulator) starts working for Hans.

Assuming Fritz spends the next 20 years making shirts for Hans for Re 65 a day, how likely is it that he will grow as wealthy as Hans? What does it tell you about meritocracy?


[*] The reader is encouraged to compare the above with the content of Land, Rent and Wages (I), where the Ricardian theory of land rent was briefly exposed.

[**] The text here is loosely inspired by my interpretation of Kautsky's "The Economic Doctrines of Karl Marx", part III, chapters VI and VII. It can be found at the always excellent Marxists Internet Archive:

Chapter VI

Chapter VII

Stuttering George and Amnesia

I haven't seen The King's Speech and, frankly, I don't intend to. Not my cup of tea, I'm afraid.

Mind you, my determination says more about my personal interests than about the film itself: it has received largely positive reviews by the public and professional reviewers (here).

Among others, Christopher Hitchens and Isaac Chottiner have commented on it, and Gerard Henderson has commented on their comments. It's Mr. Henderson's piece that prompts me to write.

I suppose it uncontroversial to say not only that Mr. Henderson has extremely conservative views, but that he is entitled to his opinions and to express them.

Therefore, I will not challenge, in that piece, the defence Mr. Henderson makes of the royal family's anti-Nazi credentials. Not because I concede his point, let's be clear, but because I find it irrelevant: as Mr. Henderson reminded us, it happened long ago. (Messrs. Hitchens and Chottiner seem to think differently and this shows in their pieces, thus Mr. Henderson's comments).

The royal family itself, in my view, has become little more than an expensive curiosity apparently maintained for the benefit of celebrity gossip magazines. Consequently, I see little gain in arguing over these matters.

However, I do challenge Mr. Henderson's suggestion that a mythical left, of which he is so fond of speaking, was unanimously supportive of the Nazi regime, while a naively misguided right, after a brief period of confusion, quickly readied itself to defeat Nazism.

Given Mr. Henderson's customary claims of familiarity with history, the lack of any reference in his piece to the confrontation, often violent, between German and Italian communists and Nazis and Fascists is surprising. And although I certainly reproach the communists for their use of violence as a political instrument (tool they and the Nazis/Fascists themselves shared with other more traditional centre-right free-marketeer parties) and their misplaced allegiance to the so-called "Worker's Paradise", the bottom-line is that both groups were, well, violently opposed.

As were radically opposed thousands of International Brigades volunteers, including anarchists and communists, who fought Nazi-Fascism during the Spanish Civil War, episode that a history buff like Mr. Henderson inexplicably seems not to take into account.

Mr. Henderson may also have forgotten that traditional, conservative parties won the 1932 German presidential elections and that it was the centre-right elected President, Von Hindenburg, who appointed Hitler as Chancellor in January 1933.

Later in 1933, with the unanimous support of the conservative parties, the Nazis passed Reichstag legislation giving Hitler emergency powers (against Social Democrat vote), proscribing the entire left and sending those communists and trade unionists who escaped murder into Dachau (the first concentration camp) and subsequently to Sachsenhausen, Mauthausen and Flossenburg, among other camps.

Concentration camp prisoner
badges: note the evocatively red
of political prisoners.[1]

But if one could forgive Mr. Henderson's patchy historical knowledge about his mythical left, his understanding about prominent conservative figures of the time, in Germany and abroad, is frankly appalling.

I could produce a list of prominent conservative German businessmen and politicians that maintained very cozy relationships with the Nazi regime, before and during the war. I could, as well, further extend this list by adding Italian, French and other European notables.

However, as Mr. Henderson's knowledge about European history is deficient, it seems sensible to consider only prominent figures from two Anglo-Saxon countries Mr. Henderson seems to know more about. The following quotes provide a sample:

"There is no need to exaggerate the part played in the creation of Bolshevism and in the actual bringing about of the Russian Revolution, by these international and for the most part atheistical Jews, it is certainly a very great one; it probably outweighs all others. With the notable exception of Lenin, the majority of the leading figures are Jews." (Winston Churchill in "Zionism versus Bolshevism", Illustrated Sunday Herald, February 1920)
"One may dislike Hitler's system and yet admire his patriotic achievement. If our country were defeated, I hope we should find a champion as indomitable to restore our courage and lead us back to our place among the nations." (Churchill, "Hitler and His Choice", The Strand Magazine, November 1935).

(I am not sure what "patriotic achievement" Mr. Churchill had in mind, so the readers are free to decide by themselves.)

I will also mention a few very well-known Nazi fellow travelers: Charles Lindbergh, Henry Ford, and His Royal Highness the Duke of Windsor.

Henry Ford (right), Ford's son (left)
and Charles Lindbergh (centre). [2]
The Duke of Windsor visiting the Reich.[3]

Still, considering that Mr. Henderson's memory might be less than reliable, it might be convenient to include two much more recent figures (some 60 years after the end of the war!):

Baroness Thatcher and General
Pinochet share a social event..[4]
Chilean admirers appropriately
farewell General Pinochet.[5]
Photo/image credits:
[1] Concentration camp prisoner badges. Wikipedia.
[2] Charles Lindbergh. Wikipedia.
[3] Edward III of the United Kingdom. Wikipedia.
[4] and [5]: Internet.

I believe all those photos to be in the public domain. If the authors know otherwise, please drop me a line and I will be glad to remove them or add the appropriate attribution, at the author's discretion.

The photo of the Duke of Windsor comes from Wikipedia, where there is an even more interesting photography of the Duke and Duchess of York (with the Fuehrer). However, as there is doubt whether that photo is in the public domain, I refrained from posting it here. If you know for a fact that I can make fair use of that second photo, please drop me a line.