Friday, February 24, 2017

Fake news and economics

Recently, it has been usual to know about the publication of "fake news".Perhaps even worst, there is a new concept concerning news, which is called the "post (follow up) Thruth".Is there any relationships between these two way to inform people?.What does economics may say about it?. The post thruth, deals with the quality of the messenger to qualify any message as truth or ultimately false. It is not the quality of the message, but the quality of the messenger which make the falsehood of the message, instead of the facts which either sustain or not the thruth about the messsage.Thus, any one who say for instance that government should stay away from the economy for the purposes of well being, may be presented as an out of touch individual (either man or woman),such that to make such an argument become a complete nonsense. It follows that, any suggestion of limited government becomes such an insult for society as a whole, that only crazy individuals can believe in.So, limited government as a source of wealth become a falsehood. The outcome is to create a fake reality, which individuals have to live in ,one which excludes unconvenient truth, as much as it support convenient falsehoods, specially with those issues concerning individual responsibility, government intervention in the economy and the like.The variey goes to a wide range of topics.Like the Gresham law which explain how bad money replace the good one through inflation, "fake news" replace good private values (honesty,ethic), for public bads ones(lies,disqualification), the ones which may lead you from trusting someone, toward those who leads you not to trust anyone. In economics ,this is called adverse selection, and it implies welfare losses.- Economic analisys has a branch called the adverse selection problem, which happens when either good or services markets do not have perfect imformation about all available options ,such that consumer chose the remaining lower quality alternative . This is the case of used cars, insurance programs, where reliable participants are left out, because markets do not qualify them at their real economic value, or what it is the same , markets disqualify them as partners because it does not trust them about their own valuation. The outcome is that average quality of used cars is lower, because all good used cars are left out from the market.Nobody want to sell his or her good used car below a certain price which includes not only the mechanical aspect of it, but also the emotional ones .In the insurance case, good clients(healthier ones), are not ready to pay the more expensive charge of the average less healthy ones, leading to higher cost of insurance policies for everyone,which imply that some people may not afford an insurance policy at all.- The difference is that adverse selection, comes out from the market which is neutral about the characteristics of all of those who are in for making transaction, and as such nobody have control of its outcome.It just happens because of institucional failures, which means that institutional correction may solve the problem.In the examples above mechanical test (used cars), or hihger deductible charge to disincentive less healthy clients to get in, keeping average fee lower.This way, it is possible to correct the losses of welfare arising from adverse selection. Fake news and the follow up (post)thruth instead, means a net loss for the welfare level of society, either hard to recover or to mitigate.Besides from the economic stand point, the issue of "fake news", has nothing to do with the massive access to virtual netwotk,cell phones and the like, because it deals with the preferences of those capable of shaping massive preferences given the abstratc nature of the service(news), which becomes a public good. In the case of private good and services markets, nobody can shape simultaneously the preferences of everyone, while there are millions of customers interacting according their (own) individual preferences even with advertising along the way.-

Friday, February 03, 2017

New premises about globalization

The world is facing new definitions and premises about globalization. Since early nineties, globalization was a kind of follow up of the “End of history” assessment, very popular at that time. Democracy and fee markets stands up, as the key inputs for endless economic progress, peace and stability. There was not too much to discuss about it. Democracy spread out, such that more governments around the world (Latin America, Africa, East Europe) fit in with history. By the same token, free markets policies became the new orthodox to solve not only economic growth, but also social issues (poverty, inequality, unemployment).A few years later, it was clear that economic growth alone was not enough without complementary policies . Free trade agreement, came along as the next step to move deeper into global markets, and so the economy became global.- This process lasted almost twenty years. Its outcome was mixed. On the one side (positive one), it meant better living conditions for millions of people, who were capable of getting out of poverty, increasing the share of middle income segments. Besides, the open access to knowledge throughout internet, and low prices of computers and communication technologies, created the virtual markets, a huge space for creativity, innovations, entrepreneurship and new ways to do business, increasing the social value of global networks. On the other side (the negative one), it became clear its weakness. The most significant one, was the financial crisis of 2008, and the subsequent perception that despite free markets efficiency, there was no way to avoid its failures at a global scale .Moral hazard, information asymmetry advantages, firms collusive actions, and reckless corporative behavior, which given the policy tools to deal with it, and without a global institutional framework, made the global economy unstable and much riskier on the long run. Regulations on its own, was not sufficient to cope with global markets either. For the sake of the argument, Central Banks (USA, European Union, Japan) had to fight hard (2008-2017), to get back the fundamental of macroeconomics. From the political and geopolitical side, globalization did not make the world safer and a more peaceful place. Unconventional wars, local rivalries and short term nationalisms, killed more people in the last decade of the XX century, (United Nations, estimates 5 million people), than in the previous 25 years(1975-1990).Besides ,the gap between developed and underdeveloped countries did not close .It became wider as the winners displace the losers, which force them to act politically, no matter the economy cost . The insufficient global Governance, was out paced by events seemed unexpected, although they should have taken into account in advance. Thus, it seems that the current status of globalization and global economy, are suitable for new premises. So, Donald Trump became President of the USA, and the Brexit is already on schedule. Moreover, this year there are elections in key countries in Europe. Who can anticipate the outcome?. Uncertainty, is another unexpected outcome of globalization weakness. The pressing question in Davos (2017), was: what come next?. Is Mr Trump´s Presidency willing to leave globalization, while others countries are eager to take its leadership?. An alternative question could have been: What about the new conditions for the USA economy, a commercial blocs by itself, to be part of the globalization the way it is in 2017? . After all, the terms of negotiations about it have changed, (outdated free trade agreement, E-commerce grows, weak property rights protection, dislocation of workers, and the like).Therefore, politics have something to say about it. Furthermore like any negotiation, mutually convenient deals (globalization is a deal), are the ones which are flexible, to make them more suitable to new developments. It follows from he above that Globalization need a resetting, a new set of premises concerning the importance of stable economic growth, better (fair) trade policies, effective global governance, and more efficient way to solve social disequilibrium between the affluent and those who are left behind. The other question at Davos(2017), was about the risk of moving back the history clock, concerning the survival of globalization. The real advantage and strength of Globalization, is in its ability to cope with new challenges, the way other alternatives (closed economies, dictatorships), can not do.Moreover, a different globalization,based on the new premises, may be the beginning of an up dated world(global) order.- .-