Monthly Archives: June 2016

Why no EU-wide Compensation Mechanism for Brain Drain?

In Each Crisis Lies a Chance: The British referendum is a tremendous crisis for the European Union. It won’t be enough to merely pass the blame onto uninformed poor or alienated voters. We need to go deeper and understand that the European Union offers very little visible benefits to them. Rather than reacting defensively, for instance, making compromises in immigration or even devolving competences to the nation state, we should discuss how to reform and improve the current set of EU institutions and policies.

While doing so, it is very important to highlight two things: First, such an attempt is not necessarily about deepening the EU further making it a gigantic super-state. It is mainly about fixing some parts of the institutional set-up which seems to be ineffective or broke. Second, the populist equation of integration and loss of autonomy is a fallacy. To the contrary, in an open economy integration in areas such as tax revenues or social policy may be the only way to bring some form of autonomy back.

What could be an example of improving the existing institutions? I know very little about monetary policy, but a bit about EU-wide structural and regional policies. While I don’t agree that these policies have had relatively little impact or are highly inefficient, I do think they often target adhocratic or outright second-order issues. Moreover, there are serious issues channeling the resources to where they really belong. Finally, they often substitute policies at the national level, which creates all sorts of problems. I would suggest that part of this money, or perhaps some more of this money should be used for a specific problem only a union can tackle: compensating externalities.

Externalities, as every econ 101 textbook would show are situations in which either someone produces something for which he or she doesn’t reap benefits (positive externalities) or someone produces something for which he or she doesn’t have to pay costs (negative externalities). It is well-known that international brain drain can be such a source of externalities: some countries (especially those with public education systems which are for free or subsidized) educate their young, but then the young decide to move to other countries to get better earnings and better job prospects.

The best example of such brain drain comes from the field of medical staff. Each year thousands of doctors and nurses move from one country to another within Europe. This creates tremendous liabilities. Medical training is expensive; countries which lose a lot of doctors need to train even more. There are many solutions for this problem. One is to stop public funding is one and replacing it with private education. Yet, for various good reasons, this is not necessarily a politically desirable solution. Another solution would be to introduce fees even in public education. Again, many people find this unacceptable.

But there is a solution, and we only have to look to a field which is very much deregulated, fairly darwinistic, and totally capitalist: professional football. In many professional football leagues in Europe, clubs which train a lot of young players, but regularly lose them to richer clubs, get compensation. This might not be the full costs incurred in training these players, but some smaller clubs have successfully established training academies and have become specialized in this. (a link here?)

What works for the Bundesliga should also work in for Europe. Why not give, say, Hungary, monetary compensation for training doctors who move to Sweden or Germany? The system would be relatively easy to implement. For professions in which training is either very costly, or for society very important (or both as in the case of medical professions), ‘training’ countries should receive compensation for each emigrant they lose. Structural funds could be used for this purpose. They could be earmarked to the very purpose: being channeled back directly to the education system or even the universities or the schools from which the migrating professionals graduated.

I think such a scheme would have many benefits. First of all, rather than damaging the educational institutions in the sending countries, compensation would allow them to turn training doctors into a ‘business’. It would allow strengthening higher education systems in countries which are on average poorer than the other member states. It would also give some more regional balance to the EU and reduce the increasing regional disparities among member states.

Second, it would breathe new life into the rationale for giving structural funds. Dealing with externalities is precisely the kind of task which goes beyond individual member states. Even in football, FIFA has regulation in place for such compensation fees. In general, brain is a huge problem, and the European Union has a lot of money that otherwise goes into projects many of which do not have a clear economic rationale or purpose. And last, but not least, it would not damage national autonomy. To the contrary it would strengthen both receiving and sending countries, as well as the relations between them. It’s time to think big again.

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Another football blog: why the shot-on-target is too harsh

Watching the European Cup is not great fun for those whose standards are the Barcelonas of this world. How could it? These are national teams barely playing together and most of the teams know something about defending and little about attacking.

In former times people always invoked the number of goalless draws or goals scored per match as indications of (un-)attractive matches. With the advent of big data, we all have become more sophisticated and talk about possession statistics, PDOs etc. One often heard metric is shots on target, i.e. how many shots either go into the net, or would hadn’t the keeper or a defender deflected or stopped the ball. Football experts everywhere now use it as a tool for bitching: in this game there wasn’t a single shot on target for X mins. Just as an example, yesterday’s match Portugal vs. Croatia only saw two shots on target and only very late in the game. While I agree that this match was a bit dull except for the extra time, using this metric also shows what’s dangerous in relying on one statistic only, and especially considering the arbitrary decisions that lie underneath it.


If you think about it: Isn’t a free kick hitting the bar or just going slightly wide much more exciting than a lame long-distance shot easily plucked out of the air by the goal keeper. As in all human activities there is a margin of error which is acceptable if you look not for the final result (a goal), but for the attractiveness of the game (number of exciting opportunities created). In this sense, the shots-on-target metric, as useful as it may be for other purposes is too harsh if you talk about how attractive a match is.

It’s also important for football data scientists to understand that the social use of statistics differs from the experts (nerds’?) intention. There may be ‘objective‘ problems with shot on target measures. But the real issue is a sociological, or perhaps even psychological one. What does the metric do to us, and how does it makes our perceptions of the game change? As with any metric used as a objective target it looses some of its value, once implemented.

I would therefore argue that a more sensible shots-on-target measure should change the definition: include a reasonable perimeter around the goal (say 1 extra meter, or use a standard deviation of the average difference from goal) which counts as effective shots on target. I think this would be a good metric to see how many times in a match a football fan’s blood pressure significantly rises. After all, this is the real measure we want to come close to with match statistics, don’t we?

If you don’t believe me you should watch this short motivational video.

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The European Football Championship 2016: Give Small Nations a Chance?

These are trying times from Trump to Farage. What better route to escapism than watching football? Yet, even watching the European Cup in France there is a lot of moaning. UEFA dared to increase the number of teams. How could they? Football is ruled by an iron cast rules of rules except when profit making is at stake. Hence enter UEFA’s decision to expand the tournament to 24 teams. It’s not the first time, and it won’t be the last. Graph 1 shows that both the World and European Cups have been gradually expanded over time.


This has drawn a lot of criticisms. Some people argue that the ‘minnows’ only know how to defend and the number of goals per tournament drops. I am not sure whether this is the real reason, goals per tournament indeed drop over time, but so be it.

The bigger nations, in particular, moan that they have to play against these tiny nations. (And some of them even dare to win or draw with them.) Moreover, the draw has produced a quirky pairing in the knock-out stage of the tournament. In the upper half there is only countries with no World or European Cup titles, in the bottom half there are all the favourites. Arguably, this was in a large part accidental (why did Spain loose against Croatia?), and most of the problems of large countries’ teams are home-born. But, hey, why would facts ever should keep us from complaining.

More importantly, in the periphery from Iceland to Hungary the new system has seen waves of euphoria. And once Albania’s mood has settled they see that they have far more achieved, despite having been kicked out at the last breath of the group stage.

So it all seems fair and square: UEFA is helping the little nations. But is this true?

Yes and no. I think expanding the number of teams, and hence the number of matches a team needs to win to become champion works rather in favour of larger countries. Just think of it: the European Cups have produced 9 winners in 14 tournaments, the World Cups 8 in 20. World Cups have been dominated by a lucky few, relatively big countries (Brazil, Italy, Germany,…). Just like in national leagues it seems to be increasingly difficult to break these ranks.

The European Cups are (were?) different. You had the Czechoslovak penalty kings in 1976, Danish dynamite in 1992 and Rehakles’ Greek style of catenaccio in 2004. Small nations can win this tournament. To be fair, in some World Cups smaller nations were just unlucky or unfairly treated (the Netherlands in 1978?). But it is still intriguing to ask what makes the differences between European and World Cups.

Well you might say it’s just Argentina and Brazil, but I think a key difference is the number of teams participating which has expanded in the World Cup much earlier.

Why should this matter? The more teams the less likely become upsets. If big (and wealthy?) countries on average are more likely to win, more matches mean the odds turn against small countries. I hasten to add that it is for sure not enough to be a large country to win a cup, just ask the US. But it might be hard for smaller countries to break through.



The graphs 2 and 3 illustrate this. They show how the number of teams ‘correlates’ with either the size of the cup winner’s GDP or its population (both in natural logarithms to compress the enormous differences between countries.) We see that for all cups the more teams there are, the larger, on average the winner will be. This is clearly no proof. There is a time trend in both data, and there is a lot of variation. But it is also not implausible to assume that more matches means less surprises.

Maybe this year will be different, given the draw of the knock-out stage. Maybe it won’t. But it might well mean that in the future, we see more underdogs participating while the top prize still goes to the usual suspects. But the romantic in me hopes I am wrong.

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Why I am for the Swiss basic income proposal, but for somewhat unorthodox reasons


Swiss people will be the first to vote on the introduction of a nation-wide basic income scheme. While the details of such a scheme would be to be designed at a later stage, it is quite clear that such a move would be quite revolutionary. I myself quite literally sit on the fence, but I would arguably vote for a modest and well-designed version of a basic income scheme. Yet, I do not necessarily share the beliefs in the pros and cons often mentioned.

First and foremost, one has to be honest: there is a huge uncertainty proposing such a scheme. No country has ever done it on this scale. If you are risk averse that’s not good news. It’s honest news though. And perhaps, we should also give a premium on policy experiments (see below). Now let’s move to some arguments usually held against the basic income scheme.

A main argument is about work incentives. I think this cannot be easily discarded, but it shouldn’t be exaggerated either. If there is any type of graduation in the benefit, say in the form of a negative income tax, people taking up work ‘graduate’ into paying full tax load. At the margin, taking up work still will make sense (much more than with a standard social assistance scheme). The work-incentives literature is very complex and somewhat contradictory, but if anything it shows the disincentives are less than often feared. This is good news. That’s said there could be a major one-time reshuffling of the labour market which is hard to anticipate. Some jobs may simply prove to be too unattractive to do, once people have more choice and less financial pressure. Some of these jobs may also be jobs that would fade away due to technological progress anyways. In other cases, e.g. care personnel in social services society would need to re-evaluate its worth.

The perhaps even bigger argument against basic income schemes are the fiscal costs. That’s the aspect where a fiscally conservative country like Switzerland would truly break a barrier. There is even agreement on this point between advocates and critiques (gated link only, thanks NYT) of these schemes. The total costs seem enormous, even if, in part, they are offset by savings on other programs. Yet, more to the point, it would send a strong signal: you can still do progressive welfare state policy in an age of austerity. I don’t think it likely that one can finance such a scheme through yet another innovation such as a financial transaction tax (which, anyways would only really work if countries coordinated on such a tax). The main alternative would be a rise in VAT, in part eating up the benefit, and perhaps further increasing inflation. But the regressivity of the VAT raise would at least be compensated by the fact that the basic income scheme benefits the poor more than the rich.

Now to the alleged advantages. Most observers argue that such a system is very simple, very efficient, since it saves a lot of costs of targeting, monitoring conditions of standard social minimum programs etc. But is it true that a simple tax & transfer system is necessarily a good one? I am a bit more skeptical about the long run implications of such a system. While it is true that different forms of social protection and assistance have grown too far and sometimes even contradict each other, welfare states have to be necessarily multi-dimensional, complex institutions with several different programs.

The argument about simplicity seems to what unites what, in other respects, is a fairly heterogenous support group. Some conservatives would see a basic income scheme as a chance to put a tap on all other forms of spending: Why having an unemployment insurance, pension insurance with some redistributive qualities if you have a basic income?

There is a real-world example which exemplifies this danger. The closest relative to basic income schemes, social assistance/ minimum assistance programs are usually not very generous, one might even call them stingy (usually a country spends some 1-2% of GDP on social assistance, but up to 6-7% for pension or health). Some scholars call this the paradox of redistribution: only when the middle class benefits they agree on social policies. Does the middle class benefit from basic income? Not much, given that typically their tax allowance would eat up most (or all) of the basic income transfer. That could make them very skeptical about the scheme in the first place.

One of the key normative benefits of basic income is also one of its key political weakness: unconditionality. You may argue why unconditionality is normatively speaking a good thing:  why should rich people also get it? But on the plus side, these schemes are easy to implement, and do away with much of paternalistic welfare state policy and monitoring. Basic income schemes also take away a lot of stigma applying for the social minimum etc. But this feature is also what seems to make some conservatives quite hostile against these schemes: They want to see conditions (employment, health etc., having children) attached. These conditions often make little sense economically, and are sometimes, quite frankly inhumane (for instance, by asking lone mothers to work for a minimum wage). But very often, unconditional cash transfers are hard to sell to this ideology.

A final argument in favour of minimum income schemes is of the type ‘desperate times need desperate means’. Even some prominent economists nowadays come around on the question whether technology generates or destroys jobs. Not long ago, this position was still called a (lump-of-labour) fallacy. Yet, you don’t need to support basic income because you think technology makes labour redundant. Even if you don’t believe in a strong version of lumps of labour, the enfolding dilemma of a materially tremendously prosperous society with a very unequal distribution of income and work is enough to merit tools for insurance and redistribution.

This is where the basic income scheme has received new tailwind. It’s a type of thinking outside the box. To some degree, European welfare states have been stagnant, self-devouring, or plainly in decline for the last 30 years. Going further back in time reveals that welfare states have always struggled with structural change in labour markets. The first big transition (from agriculture to industry) was the cradle of the welfare state; the the second (industry to service) already showed some of its limits;  the third (more automatization) will need a more inventive approach to policy. Given that labour markets will see sectoral change, perhaps at even increasing speed in the years to come, experimentation wouldn’t necessarily be a bad thing, it might be the only thing.

Given my own level of doubts, comments are greatly appreciated.

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