RES Annual Conference Report

The Society’s Annual Conference this year was held for the first time at Royal Holloway University of London, 18-20 April. This report comes from Aditya Chakrabortty of The Guardian.

I came to the Royal Economic Society conference feeling rather like an interloper. I wasn’t there to deliver a paper, to provide moral support to a friend delivering a paper, or even to kneecap a rival delivering a paper in my field. Not for me dreams of tenure or the low thousands of a post-doctoral research grant.

No, I was there as an economics journalist, someone whose deadlines are measured in days and hours rather than months and years, and whose idea of peer-review is a hard-pressed subeditor armed with a Collins dictionary.

As such, I began the three days at Royal Holloway college with three questions. First, could I find anything that might help with the day job? Insights that might inform forthcoming editorials; material to trigger columns; or simply interesting people. Second, how had academic economics been changed by the financial crisis? Finally, what could I learn about its tribe of practitioners?

Over the past three years no group of academics has been as discussed as those people on the payroll of the economics faculties. They’ve been derided for missing the financial meltdown; lambasted for trying to wedge the profane cash nexus into even the most elevated spheres of human activity; dismissed as, in the words that Nye Bevan once flung at Hugh Gaitskell, ‘dessicated calculating machines’ (Gaitskell was then chancellor of the exchequer, unsurprisingly). Here was my chance to find out the reality.

What follows, then, is as much an attempt to give an outsider’s perspective on a gathering of specialists as it is to give a flavour of the conference itself. Working on the premise that the research of the keynote speakers is most likely to be familiar to readers of this newsletter, I’ve decided to highlight those whose work may be less well-known. And since what happens outside the seminar rooms can be just as interesting as what goes on inside, the following remarks also reflect conversations with participants, organisers and other attendees. Naturally, I make no pretence at comprehensiveness.

Observation no 1:
Economists will talk even if no one’s listening

A few times over the conference, I would barge into a session to find the presenters presenting pretty much to themselves, on one occasion without even a chairperson. The first time this happened, I expressed my bewilderment to one of the organisers, who shrugged, and recalled the session ‘right at the end of one conference’ in which two academics ended up showing their results to each other, with no one else present at all.

The occasional sparse audience is probably par for the three-day course. Any event with 125 listed general sessions (21 on the Monday afternoon alone) is going to see some empty rooms; sadly, the result was that some interesting findings did not get the audience they deserved.

One of those was in a paper given by Renata Bottazzi at the University of Bologna. Her research, done with Thomas Crossley at the University of Cambridge and Matthew Wakefield at the Institute for Fiscal Studies, assessed the impact of rising house prices in England on access to homeownership. With all the talk of ‘Generation Rent’ (so named by Halifax, whose executives doubtless have their eyes on the buy-to-let mortgage market), of a cohort of 25-40 year olds apparently locked out of the owner-occupation game, this was a timely paper.

Bottazzi and her colleagues looked at two generations who came of age in England either side of a massive housing bubble. One was born in 1967 and hit their 20s amid the Lawson boom; the second was born in 1975 and entered their 20s in the long slump of the mid-90s.

Together, the two samples make a pretty good illustration of an age lottery in the property market. In 1989, when the 1967-cohort turned 22, the average house cost 5.5 times the average income. By 1997, when the 1975-cohort hit 22, house prices had dropped by more than 20 per cent so that the ratio was now only 4. A big difference, then, but what impact did it have on them getting their own bricks and mortar?

The answer is: large in the short term, but diminishing over the long run. When the two generations each hit 30, there was indeed a big difference between their rates of home ownership, which the researchers cannot account for by different rates of settling down. Indeed, they argue if house prices are 17 percentage points above trend, then home-ownership dips by approximately 3.2 percentage points. But, crucially, by the time each generation hit 40, that gap had narrowed. The cohort that had plunged into bricks and mortar when they were 30 obviously didn’t need to keep buying new houses, while the other group closed 80 per cent of the ownership gap by the time they were 40.

With the housing market in London and the south-east bouncing back after the crash in the City, findings like that are helpful for economics journalists. That doesn’t mean they are necessarily comforting for our readers.

Those waiting to get on the property ladder may be less than pleased at the prospect of an extra decade of renting. It might also be pointed out that those able to buy into the market at 30 then have the rest of their adult lives to trade up, with all the increases in wealth that that supposedly brings.

Another piece of research on the accidents of age came from Dan Anderberg at Royal Holloway and Yu Zhu at the University of Kent, who looked at what difference staying on at school makes to marriage partners.

The two men crunched through a sample of 227,000 English and Welsh women born between 1957 and 1971. For most of that period, a child who turned 16 by the end of January could leave school in spring. Those who were born in February or after had to wait until the summer holidays.

The difference is small — just a few months. And yet, found Anderberg and Zhu, it could amount to a lot. Those who stayed on in school were more likely to pick up some academic qualifications — and to marry a husband with qualifications and a job.

This makes an interesting addition to the literature on assortative mating — the shift towards men and women choosing partners closer to their own position on the earning scale. Where doctors used to marry nurses, say, they are now more inclined to couple up with another partner. It also has political implications — if even the slightest reduction in educational inequality can reduce social inequality, then a government that wants to close the wealth gap needs also to close the education gap.

Observation no 2:
Economics has been changed by the financial meltdown, but not by much - yet

In contrast to the empty chairs of some presentations came Tuesday afternoon’s special session chaired by Charlie Bean of the Bank of England. ‘Bit of a squeeze in here, isn’t it?’ remarked my neighbour, before we all had to budge up again. The formal title was ‘Interactions between Monetary and Fiscal Policy’ — but clearly for speakers and audience alike it might as well have been called ‘How On Earth Do We Get Out Of This One’? With great difficulty and over a long time, came the not entirely unsurprising answer, albeit presented in three intriguing ways.

Journalists are always on the lookout for when key players in a particular area expand the range of possibilities they are willing to consider: not necessarily their central forecasts, but rather the outlier scenarios. In a fast-moving situation, such as the eurozone debt crisis, the outlandish is sometimes only a few weeks away from being quite plausible.

This session was full of shifting possibilities. Vittorio Grilli, the snappily-dressed director-general of the Italian Treasury and chair of the increasingly-important EU Economic and Financial Committee, made it clear that the old eurozone orthodoxy of a rigid separation between national fiscal and continental monetary policy was, as far as he was concerned, dead. It is, he said, ‘very hard to run one monetary policy and 17 un-coordinated fiscal policies’. So did this mean greater control from Brussels over national economic policies and/or the European Central Bank stepping in further to help out struggling governments? Mr Grilli was charmingly vague.

Next came Carlo Cottarelli, Director of the IMF's Fiscal Affairs Department, who discussed other ‘unorthodox ways’ out of the crisis such as a sovereign state defaulting on its debt. He stopped short of advocating that, mind, but the possibility was left hanging. And it’s worth recalling an IMF study of the effects of sovereign defaults, published in 2008, which concluded: ‘The economic costs [of default] are generally significant but short-lived . . . we almost never can detect effects beyond one or two years.’ Whether this finding applies to a country locked into a relatively new and inflexible large currency union is a debate worth having.

The final speaker had much less need for hedges and qualifications. Although he has advised both the Bank of England and the Treasury, Andrew Scott mainly works in the relative purity of British academia. Donning that hat, he made a fittingly-strident case for keeping calm about the UK’s debt. Yes, persistently-big borrowing is a problem, he said quoting Adam Smith's warning from over 200 years ago: ‘The practice of funding has gradually enfeebled any state which has adopted it’.

Fine, but when does enough become too much? Quoting Carmen Reinhart and Ken Rogoff’ assertion that public debt of 90 per cent of GDP was the typical tipping point, Scott observed that they had failed to find whether big borrowing was the cause of economic distress, or merely a major symptom.

Instead, he described debt as ‘a buffer’ often used by British governments to smooth out the costs of wars and other big economic shocks. If a sovereign can get long term loans and has the option to roll over their borrowing, then gradually sorting out the public finances is far better than abruptly whacking up taxes and cutting public spending.

Measured against national income, debt has been above its current levels for more than half the long stretch since 1692; while as a proportion of tax revenues government debt is still below its average of the past 100 years. Scott closed with another quote from Smith, from 1776: ‘Great Britain seems to support with ease a debt burden which, half a century ago, nobody believed her capable of supporting’. And as was pointed out, Britain’s debt burden grew even more just after that statement.

Personally, I buy this argument, all the more so when presented by someone as persuasive as Andrew Scott. But he fell into the trap usually waiting on this side of debate, in failing to address how governments manage the process of borrowing more without making debt markets jumpy. The lacuna was especially noticeable after the grim European scenarios painted by the previous two speakers.

One riposte to Scott was delivered in a separate session's presentation by Michael Arghyrou and Alexandros Kontonikas. At Cardiff Business School and University of Glasgow Business School respectively, they’ve studied the causes of the Greek crisis — and found it was as much to do with the financial markets’ collective loss of faith in the Athens government as a deteriorating economy. Britain is obviously not Greece — for one thing, it’s not quite as imaginative in totting up its public finances. But still, Kontonikas and Arghyrou’s emphasis on the importance of trust in the relationship between governments and bond markets should give pause to deficit doves.

Going by the crowd it drew and the comments from the floor, the crisis session was one of the most vibrant of the lot. Indeed, it suggested a case for carving out more room in future conferences to discuss up-to-the-minute subjects. There were, I was informed, many more sessions on macroeconomics than in previous years — for which this year’s programme chair Rachel Griffiths and her deputies Juan Pablo Rud and Melanie Luhrmann deserve congratulations. Still it would be an interesting experiment to have a couple of small panels of senior economists debating topical issues, without the aid of publishable papers.

Plainly, the current economic crisis is also partly a crisis of economics. Yet I was struck by how little forthright discussion there was of how the discipline should change. As Marcus Miller of Warwick observed to me during one sunny break, as conference-attendees colonised every available patch of Royal Holloway grass: ‘You would never guess that most of the people working in economics failed to spot the crisis coming, and then had little to say about how to deal with it.’

On this front, the Institute for New Economic Thinking led by George Soros has raised good questions about which of the old concepts — such as the efficient markets hypothesis — ought to be overhauled, and how the subject should take on more insights from history or biology. There is no reason the RES shouldn’t move these debates along.

Observation no 3:
Economists sometimes prefer models to reality

Early in the conference the RES media consultant, Romesh Vaitilingam, told me: ‘When faced with some new economic finding, journalists want to talk about what it means and how it can be applied; economists want to discuss how you got those results.’ That rule didn’t always hold up; more than once a presenter squeezed for time would race through PowerPoint slides full of data tables to arrive at the conclusion. In one deliciously frank instance the researcher merely said, ‘And I tested my data many times and it was remarkably robust… Any questions?’

But still, that fondness for methodology and models is one of the things that marks out economics — and it can be unhelpful. Let me give you a couple of examples drawn from a series on papers I sat through on the media and politics. For me, this was one of the most interesting sessions both for what it confirmed to me about my trade and what it told me about the economics profession.

The session was chaired by Benjamin Protte of the University of Mannheim. His own paper was titled ‘Does Fleet Street Shape Politics?’ and looked at the impact that reporting of globalisation in British newspapers has on public attitudes. In particular, he investigated whether there is a link between reporting and voters’ demands for higher unemployment benefit, to compensate for the greater insecurity they felt in the face of insecurity over freer trade.

Protte worked out that a link did indeed exist. What is more The Star was the most anti-free trade, while The Express was the most gung ho in its support for globalisation. Fascinating findings, and passed through all sorts of controls to make a firm conclusion. You could not fault the methodology.

But while I don't know much about ‘wild boot straps’ and other robustness checks, I have occasionally flicked through a tabloid. And it surprises me that the Express would have much coverage of the globalisation debate in amongst all its Princess Diana conspiracy theories and pictures of Cheryl Cole. Sure enough, Protte revealed that he looked out for reports filed in the newspaper database under such categories as ‘free trade agreements’ and ‘non-tariff barriers’. Perhaps it’s my newsagent’s fault, but I’ve never found that section of The Daily Star. Personally, I imagine the more obvious link is between newspapers’ coverage of ‘benefit scroungers’ and how their readers feel about welfare.

Then there was the fascinating presentation that found a link between newspapers’ endorsement of political candidates on polling day and their eventual share of the vote. I found the actual study, by Fernanda Leite Lopez de Leon at the University of East Anglia, fairly convincing. Less so was the iron-bound confidence of one member of the audience that ‘newspapers like to sell issues and backing a winner obviously means they sell more issues’. Well, Nick Clegg counts as a winner from the last general election and my paper backed him; and I think the only obvious result was a deluge of angry letters and e-mails from current readers.

The truth is that newspapers back candidates largely out of a sense of democratic duty, and partly out of the excitement that comes naturally to a politically-engaged staff. I am not so naïve as to think that there are absolutely no material considerations at play; but they are rather more subtle than my friend in the audience might imagine.

By contrast, some of the best papers were those in which academics blew a hole in such mechanistic explanations. Two that stand out were on the subject of religion, now a fashionable subject for economists. Why was moneylending in Medieval Europe dominated by Jews, asked Maristella Botticini at the Universita Bocconi.

The conventional explanation is that Jews were barred from other ways of making a living such as farming, while usury was forbidden to Christians and Muslims. Not so, argued Botticini, pointing out a numbers of exceptions to this rule. In much of Medieval Europe, for instance, Jews were allowed to own land and could have gone into farming. The reasons why they chose finance instead were positive rather than negative: Jews came to the continent with more capital, networks of friends and associates and greater literacy skills.

They thus had the tools to run lucrative moneylending networks.

Just how persistent is anti-semitism, asked Nico Voigtlaender of UCLA in research conducted with Hans-Joachim Voth of Universitat Pompeu Fabra. They compared towns and cities in Germany, each with Jewish communities dating back centuries. When the plague came to Europe in the 13th century, killing half the population, it was often the Jews who were blamed and in Germany there was a wave of Black Death pogroms.

Over 600 years later, those towns and cities in which there had been violent anti-semitism were six times more likely to be the site of attacks on Jews in the 1920s. They were also more likely to vote for the Nazis. Even if they were only 20 miles away, places that hadn't experienced anti-semitism in the medieval era were much less likely to produce it during the rise of Hitler.

Work like this, of intrinsic interest and far-reaching implications. is bound to be talked about and argued over for a long time to come. A good note then to round off the RES conference.

In closing, I should say that I was struck throughout by how sociable the entire conference was. The annual gathering of my colleagues is at the British Press Awards, an occasion which an American reporter compared only a few years ago to ‘a soccer match attended by a club of misanthropic inebriates.’ In contrast, this was an event marked by good-humour and a high level of collegiality.

My final observation, then:
Economists are surprisingly easy-going and make pleasant company for three days.

Not at all like those sociologists.

From issue no. 154, July 2011, pp.5-8.

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