04 December 2010

Clarifying the US tax cut debate

An excellent and telling graph at the economix blog showing the evolution of pre-tax real income for different income groups. What is the outcome of these trends? Well, in 1980 the ratio of the top 0.01 to the median was 62, by 2009 it had become 184.

01 December 2010

CITI's Chief Economist Willem Buiter on Sovereign Debt Crisis

An interesting analysis by Citi's Chief economist Willem Buiter. I think one of the strongest point is that "Irish crisis highlighted that the distinction between public and private balance sheets can become blurred in a crisis". But then this highlights the need for public authorities to regulate private banks's exposure to debt to unsure that it can covered by the state up in the context of a crisis. This in turn raises the question of how we define property rights in capitalist economies and whether this is consistent with how we deal with financial crisis.

13 October 2010

The DPM Nobel prize

The theory behind the Diamond-Mortensen-Pissarides "Nobel" prize: What lessons for full employment?

Expansionary policy in the US

Krugman challenges the view that expansionary policy failed in the US or indeed that there such a policy existed

21 September 2010

Where do you fit in the income distribution

An interesting post by Paul Krugman discussing your subjective sense of where you are located in the income distribution. For example, rising inequality at the top (top 1%) in the past two decades has meant that people in the top 10% underestimate their true position in the income distribution.

18 September 2010

Old age in ancient Greece: the case of philosophers

I thought it would be interesting to provide some contextual information to the current debate on the so-called 'ageing problem'. Though this data should be taken with a certain degree of scepticism, the following graphs present the relation between the year of birth and the age of death of various greek philosophers across time...

It is striking to see how some two and half millenia ago, the privileged segments of the Greek civilisation enjoyed life expectancies that are extremely high even for today's standards, indeed higher than most laborious population in our societies currently enjoy.

16 September 2010

Equal opportunity: where do we stand and does it make sense?

The issue of whether to promote equality of outcomes or of opportunity is not a new and has been raging between proponents of the left and of the right. Even where there is agreement that equality of opportunity is what should constitute the locus of our attention, it is not obvious how this imperative is best achieved or indeed against which benchmark we should assess whether we succeed.

As always a look at simple empirical data provides a set of tentative - and quite surprising - answers to these questions. One way to consider this question is to analyse the strength of the link betwen individual and parental earnings. Given radom distribution of abilities across the population, one can reasonably assume that this link should be small where equality of opportunity is ensured.

15 September 2010

Failure of economics or of economists?

Dani Rodrik's recent post provides a helpful clarification between the profession's flaws and economics as  a discipline:
"The fault lies not with economics, but with economists. The problem is that economists (and those who listen to them) became over-confident in their preferred models of the moment: markets are efficient, financial innovation transfers risk to those best able to bear it, self-regulation works best, and government intervention is ineffective and harmful.
They forgot that there were many other models that led in radically different directions. ... If anything needs fixing, it is the sociology of the profession. The textbooks - at least those used in advanced courses – are fine.
Non-economists tend to think of economics as a discipline that idolizes markets and a narrow concept of (allocative) efficiency.
If the only economics course you take is the typical introductory survey, or if you are a journalist asking an economist for a quick opinion on a policy issue, that is indeed what you will encounter. But take a few more economics courses, or spend some time in advanced seminar rooms, and you will get a different picture."

The real question is then why those simplistic models prevailed and not alternative theories that captures the complexity of the economic system?

13 September 2010

Working time before the welfare state and employment regulations

In the dictionary of the workers' movement one learns that the average working day for men, women and children in the early 19th century in France was a striking 15 hours. Bear in mind this is an average, some could reach 20 hours a day. This extreme working time did not suffice to ensure even subsistence nutrition, leading some comentators at the time to declare: "Vivre pour l'ouvrier c'est ne pas mourrir" (page 15).

This rythm was not without consequences, looking at the evolution of life expectancy in some places in France is instructive. In Mulhouse, the average life spans for workers was above 25 years old in 1812, by 1827 it had fallen to 21 years old (page 16).

Downsizing in Cuba: Is public sector employment that detrimental to national income?

In a recent article in Le Monde one learns that Cuba is about to eliminate 500,000 posts in the public sector which currently employs 85% of active labour force. In a rhetoric that has now become mainstream, the move was justified by stressing the sub-optimal support given by the state to unproductive activities, allocation problems in the labour force, and so on. Fidel's brother went as far as saying: "we must eradicate for ever the idea that Cuba is the only country in the world where one can live without working".

As it is always good to go back to the basics, I wondered what was the empirical link between the number of public sector workers and a nation's income per head. Let's consider public sector employment as a share of total empoloyment relying on ILO data (the data is a bit old - mid to end 1990s - but the main point remains. A casual look at a selection of 15 OECD countries reveal some striking things.

The first four contenders are, not surprisingly, located in Scandinavia (Sweden, Norway, Finland, Denmark), they are also located in the first fifteen richest nations as measured by GDP per capita at nominal exchange rates. The 'liberal' anglo saxons nations, save for the US are around 20%; Australia and Canada have more public sector employees (relative to total employment) than Germany while Japan has less than 10% public sector employees.

But one may be forgiven for raising the following point: sure, some rich developed countries can afford big public sectors, but surely to get to that point one ought to minimise the inefficient public sector, right?

To answer that question, let's focus, for the sake of parsimony, at emerging BRICs (Brasil, Russia, India and China). For starters, China had in 1996 about 36% of its employment in the public sector and the figure for India (formal employment; only public sector and private enterprises with more than 10 employees, excluding agriculture) was so large that my first reaction was to think that I was misreading the table: 70%! Brasil did have a fairly low share of employment in the public sector of about 10% while Russia was close to 37% (including public employment in government and the enterprises and organisations owned by the state).

Clearly, this a very crude analysis: it is neither exhaustive in its selection of countries and ignores the time dynamics, nor does it control for other relevant factors; but even at such a simplistic level one seriously questiosn the validity of an assertion regarding the size of the public sector that is often taken as an established fact.

02 September 2010

Unemployment, atypical work and employment policies in France before the crisis

In the fifteen years preceding the crisis, unemployment had been falling to reach about 8% in 2007. This reduction was done against the backdrop of a rise in the share of employees on temporary contracts and a persistently high share of employees on part time contracts. It is interesting to note in this respect that unemployment was reduced without shifting unemployed workers into part time contracts.

Churchill sums up the problem of assessing politicians' performance

With the publication of Tony Blair's autobiography it may be worthwhile remembering a famous quote by Churchill: “History will be kind to me for I intend to write it”. But then you would be missing crusty revelations if you were not to read it; for instance: "The truth is, MPs were underpaid and expenses were used to top up income: but you can't say it". Well, with the success of this book there won't be a need to top up his income...

01 September 2010

The myth that free market's evils are offset by wealth that it generates

An excellent article by Ha-Joon Chang in the Guardian, let me quote his main point:
"We have to question an assumption that has dominated economic thinking over the last three decades – namely, the belief that maximising market freedom is the best way to generate wealth."
"Sadly that assumption has been proved wrong. After three decades of deregulation and tax cuts for the rich, growth has slowed down, rather than accelerated, in almost all countries. The world economy, which was growing at about 3% in per capita terms in the "bad old days" of widespread regulation and punitive taxation for the rich in the 1960s and 70s, has grown at about half that rate in the last three decades. In Britain, average annual per capita income growth rate was 2.4% in the 60s and the 70s, when the country was allegedly suffering from the "British disease"; but it fell to 1.7% during 1990 to 2009, after it is supposed to have been cured of the disease thanks to Margaret Thatcher's heroic struggle in the 1980s."

19 August 2010

Slavoj Zizek on Charitable giving in contemporary Capitalism

Slavoj Zizek argues that the current form of Capitalism integrates the act of buying with that of giving (i.e.: Charity). In this respect, the price of a good increasingly purports to include both a production, a mark up and an ethical "component". What's interesting is that this is happening against the backdrop of heightened level of reluctance to pay income tax. Why then is the welfare state not seen as an appropriate psychological mechanism in which individuals are willing to channel some of their income?

10 July 2010

Does the case for Austerity in France resist closer scrutiny?

Many European governments are currently considering or have already implemented so called austerity measures. France  is not exception and the current government has announced its will to implement ‘necessary adjustments’.

The current crisis’ impact on fiscal budgets is thereby used to justify significant cuts in several parts of the public sector and the welfare state. These cuts are necessary, we are told, to restore credibility. It is hard however not to see in these attempts a mere pretext used to advance already familiar ideological agendas of the political right. What, if anything, in the current crisis warrants this emerging dogma? Using the case of France, I argue that there is a confusion between the symptoms (fiscal deficits and debt) and the cause (economic crisis), addressing the former instead of the former is likely to aggravate the problem

Slavoj Zizek lecture at the LSE

Slavoj Zizek, who has been called the world's hippest philosopher by the telegraph, recently gave a public lecture at the LSE entitled Living in the end of times, following the title of his recent book . I would really recommend having a look for yourself, one can view a video of the lecture here. He uses the current economic crisis as a starting point to question the way contemporary discussion about the economic and political system are framed. In his, one must admit, quite unstructured and improvised presentation, he raised many interesting points and touched upon a number of different topics and authors. For reasons of space and parsimony, I only discuss a selection of the points I found particularly interesting.

01 July 2010

French youth unemployment rate and partisanship

This graphs shows the evolution of youth (15-24) unemployment rate* in France under different governments (red lines indicate change of governments). From the 1960s to the early 1990s, the rate increased significantly; thereafter it fluctuated between 20 and 27%. 

The Jospin government successfully reduced it to around 20% partly as a result of the "Nouveaux Services Emplois Jeunes" (NSEJ). With the unfolding of the crisis, the youth unemployment rate rose from under 20% in 2008 to around 23% in 2009. 

It remains to be seen whether the current government will prove able to address this ongoing issue. French right wing parties have not in the past been effective in resolving this problem. Partisanship alone cannot account for governments' failure to tackle unemployment; indeed the current Socialist Zapatero government has seen its youth unemployment rate reach 38% in 2009.

What is however clear is that the current focus on cost containment and rebalancing of fiscal budget seems to be at odds with the imperative to channel more resources in order to fully address youth (and indeed overall) unemployment in Europe.

*Data extracted from the OECD stats website

10 March 2010

Solow on neoclassical economics

Brad delong's blog has this wonderful quote of Bob Solow explaining why it's not worth engaging with neoclassical economists:
Suppose someone sits down where you are sitting right now and announces to me that he is Napoleon Bonaparte. The last thing I want to do with him is to get involved in a technical discussion of cavalry tactics at the Battle of Austerlitz. If I do that, I’m getting tacitly drawn into the game that he is Napoleon Bonaparte.

28 January 2010

Haiti relief and Scientology

The guardian reports that John Travolta flies Scientologists' aid to Haiti. Some people have been critical of scientology, often arguing that it is not a 'genuine' church. I would agree, but I'm not sure that's where the essence of the problem lies. Indeed, another of the guardian's article recently reported that "Pope John Paul II regularly whipped himself" and that this "claim of self-flagellation boosts case for elevating late pontiff to status of saint"...

Quotes from Obama’s Full State of the Union Address

"Next, we can put Americans to work today building the infrastructure of tomorrow. From the first railroads to the interstate highway system, our nation has always been built to compete. There’s no reason Europe or China should have the fastest trains, or the new factories that manufacture clean energy products."

26 January 2010

Labour parties and unemployment in the 1960s

Source: Hibbs, D. A. (1977). "Political Parties and Macroeconomic Policy." American Political Science Review 71(4): 1467-1487

Samuelson on Inflation and partisan politics three decades ago

"We tend to get our recessions during Republican administrations...The difference between the Democrats and the Republicans is the difference in their constituencies. It's class difference... the Democrats constitute the people, by and large, who are around median inomes or below. These are ones whom the Republicans want to pau the price and burden of fighting inflation. The Democrats [are] willing to run with some inflation [to increase employment]; the Republicans are not"

Source: Samuelson P. A. (1977) Some Dilemmas of Econonmic Policy. Challenge 20: 30-31

25 January 2010

Taxing high income earners – putting things into perspective

These days, talks about the crisis occupy much space in media commentaries and political spheres. Following the bail out of major financial institutions, focus has now shifted towards the twin objective of recovering funds and addressing flaws in the incentives that financial agents. Various proposals have become the subject of quite significant debates, for instance concerning whether to tax bonuses. While not necessarily sound given the problems it purports to address, this could be a blessing in disguise.