The Political Economist

...or technological breakthrough. I don't see any other conclusion coming from this picture. Do you? Now the only question is, does this make their recent war threats credible enough? ( yes, I am being sarcastic )

"Tracking the recovery" section continues in its third edition from the start of the blog. The first version was done in February last year (featuring final data for January or December), while the second version was done by the end of July, beginning of August (featuring final data for May and June). Things were in much turmoil at the time, with severe confidence and uncertainty problems in the beginning of the year following the panic of November 2011, and significant volatility of confidence in the months to come following events such as Greece elections, Spanish bank bailout and other exogenous shocks. Notice that the pattern has more or less continued, except now the most recent exogenous shocks were Italian elections and the Cyprus bailout . The effects of these events on confidence will be seen later in the year, probably in the September edition of the Tracking the Recovery section.  In the first version back in February 2012, I presented an overview of busi...

There are a lot of promising trends happening in Mexico in the last couple of years. I have stumbled upon more positive texts on the changes in Mexico than in any other country.  Thomas Friedman   wrote in the New York Times a couple of weeks ago:  "Something happened here. It’s as if Mexicans subconsciously decided that their drug-related violence is a condition to be lived with and combated but not something to define them any longer. Mexico has signed 44 free trade agreements — more than any country in the world — which, according to The Financial Times, is more than twice as many as China and four times more than Brazil. Mexico has also greatly increased the number of engineers and skilled laborers graduating from its schools . Put all that together with massive cheap natural gas finds, and rising wage and transportation costs in China, and it is no surprise that Mexico now is taking manufacturing market share back from Asia and attracting more global investment ...

Even though the focal point of attention this week was Cyprus, in Britain the central issue was the 2013 Budget , for which I found some policies encouraging but some of them deeply disappointing  implying that there Osborne still hasn't got a clue as to how to initiate the recovery.  Anyway, from the Budget and the OBR report I found a couple of interesting graphs, some good, some bad. I start off with tax competitiveness and how the UK has significantly increased its competitiveness vis-a-vis the corporate tax rate cuts on KPMG's survey (the survey is based on businesses responding to the changes):  Even in comparison the 20% announced corporate tax rate (in 2015) is beginning to look very good: On this list, among the lower rates, the UK has by far the strongest institutional system and rule of law, thereby triggering positive signals to attract new investments. It's unfortunate for the US and Japan not to follow upon ...

Similar to what I did last year , this year I will once again analyze the new UK budget announced yesterday by the (downgraded) Chancellor George Osborne.  The initial reaction is actually better than last year, except for some policies which haven't changed and some new woeful ideas. You can read summaries of the budget from a variety of sources: Financial Times , BBC , Telegraph , Guardian , CityAM , think tanks ( ASI , IEA , CPS ) or watch this interesting video from the FT: Before we move on the budget itself, the UK Office for Budget Responsibility  issued their revised growth forecasts, and things still look rather gloom for the UK. Growth was revised to 0.6% this year and 1.8% in 2014. (Last year the prediction was 0.8% in 2012 and 2% in 2013 - so take the prediction for the recovery in 2014 with slight suspicion, as it always is with growth forecasts). Employment figures still seem to be increasing (even above forecasts), and with stagnating GDP this...

This week the negotiations in Cyprus over its fragile banking system reached a new low. Cyprus was given a  € 10bn bailout (they desired  € 17bn initially) from the Eurozone to recapitalize its banking system, with the price they have to pay for this being dire. This radical bailout plan forces a 9.9% tax on deposits over  € 100,000, and 6.7% on deposits under  € 100,000. Unlike previous bailouts in Greece, Portugal or Spain where bond-holders took a big cut, this is the first time a bailout proposal will fund itself from peoples' savings. The signal this is sending is that small savers (not responsible for the crisis) should be punished while the bond-holders who willingly took risks should be protected. Needless to say such a bailout proposal is very likely to turn into a disaster for the domestic economy. Investors were spooked, the people went to the streets, mainly to  pull out their money from banks , while  markets dropped  at the sight of such...

After the final day of the conference which was on Sunday and after spending a few days travelling back home (!) my final impressions of the conference are overwhelming. I was very pleased to have had the opportunity to meet with some of the best and brightest minds in the field of public choice theory. From Nobel Prize winner Vernon Smith, Geoffrey Brennan, Iain McLean, Charles Plott, Norman Schofield, Richard Wagner, Ed Lopez, Peter Boettke, Randall Holcombe, and many more, including young scholars who are yet to excel in the field. I was excited to witness the mixture of both senior, established scholars and professors, and the young PhD students and assistant professors, all joined together in celebrating the acomplishements of the field of public choice theory.  Having said enough already on the conference itself (see previous two posts ), I promised I would finish the coverage with my impressions on some of the papers I've ha...

The Conference continues . Today the conference was even more exciting and fulfilling than yesterday, with several plenary sessions lifting the experience altogether.  I started off by attending the "Institutions and Entrepreneurship" session to look into a paper on how informal institutions influence entrepreneurial spirits (or at least this is what I was hoping to find out). Unfortunately that paper is still a work in progress so I haven't had a chance to find out more, but the author gave me a promise that in the next couple of months he will continue his work on this very interesting topic. I'm interested in the idea purely from the perspective on how informal institutions influence the incentives to become an entrepreneur in different economies. In particular how can formal institutional changes affect the low quality informal institutions (meaning norms, customs or mentality preventing entrepreneurial idea...

I'm at the Public Choice Society 50th annual conference this weekend, being held in New Orleans, presenting my paper on Persistent Electoral Success with Endogenous Rents on Sunday . The conference program is available here . For those yet unaware of the Public Choice Society, it has for years been the forefront of both theoretical and empirical research in the field of political economy (well, public choice theory to be precise). The Society was founded by James Buchanan and Gordon Tullock in 1963 and has since been an active advocate of progressive research in social sciences. Its current president is Edward Lopez, while past presidents include an impressive list of names, from Mancur Olson, William Riker, Dennis Mueller, Peter Ordeshook, Vernon Smith, Vincent and Elinor Ostrom, William Niskanen, Geoff Brennan, Randall Holcombe, and of course the founders (Tullock and Buchanan) to name only a few. It is affiliated with three journals ; Public Choice, Constitutional Political E...

Italian electoral results were funny to me at first. I was entertained by the fact that  25% of Italians voted for an actual comedian lacking a serious political program, thus fully emphasizing the absurdity of the Italian political system.  Usually these types of ridicule parties such as Mr Beppe Grillo's don't get more than a few percentage points of the total vote. They participate in public debates, make a few people laugh, but no one really takes them seriously. This time they did (ironic, isn't it?). To analyze the reasons of their electoral success would be beyond the point of the text and the blog itself (there is a variety of potential factors that can explain this, some also mention the frustration of young people expressing their anger against the political elites).  I at first considered the results as a clear signal Italians sent to their vastly corrupt political elites incapable (and unwilling) of tackling corruption, special interests, the...