The Political Economist

This is becoming a sort of a post-Christmas tradition on the blog - each year in the weak after Christmas I offer a wrap up of the year by evaluating my last year's predictions . Once again, I have to say, it was a good year in terms of what I got right (I managed to even beat my own predictions from 2014 : 85% compared to last year's 75%), but there were a few events that went under my radar (the Greece situation triggered by Syriza's victory, and the refugee crisis).  The title of last year's predictions was: "2015: Back to Realpolitik and back to growth" . My main prediction was that most economies in the West would return to having steady rates of economic growth (which came true), and that debates over the economy will be overshadowed by the return of realpolitik and muscle-flexing between Russia and the West. I've also stated that "low oil prices will be the key in prompting a stronger recovery", which they were, and I managed to exclu...

It has happened. The Fed has raised short-term interest rates for the first time since the start of the financial crisis in 2008. And immediately they've doubled it! The rate went up from 0.25% to 0.5%, with a pledge to be gradually increased further in the years to come. In Janet Yellen's own words: "This marks and end to an extraordinary seven year period."  Source:  The Economist An increase of interest rates in theory implies several things. Central banks increase interest rates when they want to curb the expansion of the economy, or in other words to prevent its overheating. A quarter of a basis point increase hardly means the US economy is overheating, but in the wake of the liquidity trap during the crisis and the recovery, and particularly Fed's  September 2012 announcement  that it will purchase mortgage securities as long as it takes until the labor market "improves", this move is viewed as a careful and gradual "return to normal...

Over the past month we witnessed two major political changes in the South American continent. Venezuela and Argentina have ousted their long-lasting socialist parties and have turned center-right. The scope of this change is even greater considering the fact that two dominant Latin American political economy ideologies were punished at the polls: Chavism and Kirchnerism . However, to be honest, the defining figures behind these political and economic ideologies weren't themselves punished by the voters. Chavez died, his successor Maduro still remains in power, but it was the Socialist party that lost the parliamentary elections (by a landslide), while Cristina Kirchner had to step down after serving two consecutive terms in office - it was her chosen successor that lost the November Presidential run-off. The Venezuelan elections can still however result in a blow to Maduro since the opposition gained a two-third majority in Parliament , meaning they can change the constitution...

Douglass C. North , one of the greatest economists of our time, a Nobel prize winner responsible for reinventing institutional economics, died this week at the age of 95. His passing follows those of other notable institutional and political economists in the past few years, such as Elinor Ostrom , James Buchanan , Ronald Coase , and his Nobel co-recipient Robert Fogel, all champions of the new approach to examining economic interactions, and all, just like North, with groundbreaking contributions to the field. Together with Olivier Williamson and Ronald Coase, he was attributed as the pivotal co-founder of the  New Institutional Economics school of thought , a school of thought I personally favor and advocate.  Out of all academics North arguably led the most exciting life. He was a navigator for the US Merchant Marines during WWII, a passionate photographer, a deep-sea fisherman, an heir to an insurance fortune, a pilot (he had his own plane), a ranch owner, fancied...

A paper of mine (co-authored with Boris Podobnik and H. Eugene Stanley ) got published in PLOS ONE ! Since PLOS is an open-access journal you can read the whole paper here . It is primarily a theoretical paper focused on designing a model of corruption networks in democracies. The intuition for the model was a growing disparity between public sector and private sector wages and how this corresponds with greater corruption. This is, naturally, only a correlation, but it served as a motivation to search deeper and uncover how corrupt networks can sustain themselves within a democratic environment.  There were three main findings/contributions in the paper: The greater the public sector wage premium (higher public sector wages than private sector wages) in a given country, the greater the possibility of corruption We design and propose a new reward-to-risk ratio for labor economics (taking into account the relative riskiness of working in each sector) Democracy does not ...

Over the past two weeks, in the same schedule as always, we had the opportunity to enjoy the announcements of Nobel prize winners. Last but not least was the Nobel prize in economics (or to be more precise for all those doubters out there, the Sveriges Riksbank Prize in Economic Sciences in Memory of Albert Nobel). And once again the prize went into well-deserved hands. Angus Deaton from Princeton University , a brilliant academic with a distinguished career and list of contributions (recently a member of the National Academy of Sciences ), a global fighter against poverty and inequality, and above all an economist with an eye for applicability of his research. What is surprising is that once again, the same as last year , the prize was awarded to a single recipient (a rare occurrence in the past 15 years in this field). However what hardly came as a surprise was the field of research that was finally acknowledged with a Nobel prize - inequality and development, for the first time si...