Posts

Introducing: the ambition-to-competence ratio in kleptocracies

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Russia's invasion of Ukraine has inspired me to come up with an interesting theoretical concept. I'll lay it out first, and then try to explain the reasoning behind it and how it can be used to explain potential outcomes of Russia's Ukraine invasion.  The ambition-to-competence ratio of government officials is an exponential function of the kleptocracy level of a country. It is best defined as ambition plus loyalty divided by one’s intrinsic level of competence:  A-C ratio = (ambition + loyalty ) / intrinsic competence  In high-level kleptocracies, where the government is completely subdued to a ruling elite looking to expropriate wealth of the country they govern (e.g. the dictator and his cronies, oligarchs, or the military), government officials rise in rank based on their ambition and their loyalty. Their competence is inversely related to their rank in government.  This means that in kleptocracies it is possible (and even desirable) to move up the hierarchy pur...

The politics of bailouts: How political connections of banks conditioned their bailout during the financial crisis

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My new paper  (open access; meaning free to read) is out in the new edition of Public Choice (published online first in February this year). This was my second PhD paper at Oxford, and one I am particularly fond of given the importance of the topic and one of the cornerstone arguments of my upcoming book Elite Networks: The Political Economy of Inequality (more on that below).  What's the main finding?  In short, I looked at the effect of political connections on the allocation of TARP funds to US banks, and found that TARP recipients that lobbied the government, donated to campaigns, or whose top execs had direct connections to politics received better bailout deals. Let’s unpack this. In 2008, as the crisis unfolded in the US, the banking industry elevated its lobbying and campaign spending activities.  You might remember the panic days in Sep & Oct ’08 where it seemed like the financial world is collapsing. Getting bailed out was a priority for many banks, es...

Nobel prize for causal inference: why it matters

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This year's Nobel prize in economics was awarded to three brilliant economists, David Card, Joshua Angrist, and Guido Imbens for revolutionizing the way economists (and social scientists) do empirical research. Specifically, Card got it for his contributions to labor economics, and Angrist and Imbens got it for causal inference, but all three made breakthrough contributions of applying the scientific method to economics. In the field, we call it the "credibility revolution". I am very familiar with the work of all three as I've used their papers very often while learning about causal inference, teaching it, and citing it in my own empirical research. I also had the honor of receiving comments on one of my papers (the recently published Politics of Bailouts ) from Josh Angrist at a conference I co-organized.  The way I wish to pay respects to the three of them is by explaining to you, my dear reader, why this Nobel prize in particular deconstructs that typical malevol...

The bond market is showing no signs of recession. Yet.

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This article was first published on Seeking Alpha on July 15th 2021 . This article contains updated graphs for the subsequent month and a half (a new version will look at the situation again in October).  A lot of investors and analysts like to look at various stock market indicators for signs of widespread market hubris, overconfidence, greed (&  fear ), or an upcoming contraction. Many like to point out that stock valuations are at their extremes, particularly in the tech sector, or that, for example, the Shiller PE ratio is running at a 39 multiple (the only time it was higher was prior to the 2000 dot-com bust). Many such indicators certainly have merit for uncovering sentiment, and while they can be good indicators of whether a bubble is reaching its climax (e.g. the Shiller PE ratio), whether a market is overheating, or that a correction is due, a much better indicator of an upcoming contraction is the bond market.  This is not only true historically (e.g....

The GameStop conundrum

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This week we saw a huge play come to its climax. For a while the retail investor community at r/wallstreetbets (WSB) on Reddit has been pumping several stocks that have been targeted by short sellers (mostly in the form of big hedge funds). GameStop ( GME ) was among the most prominent ones (others include AMC , BB , BBBY , NOK , etc.). The pump was done on the aforementioned subreddit, spilling over onto other social media platforms like Twitter where many retail investors, bystanders, billionaire businessmen, and even celebrities have joined in to push the stocks up in the massive short squeeze against the short sellers.  Why has this caught so much attention? The motivation of the WSB community was driven by the fact that many short positions in these companies were overleveraged. GME  for example had a short interest at 140% of its float . This means that there was more demand for borrowing stocks to be sold short than the number of stocks in circulation ( this artic...