The Political Economist

The newest Doing Business Report 2014  once again sheds light on where in the world opening and owning a business is a welcomed venture, and where you would be better of not being in the private sector at all.  The report is an annual World Bank publication comparing countries in 10 different areas of business regulations such as starting a business, resolving insolvency, getting licences and permits, and even credit availability. It ranks countries based on the ease of starting and handling a business, thereby painting a picture to investors as to which country is more open for investments, i.e. more business friendly. For lower-income countries specific policies aimed at lowering the regulatory burden on businesses will ensure they rise high on the rankings, while for high-income countries, the relative strength of their institutional environment will still keep them on top, despite some of their policies being less business friendly than expected.  For example...

Nassim Nicholas Taleb , most famous for his bestselling brilliant book "The Black Swan" , published a new book last year - "Antifragile: Things That Gain from Disorder" , where he presents a rather interesting argument. I haven't read the new book yet (I intend to), but I came across two interviews he did for Financial Times presenting his argument.  His main point is on political volatility. If I were to ask you a question: "Which country is going to be better of in the future - the one characterized by more political volatility or the one with more political stability?", what would you answer? The first though that comes to mind is that stability is inherently good. But according to Taleb this need not always be the case.  If one  approaches this question through the democracy vs autocracy  debate, where democracies will always carry more political volatility than autocracies, then the argument makes much more sense. A democratic system, ...

This title is actually taken from Paul Krugman . For once I agree with him. Krugman's blog came as a response to a great text by this year's  John Bates Clark medal recipient  Raj Chetty from Harvard. Chetty wrote a column for the New York Times this weekend where he defended the field of economics on the basis of its scientific rigor. His text came as a reaction to many non-economists questioning the recent Nobel prize being awarded to two opposing theorists explaining the same phenomenon ( Fama and Shiller ), but also (I believe) to a series of texts about economics and philosophy started in the NYT back in August, initiated by two philosophers Alex Rosenberg and Tyler Curtain writing a text called  "What is Economics Good For?" . Their main resentment towards economics is the imprecision in its predictive abilities. Or in other words, economics, with all its new modern analytical tools, not only couldn't predict the crisis, but is also failing to solve it...

Bloomberg has an informative video on the costs of the US government shutdown. Their main point comes down to how much has the uncertainty over political decisions cost the US economy so far since 2009. They come up with with some striking numbers: 900,000 jobs, 0.3% growth p/year, and an 18 basis point increase in the corporate borrowing costs.  The crucial issue everyone is worried about is uncertainty, just as I've predicted in my shutdown coverage . I'm proud to say I got this one right - game theory helped me understand that in the case of the debt ceiling negotiations the commitment device was simply too strong for the parties not to strike a deal. And even though the US  default has been avoided , all of this will cost the country dearly (although not as much as it did in August 2011), while uncertainty is looming. The  Policy Uncertainty Index  has once again  escalated , while many analysts are  still counting the total losses .  ...

The 2013 Sveriges Riksbanks Prize in Economic Sciences in Memory of Alfred Nobel has been awarded to three recipients for their empirical analysis of asset prices:  Eugene Fama , University of Chicago; Lars Peter Hansen , University of Chicago; and Robert Shiller , Yale University.    "There is no way to predict whether the price of stocks and bonds will go up or down over the next few days or weeks. But it is quite possible to foresee the broad course of the prices of these assets over longer time periods, such as, the next three to five years. These findings, which may seem both surprising and contradictory, were made and analyzed by this year’s Laureates, Eugene Fama, Lars Peter Hansen and Robert Shiller." You can find a more detailed explanation in the official press release , in addition to an excellent technical note  explaining asset price movements, provided by the Nobel committee.  Also, around the blogosphere many notab...

This day marks the second birthday of the "Don't worry, I'm an economist" blog. Last year's celebration was marked by stressing out some of the best and most popular posts. Back then I reminded the readers on why I started the blog, and how I was happy to see the entire idea unfolding into a platform which I hope was clarifying the argument in favour of structural reforms and a strong institutional environment. I claimed that the crisis wasn't an aggregate demand shock but a structural shock building up on declining productivity and an inability to adapt to technological changes in the past few decades. The essential message hasn't changed. However, the second year was marked by a wider variety of topics.  The largest focus was again on the recovery  (both in Europe and beyond), but this time I've put more emphasis on technology , institutions and political economy , all in the same goal of trying to emphasize the structural, instituti...

A few months ago I was sent a link to this interesting interactive webpage called the  Atlas of European Values . Breezing through it I found quite a few interesting facts about cross-country differences in Europe. The page presents a series of maps which include a range of survey data across the globe (but most detailed in Europe) on a number of issues in politics, religion, work, society, well-being and the like. Some of the issues I found were quite striking.  Democracy and authoritarianism  Let's start with this one - the number of people who think democracy is the best political system: Source: Atlas of European Values The variation is cross-regional in all the maps, which is good as it gives us a deeper insight into inter-country differences. Even though the majority of the population in each country feels that democracy is the best system of governance, the number of people convinced in this idea is far greater in Western Europe (always around or above 9...

CNN Money reports that investors are betting on a US default. This isn't unusual as bets like these were already in place during August 2011, when the chances of default by reaching the debt ceiling were even higher. Today, the total payout in case of a default could run up to $3.4bn, while back then they could have paid out around $5.6bn. How does this scheme work? How does one "bet" against or on a debt default? CNN Money explains:  "Financial institutions can buy what essentially amount to insurance contracts that protect against a government default. These securities, called credit default swaps or CDS, cost a 0.34% premium to insure against the government defaulting in the next year. That means an investor pays about 34 cents for every $100 of potential payout they would receive in the event of default." But as always in the world of finance, it's not as simple as it seems: "First, these contracts are only available to institutional investor...

At the end of last year the main preoccupation in United States politics was anticipating the consequences of the infamous fiscal cliff . A quick reminder for the readers; back then the two main political parties had to reach a consensus over necessary budget cuts and tax increases in order to avoid automatic large spending cuts and tax hikes that would immediately lower the budget deficit but would also push the country into another recession (hence the term "push off the fiscal cliff"). The very threat of a fiscal cliff necessitated a consensus from the two parties. Its December 31st deadline was the status quo restriction on the policymakers to avoid another recession and "do the right thing" by agreeing on which taxes should rise and where in the budget should they cut. By the end of December things were getting really unstable while signals sent by the media were implying that no solution will be reached. However in the very last minute President Obama and Joh...