The Political Economist

From the NPR blog (HT: ASI ) comes a very interesting graph as an answer to an unusual question: who had richer parents, doctors or artists? Or to be more precise they were trying to figure out the link between household income during childhood and job choice during adulthood.  They used the data from a BLS survey tracking 12,000 people from 1979 when they were in between 14 and 22 years of age, to see how they did in life. Looking at the graph below, the data shows all the professions that did better or much better than their parents. Some of these are expected: computer programmers, engineers, lawyers, managers, CEOs, auditors and accountants, financial analysts, media and communication workers, etc. However many are very surprising: police officers and firefighters, nurses (both very high up), truck drivers, heavy equipment operators, mechanics and repairmen, teachers and finally factory assembly workers, farmers, and construction workers! However take this with a pin...

Well, it seems this too has become possible. The Economist decided to introduce an index of crony capitalism, where the index depicts billionaire wealth as % of GDP, however adjusted for sectors that have a higher probability of being "crony". I'm a bit skeptical towards such a measure.  Before we go into more detail, read this short intro on rent-seeking from the article:  "Inventing a better widget, tastier snack or snazzier computer program is one thing. But many of today’s tycoons are accused of making fortunes by “rent-seeking”: grabbing a bigger slice of the pie rather than making the pie bigger. In technical terms, an economic rent is the difference between what people are paid and what they would have to be paid for their labour, capital, land (or any other inputs into production) to remain in their current use. In a world of perfect competition, rent would not exist. Common examples of rent-seeking (which may or may not be illegal) include forming ca...

After a short break, the week links are back. 1. Cowen: "Modeling Vladimir Putin" , Marginal Revolution blog - of all the texts analyzing Putin's reaction of the Crimea situation , I find this one to be the most interesting. "Putin lives in a world where power is so much the calculus — instrumentally, emotionally and otherwise — that traditional means-ends relationships are not easy to define. Power very often is the exercise of means for their own sake and means and ends thus meld and merge. Our rational choice constructs may mislead us and cause us to see pointless irrationality when in fact power is being consumed as both means and end. It is hard for we peons to grasp the emotional resonance that power has for Putin and for some of his Russian cronies. They grew up in the KGB, watched their world collapse, tyrannized to rise to top power, while we sit on pillows and watch ESPN." 2. Last week was budget week in the UK . Osborne delivered a new budge...

New Fed Chairwomen Janet Yellen held her first FOMC meeting this week where the committee members (7 members of the board plus 5 out of 12 Reserve bank presidents) gave their usual predictions on when the Fed could increase its target rate (federal funds rate) for the first time since December 2008 (it has been stuck at around 0.25% for the past 5 years). Investors in particular always listen closely to these meetings hoping to decipher a clear signal from the Fed on the long term expectations of the target rate.  Source: WSJ The conclusions from the meeting this week is that interest rate increases could start in the first half of 2015, or to be more precise around 6 months after the bond tapering program ends. Usually it was hard to get a concrete number from a Fed Chairman. Greenspan once said: "Since I have become a central banker, I have learned to mumble with great incoherence. If I seem unduly clear to you, you must have misunderstood what I said." However ...

In the third part of the series of essays on democracy, I continue upon the conclusions of the second text in evaluating the weaknesses and strengths of democracies. Alternatives to democracy  The attacks and criticisms on democracy and capitalism are all too familiar. Despite all its flaws, some of which desperately need to be fixed, the Western model of democracy has triumphed so many times in history. As I've pointed out in one of my earlier posts , it was well documented that prominent Western economists back in the 60-ies and 70-ies made predictions on when the Soviet Union is to overtake the United States as the world's leading economic superpower. The most notable of them, Nobel prize winner Paul Sameulson, only a few years before the collapse of the Soviet Union claimed that Russia would overtake the US somewhere between 2002 and 2012. We can go even further back in time to the 1920s and 1930s when many nations in Europe envisioned their democratic and capitali...

In the first part of the series of texts on democracy I focused on the problem of democratic consolidation as one of the major criticisms directed at democracy as a system. Many suffer under the perception that some countries simply aren't fit to have a Western-type democracy. They have been too long embedded in an authoritarian system and cannot seem to shake some of its negative mentality. The people in such countries persistently yearn for strong leaders (when they lack one), call for nationalization of private companies in times of crises, and in general call for a more firm state control over the economy, not realizing that the major problem of such countries is state inefficiency, rather than market inefficiency.  On the other hand, the critics claim, the Western-type model of democracy isn't all that great either. The recent global crisis (along with the rise of China) has exposed all its problems; dysfunctionality and political gridlocks that only worsen the crisi...

Ukraine has been the center of worldwide attention in the past weeks (and still is), following a long run of anti-government protests. The protests started as a peaceful rally back in November 2013 to end Russia's influence over Ukraine (the trigger was the Ukrainian President Yanukovich's refusal to sign a free trade agreement with the EU and chose Russia's help instead). The initial student protesters were calling for a more EU-oriented Ukraine. In essence one can say these protesters were fighting FOR democracy, or to be even more precise for a BETTER democracy. This isn't the full story around Ukraine however. Lots of things went out of hand particularly last month and even though some kept their initial goals of a pro-European Ukraine, many other, darker things also surfaced. And interestingly enough, Ukraine has been one of the prime examples of a split-country. The political science terminology often uses the term Two Ukraines , similar to the story of Two P...