The Political Economist

The success of extremist parties in the latest vote for the EU Parliament shouldn’t come as a surprise, even though it is a slight reason for concern. The agendas and activities of some of these parties such as the French National Front, the Greek Golden Dawn, or the Hungarian Jobbik are just too gruesome to comment. Far from their anti-immigration agendas and their protectionist economic approach, they are examples of the exact sort of thing the foundation of the EU was supposed to avoid – the rise of Nazism. In addition to their almost identical national-socialist pleas, one thing all of the marginal right-wingers have in common is a Eurosceptic agenda, which in most cases calls for the abolition of the EU itself. To stress the absurdity of the situation, imagine that one fifth of the national parliament of a country consists of people who despise the country itself and seek to destabilize it. Their Euroscepticism is the glue holding their interests together and by using it they...

Is democracy good for growth? The ultimate question of political economy of growth to which we'll hardly get a clear answer. A lot of academics would emphasize that empirically higher level of political rights need not necessarily translate into economic growth. Furthermore,  many academics would agree that even if we accept the argument that democracy works for rich countries, it doesn't work in poor (low-income) ones. This goes back to the argument that some countries just aren't culturally or even geographically fit for a capitalist democratic system. They need to have a dictatorship to produce growth.  Most of these arguments are false. Democracy perhaps doesn't cause growth, but it is the key necessary precondition for growth and development. Many will point to China and say this isn't true - China seems to be a prime example of a non-democratic system ( state capitalism ) achieving exuberant growth rates in the past few decades. I've written so mu...

The best from the rest: 1. The news bomb of the week in economics actually came on Friday: Chris Giles from the Financial Times found serious errors in Piketty's argument on inequality : "The data underpinning Professor Piketty’s 577-page tome, which has dominated best-seller lists in recent weeks, contain a series of errors that skew his findings. The FT found mistakes and unexplained entries in his spreadsheets , similar to those which last year undermined the work on public debt and growth of Carmen Reinhart and Kenneth Rogoff. The central theme of Prof Piketty’s work is that wealth inequalities are heading back up to levels last seen before the first world war. The investigation undercuts this claim, indicating there is little evidence in Prof Piketty’s original sources to bear out the thesis that an increasing share of total wealth is held by the richest few. ... In his spreadsheets, however, there are transcription errors from the original sources and incorrect ...

Well this is interesting: Source It seems the best job you can get at a University is that of a football coach. Not only do you massively outperform the tenured professors, but you also outperform the deans and the university president. How can this be? Is this fair? Is it fair for a football coach to get a higher salary than highly-respected academics and even their own bosses? Yes, it is. It's all about supply and demand. Fairness has nothing to do with it. There is a lack of supply of high quality coaches (and high quality players in general, in any sport). If one wants a good result which is usually accompanied by a large amount of money flowing in to the winning team (e.g. in terms of sponsorship deals) then one needs to pay the price for such quality. In college sports the players are cheap - they're students after all so they get scholarships , but that's why a coach must be expensive.  A football coach with a good performing team brings in a lot of ...

Here's a paper that will raise a few eyebrows among academic economists - how to improve performance of journal referees . HT:  MargRev . Any self-respecting member of the economics profession (and the scientific field in general) has at some point dealt with long-lasting review processes. As you send a paper to a journal hoping to get it published it needs to go through a double-blind peer review process where it is usually sent to two referees (if it passes the editor) who decide whether the paper is good enough for a given journal and if so provide comments and suggestions for improvement. If they give you a go and suggest a few minor or major changes, the paper goes back and forth several times. These things take time, sometimes even a few years. And that can indeed be a real problem. I've heard of stories where people send their article to a journal, and in the mean time - during the three years waiting for the article to actually get published - the main assumptions th...

Or Which is more important in competitive sports, money or talent? The Economist once again paired an interesting relationship which could be suspect to the most obvious mistake in social sciences - interpreting correlation as potential causality. As I've pointed out in my earlier text on a similar topic linking wine consumption and academic performance , just because we inferred a pattern in the data doesn't mean that there is an actual causal link between the two observed variables.  This time they look at the English Barclays Premier League (BPL) and compare club performance in the league (points) for the past 20 years with the money spent on player wages as a percentage of the season's median. Basically the question is how much does money matter?  Source: The Economist According to the graph above it seems that it matters a lot. The more money the club spent on player wages, the higher, on average, the points they gain by the end of the season and hence the...

One of the world's most influential economists, Nobel laureate Gary Becker has passed away this week at the age of 84. Becker was a professor at the University of Chicago, Department of Economics and Sociology. He was an active economics blogger with his last post dating from only two months ago. He held the blog together with his friend and colleague Richard Posner, also a professor at the University of Chicago. It was a very good blog and I for one will surely miss his insightful posts.  "My teachers taught me that economics was not a game played by clever academics, but a serious subject that helped us understand the real world we lived in." Becker received the Nobel prize in economics in 1992 for “having extended the domain of economic theory to aspects of human behavior which had previously been dealt with—if at all—by other social science disciplines such as sociology, demography and criminology.” Essentially he introduced economic thinking and reasoni...

"Inflation is always and everywhere a monetary phenomenon." Thus spoke Milton Friedman. In the long run expansive monetary policy (measured via changes in money growth ) can only deliver higher prices (one cannot print their way into prosperity - just look at Zimbabwe). If a country's central bank prints too much money its value goes down so prices go up, while the opposite - deflation - occurs if the central banks fails to supply enough money. However in the short run the connection is not as strong.  Not all price changes result in (or a consequence of) inflation. It is usually also important to look at the velocity of money in explaining the movements of prices. Sure the majority of inflationary pressures can be attributed to monetary growth but in times of a liquidity trap the velocity of money will paint a much clearer picture of expected inflation. To define it precisely velocity of money represents the average rate at which money circulates in the econo...