Week links (9)

Some texts that caught my attention over the past few weeks:

1. Argentina's default

As you may or may not noticed in these summer weeks, Argentina has declared a bankruptcy for the second time in 13 years. They place the blame on a US (vulture) hedge fund and its owner Paul Singer. A "vulture fund" buys cheap debt (bonds) of countries in financial distress for a discounted price and then profits by suing the debtor country, usually striping it of its assets. The coverage: The Economist, Forbes, WSJ, Washington Post, New York Times, Kenneth Rogoff, etc. 

2. Inheritance flows in Sweden, 1810-2010, VoxEU

An impressive database covering a very sensitive issue of inequality based on inheritence, one of the topics emerging through the works of Atkinson, Piketty and Saez.

"Overall, our analysis of inheritance flows in Sweden since the early 19th century point out two major lessons with respect to the development of capital and its impact on inheritance. Historically, Sweden does not fit the picture of a country where, despite a long history of aristocracy, accumulated capital was large in relation to income (even though inequality and capital concentration might have been high). In more recent times, Sweden stands out as a country where the return of capital has not automatically translated into a return of inherited wealth. It remains to be seen whether this is just a delay based on new wealth being accumulated mainly among the relatively young, or whether inheritance will remain low due to aspects of how intergenerational transfers of wealth are organised in Swedish society."

3. Chris Patten: What I've learned from Vladimir Putin, Project Syndicate
Bottom line is he is not to be trusted.

4. Tyler Cowen: Political booms and financial crises, Marginal Revolution

Cowen finds a very interesting paper showing how abrupt rises of government popularity in emerging economies predict financial crises better than any other warning indicator such as a credit boom.

"We show that governments in emerging economies are more concerned about their reputation and tend to ride the short-term popularity benefits of weak credit booms rather than implementing politically costly corrective policies that would help prevent potential crises."

A sort of a political business cycle, isn't it? 

5. John Cochrane: Work and jail, The Grumpy Economist

Cochrane points out to a staggering relationship between black male high school dropouts and their risk of imprisonment: 

"Nearly 70 percent of black high school dropouts will spend time in jail. And pretty much end their hopes for conventional employment as a result."

He blames the war on drugs for this. An interesting read.

6. Scott Sumner: Economics: Truer than it seems, EconLog

"One thing that economists and non-economists have in common is that they underestimate the power of economic theory. More specifically, they aren't able to accurately connect the predictions of economic theory with the behavior that they (wrongly) think they observe in the people around them. There are many examples of this. For instance, most people (economists and non-economists) underestimate elasticities. They underestimate how strongly people respond to changing incentives, such as tax changes, wage changes, price changes or interest rate changes."

A recommended read to a prospective economist. He offers a very good explanation of the logic behind the Ricardian equivalence. 

7. Acemoglu and Robinson: "Why Lebanon has a very ineffective state" and "The will to make legible" - both on the problems of state formation, Why Nations Fail blog

8. How the year you were born influences your political preferences, NY Times

This one is from the beginning of July, but it's still very amusing - the authors (of the paper not the article) claim that you form your political preferences between the ages of 14 and 24. These are the most formative years, whereas events that happen after you turn 40 don't change your opinion by much. Apparently if you were born in the 1940s your preferences were formed during the Eisenhower administration making you relatively more pro-Republican, while the baby boomers born in the 1950s were influenced by administrations of Kennedy, Johnson and Nixon making them relatively more pro-Democratic. Makes sense.

Well, would you look at that, if I was born in America, I would have been (on average) a Democrat by now, with my political views forged mostly by the Bush and Obama administrations. Interesting...