The Political Economist

The Atlantic had a very interesting recent text on the "Mysterious Death of Entrepreneurship in America" where they tell the tale two breads of entrepreneurs, one thriving and the other one hopelessly failing. At the same time when Silicon Valley entrepreneurs are soaring, the smartphone app market is booming, pages like Kickstarter are redefining the the very supply and demand for funding (providing a very interesting alternative to all sorts of traditional lending schemes), but on the other hand business dynamism overall is declining. Mom and Pop stores are dying out. BLS has the data:  Brookings has produced a study describing the very same process of entrepreneurial decline, where the declining business dynamism is obvious across all sectors of the economy. As I've written before, the  process of creative destruction  in the US has halted in the past years. And why is this worrisome? Because of the effect on job creation. No longer are US SMEs the key...

This weekend Germans celebrated the 25th anniversary of the fall of the Berlin Wall. A symbolic event that represented the end of an era (both the Cold War and communism in Eastern Europe were finally over); followed by a stream of euphoria and triumphalism from all sides. Looking back, 25 years later, some might say that the euphoria was misplaced: the world yet again resembles a Cold War status quo, where old foes are once again flexing their muscles in foreign territories. On the economic side, some Eastern European countries are arguably better off than before, while others remain in shambles of a failed transition.  In Germany, at first sight the convergence wasn't as successful as initially hoped. 25 years later the western Germans are still living better than their eastern compatriots. GDP p/c in east Germany is still 2/3 of that in the west, unemployment is higher, its demographics is worse, and net migration is still positive from east to west, leaving many eastern ...

More than a decade after Mancur Olson , and almost two years after James Buchanan and Elinor Ostrom , another champion of public choice theory has passed away , at the modest age of 92. Gordon Tullock , together with James Buchanan (both pictured below), founded the public choice school of economics, or as they saw it "the theory of politics without romance". Their legacy still remains the single most influential theory that explains how politics interacts with economics, and how one cannot fully grasp all the economic phenomena and outcomes without understanding the logic of politics. This is Tullock's (and Buchanan's) by far the biggest contribution to economics and even more so to political science. They taught us that politicians should be modeled and observed the same way market agents are modeled and observed; driven by self-interest and self-preservation. Before public choice theory governments were always modeled exogenously as a 'social planner'...

The ECB performed another stress test on Europe's biggest banks. Here is the full report and here is the brief presentation . This stress test represents a yearlong audit of Europe's largest lenders to evaluate their hidden pressures and potential problems that could arise if another recession hits them. The conclusion was that 24 EU banks (out of the 130 tested) are about 25bn euros short of the money they would need to survive another potential financial crisis (this is what a stress test does - it assumes negative economic scenarios such as sharp declines in GDP and in equity markets, or spikes in interest rates, unemployment and oil prices, and then uses a series of simulations to calculate the losses of banks in the next several years to evaluate whether or not they have enough capital to 'weather the storm'). However the ECB has stated that half of these banks which failed the test (12) have already raised enough capital to make up for the shortfall. Wha...