The Political Economist

Continuing with the weekly overview of the "best of the rest", here's a couple of good ones you shouldn't miss:  1. A few great posts on social mobility from at the Marginal Revoultion blog: Cowen citing an interview with Gregory Clark: How much does social mobility ever change?  - social mobility rates are apparently impervious to government intervention (upward mobility, that is).  Cowen citing the new Chetty et al paper: Upward mobility in the US is not declining as many citizens think : a very good and disturbing piece of evidence that intergenerational mobility in the US hasn't changed for the past 20 years! I'll devote a separate post to this topic after I read the paper.  Tabarrok: Why the worst get on top - Indian edition ; ok, perhaps this is not on social mobility per se, but something is wrong in a country if 30% of its members of parliament have criminal cases pending against them. How do these people even get their votes? That's e...

I was looking for some data in the Economic Report of the President and I stumbled upon table B-91: Corporate profits by industry, 1964-2012 . Here's a graph I got from the data, comparing corporate profits of the finance industry vs the non-financial industries from 1964 to 2012. Source: Economic Report of the President, Table B-91 Notice the divergence of profits of the non-financial (real) sector in the 90-ies, and particularly in the pre-crisis boom. The rise of profits in the real sector was immense compared to the financial sector at that time. In fact throughout the past 50 years the gap in total profits between finance and the real sector was widening (albeit a few episodes). This can be a good indicator of how one needs a strong financial industry to support the growth of the real economy.  Notice another even more interesting fact. As real sector profits clearly declined by the end of the 1990s we don't recall those times of being characterized by a pa...

I've decided to start a weekly overview of some of the decent articles on the web, not always having the time to comment on each of them in detail, but still would like to share some of their ideas to my readers. This will be in addition to the "graph of the week" column, with a slightly more interesting play of words. (I wanted to call it " the best of the rest " but someone else had already used it). After all, a lot of economics bloggers apply this practice, so I'm gonna do the same. Here they are for this week: 1. David Brooks, "The Inequality Problem" , New York Times: "If you have a primitive zero-sum mentality then you assume growing affluence for the rich must somehow be causing the immobility of the poor, but, in reality, the two sets of problems are different, and it does no good to lump them together and call them “inequality.”   ...If you think the problem is “income inequality,” then the natural response is to i...

This week, the Economic Policy Institute , a liberal (left-wing) US think tank, has released an open letter to the US President Barack Obama and the leaders of Congress in which they urge the government to raise the minimum wage. In total 75 US economists have signed the letter, including Nobel laureates Joseph Stiglitz, Kenneth Arrow, Eric Maskin, Peter Diamond, Robert Solow, Michael Spence, Thomas Schelling and a number of other notable economists such as Larry Summers, Emmanuel Saez, Dani Rodrik, Daron Acemoglu, etc. These are some very respectful names in the field, and when a group such as this one signs a policy proposal, one should hear what they have to say.  Their idea is the following: an increase in the minimum wage would benefit the economy as a whole, causing not only a direct increase of wages for 17 million workers, but also spillover effects to other workers as the employers would "adjust their internal wage ladders". Consequently this would boost their p...

In the recovering US labour market, it seems that women have overtaken the men in terms of job gains in the past few years.  This trend was noticed in the last month's job report where the men gained zero net jobs, attributing the entire net job growth to women (75,000 jobs). Interestingly enough this apparent gender gap trend is characteristic for the entire recovery: Source: FRED HT:  Marginal Revolution  and  Slate Why is this? It's actually rather expected - the male-dominated sectors like construction or manufacturing have suffered a huge slump and are recovering slowly, while the women-dominated sectors like health care, retail or the public sector (teachers), have been less sensitive to the business cycle and have recovered more quickly (both can be seen in the graph - the drop in female employment has been less steeper than the drop in male employment, and while both were struggling to recover, by 2013 the women have made up the lost time and...

My previous post on short-selling reminded me of another famous case study of this trading practice - the one that actually happened in the real world on a massive scale - the story of how George Soros, today a world famous philanthropist , broke the Bank of England back in 1992. Or more precisely, how speculators seized the opportunity of a poor British government economic policy decision to make a huge amount of money. Soros was just one of the stock market speculators who earned a bundle from the infamous Black Wednesday in 1992. However, he profited the most. His hedge fund, the Quantum Fund, made a profit of $1.1 billion. The event turned him into one of the most feared figures in finance. The ERM and Britain  What happened on Black Wednesday? To understand that we must first go back in time to explain the 1992 European Monteray System crisis, and in particular the faulty policy applied by the British government. The European Exchange Rate Mechanism (ERM) was intro...

After seeing the movie "Trading Places" (1983), starring Eddie Murphy and Dan Aykroyd, for the thousandth time during the holiday season, I decided to write a quick post explaining what happened at the end of this movie that gets so many people puzzled (including me for the first couple of times I've seen it). This entertaining 80s comedy can actually teach you more about finance and trading than any other Hollywood movie (not counting documentaries), including the infamous "Wall Street" (1987), starring Michael Douglas as the ruthless Gordon Gecko, and especially the latest Scorsese film "The Wolf of Wall Street" (2013). Anyway, we all know the story from Trading Places. Dan Aykroyd plays a snobbish investor Louis Winthorpe ("the Third"), while Eddie Murphy plays a street con artist Billy Ray Valentine whose lives get reversed as a result of a bet between two cruel millionaires, the Duke brothers. The Dukes own a commodities bro...

Happy new year to all my readers! Last year's first post, conveniently called " The day after ", started off with an analysis of what happened in the final hours of 2012 in the negotiations between President Obama and the Republican-led Congress. The feared fiscal cliff has been averted, however the negotiation outcomes only set the stage for further disarray that would happen 9 months later.  This year, thankfully, starts a bit better. A budget deal in the US was reached in December, decreasing the chances of another government shutdown in January. However the debt ceiling threat still looms, but with signs of good will from the Congressmen, perhaps we're facing a less uncertain new year.  As I've summarized my last year's predictions in my previous post , it's time to make new ones at the start of the new calendar year.  First off, the recovery . As the title says, next year a stronger recovery should finally kick off in most of the ...