The Political Economist

Note: This text was also published as an article for the Adam Smith Institute , on 08th February 2013. For the rest of my ASI writings, click here . Among Keynesian economists there is a resilient opinion on how the current large budget deficits shouldn't be thought of as a serious problem to the economy, since they are ultimately a result of a depressed economy. Here's the main advocate of such an approach, Paul Krugman :  "It’s true that right now we have a large federal budget deficit. But that deficit is mainly the result of a depressed economy — and you’re actually supposed to run deficits in a depressed economy to help support overall demand. The deficit will come down as the economy recovers: Revenue will rise while some categories of spending, such as unemployment benefits, will fall. Indeed, that’s already happening. (And similar things are happening at the state and local levels — for example, California appears to be back in budget surplus.)" Disre...

There was an article in the Guardian over the weekend endorsing Paul Krugman to become the next US Treasury Secretary. Apparently the initiative came from actor Danny Glover who started a petition online.  Here are a few central points in favour of prof. Krugman's candidacy:  "Krugman would be tough to oppose on any substantive grounds. He has a Nobel Prize in economics (also the John Bates Clark award for best economist under 40). The New York Times columnist is probably the best-known living economist in the United States, and perhaps the world." What credentials! If only the author has explained which are these substantive grounds? Liquidity-trap economics I presume?  He continues: "Krugman has been right about the major problems facing our economy, where many other economists and much of the business press have been wrong. A few examples: he wrote about the housing bubble before it collapsed and caused the Great Recession..." (continued...

Note: This article was written for and published on the Adam Smith Institute blog , entitled "Minimum Wages: examining the research". For all my other ASI writings see here . The Economist's Free Exchange column analyzed some of the existing research on this controversial topic. They point out to a number of results that claim how moderate minimum wages do more harm than good for the economy, and can, in fact, have a net positive impact on total employment.  The argument from the left of the political and economic spectrum usually claims that employers tend to sometimes act as monopsonists and can set wages below a competitive rate. In addition minimum wages are supposed to solve the problem of wage inequality and increase the disposable income of lower paid workers. The Economist calls upon the results on two "noted labour economists", David Card and Alan Krueger , who accounted an increase of employment in New Jersey's fast-food restaurants to it...

Today, the Adam Smith Institute published my paper on the deregulation of UK small and medium-sized businesses (SMEs), entitled " Unburdening Enterprise. Reducing regulation for small & medium businesses ".  The paper received coverage in the Financial Times , The Times  (both require subscription access), Conservative Home , Politics (where in both, ASI's policy director Sam Bowman wrote good pieces outlining the main proposals of the report), and many others.  Here is a blog post I wrote for the ASI to sum up the report. I will quote it in full:  "Regulatory confinements very often result in wrong policy perceptions and adverse policy conclusions. In an attempt to create a safer environment they impose a number of rules, procedures, and amendments to these rules that eventually end up stifling companies and diverting their resources away from productive activities. This is particularly endangering for small and medium-sized businesses (SMEs), ...

Note: This blog post was published as an article for the Adam Smith Institute , on 13th September 2012. For all my other ASI writings see here . A new research paper by Alesina, Favero and Giavazzi focuses on measuring the output effect of fiscal consolidations. Basically, the paper repeats some of the points Alesina made in his previous (2009) paper co-written with Silvia Ardagna, and in his numerous texts on VoxEU . Favero and Giavazzi summarize some of the main findings  here .  The idea is that fiscal consolidations tend to have much more favourable effects on the economy if they are done via spending cuts alone, not via increased taxation (see the graph below), which is actually what austerity is supposed to be . Here's the abstract: " This paper studies whether fiscal corrections cause large output losses. We find that it matters crucially how the fiscal correction occurs. Adjustments based upon spending cuts are much less costly in terms of output lo...

Note: This article was also published on the Adam Smith Institute blog , on 3rd September 2012. For all my other ASI writings see here . My two favourite political economists, Daron Acemoglu and James Robinson, have started (and ended with) a series of blogs on the topic of central planning . Their angle is that central planning in practice doesn’t originate from Marxist ideology, but from the inherent desire of an extractive state to exert full control over its people. They were motivated to engage into the subject in order to disprove the idea that ideology is what causes economic inefficiency (they spend a lot of time in their book tackling this subject – the book is reviewed here ).  This is similar to another argument they aim to disprove, which claims that poor countries are poor because their leaders are ignorant and chose inefficient systems since they either don’t know better, or are blinded by ideology. And while a lack of knowledge and/or ideology is an attrac...