The Political Economist

My new paper  (open access; meaning free to read) is out in the new edition of Public Choice (published online first in February this year). This was my second PhD paper at Oxford, and one I am particularly fond of given the importance of the topic and one of the cornerstone arguments of my upcoming book Elite Networks: The Political Economy of Inequality (more on that below).  What's the main finding?  In short, I looked at the effect of political connections on the allocation of TARP funds to US banks, and found that TARP recipients that lobbied the government, donated to campaigns, or whose top execs had direct connections to politics received better bailout deals. Let’s unpack this. In 2008, as the crisis unfolded in the US, the banking industry elevated its lobbying and campaign spending activities.  You might remember the panic days in Sep & Oct ’08 where it seemed like the financial world is collapsing. Getting bailed out was a priority for many banks, es...

Ever since the financial crisis of 2007-2009 and its subsequent (slow and modest) recovery  many have claimed the world has entered into a state of prolonged stagnation. In addition to economic growth being relatively low (and therefore not enough to close the potential GDP gap caused by the crisis), real wages are also stagnating, unemployment is still high (although in relative decline), inflation is close to zero, while productivity growth is sending troublesome signals for some time now. This is particularly true of Europe, as it bears the strongest resemblance to Japan , and is on a good course to repeat Japan's (still ongoing) two decades of stagnation (more on emulating Japan in my next text).  We all know the story. I, for one, have told it many times on the blog (see here ,  here , here , here , here , here or here ). After the financial crisis, which usually tends to cause prolonged and slow recoveries, many governments adopted stimulus and bailout program...

It's been a rough few weeks, but Europe and Greece have finally reached an agreement . Or to be more precise, the Greeks have caved in to the demands of the financial markets, just as I predicted they would in my last blog post . Again, I hate to blow my own horn (but let's be honest, I need to); I was right once again in predicting the outcome in Greece. This aligns well with my track record of being correct on Greece in 2011 , 2012 , 2013 and, well, 2015 . Just saying.  So what was in the new deal? In a nutshell here is what the Greek government has pledged to do in return for the extension of the Eurogroup bailout program (much needed to maintain solvency of the Greek government): Combat tax evasion (new tax policies) : broadening the definition of tax evasion and fraud, while disbanding tax immunity. This includes reforming the collection of VAT (introducing technology), modernizing the income tax code, and altogether creating a new culture of tax compliance. Keep in...

Back in November 2011  an increase of Italian bond yields for the third time in three months and for the first time above the critical boundary of 7%, resulted in an abrupt and surprising resignation of Italy's controversial PM Silvio Berlusconi. All of his corruption affairs, political blunders, and even the infamous bunga bunga parties could not hurt him. It was the financial markets that punished his reckless behavior of buying time for reforms by playing with the patience of investors. The financial markets will be crucial once more in the case of the newly elected Syriza government in Greece, led by the radical leftist Alexis Tsipras. After having read his  op-ed for the Financial Times  published but a few days before the elections, it seems Tsipras realizes the gravity of the situation he and his country are in. Apart from the general anti-austerity rhetoric which won him the elections, Tsipras clearly stated that Syriza will respect the constraints given to th...

On a few previous occasions I've found myself praising 'good hunches' of certain economists on being right about a number of predictions for the future (see here and here for example). There's also been a few not so good hunches (like when Paul Krugman asked Alan Greenspan to create a housing bubble in 2002 to offset the IT bubble) and a few downright terrible ones (like when Paul Samuelson predicted that the Soviet Union GDP will surpass that of the US by 1984(!), but more realistically by 1997).  Now it's time to blow my own horn. I've been covering the eurozone sovereign debt crisis and in particular the Greek situation since I started writing this blog. After all, the crisis was a sort of an inspiration. I was rather content to see how precise I was back in October 2011 to describe the possible outlook for Greece in the next few years, after the policymakers have devised their first draft of the Greek bailout plan. Here is what I wrote back t...

Five years have passed since the collapse of Lehman Brothers and the subsequent devastating blow to the financial system in the US, and the consequential spillover of the panic to the rest of the world. Lehman's bankruptcy in September 2008 was one of those events that could have brought down the entire world financial system. Fortunately or unfortunately (for some) it didn't, but the damage was devastating and the consequences are still present. The recovery has been slow and painful, especially with respect to all other post-war recoveries . Some put the blame entirely on the policymakers, where they either didn't do enough, or did too much (where the unit of value is the size of the stimulus). After the massive fiscal stimuli applied in the US and in many European countries during the downturn, in 2010 after the US crisis was officially over according to NBER , austerity kicked in. Austerity came primarily as a reaction to the doubling or tripling of debt to GDP ratios...

China's GDP growth slowed down to 7,5% in the second quarter of this year, mostly thanks to faltering exports and retail sales. Albeit, this is still impressive growth, despite the fact that the government will probably miss its annual growth target for this year. There is something to be worried about - it's the way in which China keeps on hitting its growth targets. Here's the WSJ : "China’s economy is far too dependent on investment –which has in recent years made up around half of all growth. Household consumption, meanwhile, was just 38% of GDP in 2011–some 20 to 25 percentage points below the consumption rates among China’s neighbors ...    China’s massive investment rate all but guarantees vast amounts of malinvestment . In other words, plenty of these resources haven’t really been invested but rather have been consumed in altogether unsatisfying ways that have made people marginally better off in the near term (keeping people in work and oligarchs ...

After the latest Cyprus deal has gone through, it's time to compare it with all other Eurozone bailouts done in the previous two years: Source: The Economist Greece is still leading the pack with a combined stimulus effect of over 100% of its GDP, and 21,000 bailout funds per capita. With the latest Cyprus deal they fall behind second to Greece in the magnitude of the bailout with respect to a country's GDP. It would also be interesting to show Iceland in the graph (or Hungary ), as they had similar bailout-to-GDP ratios as Cyprus, except they received help from the IMF (and other Nordic and European countries), not the Eurozone. In absolute terms, the bailout of Cyprus is rather small compared to other Eurozone economies (due to the size of their $25bn, 1.1m people economy). However, this shouldn't be an excuse as to why Greece was bailed out more or less in full, with several years of painful negotiations and forcing bondholders to accept the losses, while...