The Political Economist

Russia's invasion of Ukraine has inspired me to come up with an interesting theoretical concept. I'll lay it out first, and then try to explain the reasoning behind it and how it can be used to explain potential outcomes of Russia's Ukraine invasion.  The ambition-to-competence ratio of government officials is an exponential function of the kleptocracy level of a country. It is best defined as ambition plus loyalty divided by one’s intrinsic level of competence:  A-C ratio = (ambition + loyalty ) / intrinsic competence  In high-level kleptocracies, where the government is completely subdued to a ruling elite looking to expropriate wealth of the country they govern (e.g. the dictator and his cronies, oligarchs, or the military), government officials rise in rank based on their ambition and their loyalty. Their competence is inversely related to their rank in government.  This means that in kleptocracies it is possible (and even desirable) to move up the hierarchy pur...

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...

When I started working in the academia a few years back, my friend and co-author Josip Glaurdić asked me which journal would I like to be published in the most? Without hesitation I said: Public Choice !  Well, that goal has now been accomplished. I have a publication in one of my all time favorite political economy journals! You can read the paper on this link , it's been published online first. Next big goal: Quarterly Journal of Economics (I will also accept American Economic Review, Journal of Political Economy or American Political Science Review).  Our paper is on the political bias in the allocation of intergovernmental grants in Croatia. Here's the abstract:  "Instead of alleviating fiscal inequalities, intergovernmental grants are often used to fulfill the grantors’ political goals. This study uses a unique panel dataset on more than 500 Croatian municipalities over a 12-year period to uncover the extent to which grant distribution is biased owing to ...

After having read and reviewed Stiglitz's book  earlier this week , and after having written the following paragraph... "I too have long considered the relationship between equality and efficiency to be non-linear, instead of just a simple trade-off. Too much equality isn’t good since it reduces incentives, but neither is too much inequality. I would say the relationship is of an inverted-U type where moving to both extremes – too much and too little equality is bad for the economy. The trick is to find an optimal point which reduces the level of inequality where it offers more opportunities for everyone, but also just enough for it to continue to drive incentives. More on that in my next blog post." ...I just had to dig deeper into the whole equality-efficiency trade-off . So I picked up a seminal book from a man who specialized in economic trade-offs, none other than -  Arthur Okun ! Okun is more famous for his "law" stipulating the linear relationsh...

Atkinson, Anthony (2015) Inequality. What Can Be Done? Harvard University Press & Atkinson, Anthony (2008) The Changing Distribution of Earnings in OECD Countries. Oxford University Press The first two books, both written by the same author, Oxford economics professor Sir Tony Atkinson , will be reviewed jointly. The reason is that the earlier book, The Changing Distribution of Earnings in OECD Countries is more a case study summary of the empirical facts behind the rise of inequality in the West in the past century, the point of which is again summarized in the first few chapters of the author’s latest book Inequality . Basically the earlier book is a very detailed portrayal of the worrying inequality trend in the case of 20 OECD economies. It has two main parts – the first which depicts both the theoretical arguments and the summary of the historical trends for all the given countries, and the second which (on over 200 pages) details all the data, the graphs and the ind...

In my  last book review  I summarized a very interesting book called The Spirit Level by Richard Wilkinson and Kate Pickett . In it the authors propose a solution that would not only lower inequality and thus correct many of the negative social outcomes related to it (but not caused by it, mind you; they don't prove causality), but also change the entire system of values in society, so that people would be less profit-oriented and would increase their levels of interpersonal trust (among other things).  Their big idea is to introduce democratic employee ownership . Hence the title: The John Lewis economy (the John Lewis Partnership is the famous UK example of an employee-owned firm ; it allows all of its employees to share the firm's profits and have oversight over management decisions through several democratic mechanisms of corporate governance). It's a belated comment since I wanted to write a piece about this ever since 2012, when UK deputy PM Nick Clegg  o...

Zingales, Luigi (2012) A Capitalism for the People. Recapturing the Lost Genius of American Prosperity. Basic Books, New York. Luigi Zingales , a University of  Chicago Booth School of Business professor of finance, is one of the true champions of liberal, free market ideas. In this book, similar to his previous success “Saving Capitalism from the Capitalists” (co-authored with Raghu Rajan), he delivers a powerful case in favor of markets, competition, liberty, and against big business, big governments and their clientelistic (cronyist) mutually beneficial relationship. In other words, Zingales knows the crucial and very important distinction between being pro-business and being pro-market . Confusing one with the other is a typical mistake every advocate of socialism tends to make – they tend to blame capitalism, markets, and the ideology “neoliberalism” for close ties between politicians, big businesses, and the media. Zingales correctly points out that this is hardly the cas...