01 December 2011

Why the ECB independence is detrimental in times of crisis

"the purposedly low level of direct political oversight in the area of central banking means that it is highly likely that independent central banks will have an intentionally high degree of agency slack [i.e.: in the form of slippage or shirking procedural problems identified in the Principal agent literature]
"such delegation may produce monetary authorities who pursue the goal of low inflation with too much zeal and thus have the potential to stave off needed growth and employment in the economy, without much leeway for the principals (i.e.: the governments) to correct this policy drift" (Mc Namara, 2002)

Precisely what's happening now with the ECB... the benefits of conservative central bank independence do not seem to have taken into account the risk of the concurrence of stable low inflation but falling output...

29 November 2011

Time for the Fed to take over in Europe - Opinion - Al Jazeera English

Time for the Fed to take over in Europe - Opinion - Al Jazeera English

Are people unemployed because safety nets are too generous?

Brad Delong rebutes this claim: if people increasingly chose to become or remain unemployed because of (more) generous safety nets, what we should see is a bigger 'choice set' and more people quitting their jobs. 

What we see instead is that the unemployed feel more constrained, spend less and are more uncertain about the future in the US. Moreover, the number of people quitting their jobs has actually fallen since the beginning of the crisis...

24 November 2011

Who will foot the bill? Distribution of EFSF commitments

The KPI library collected various data from Eurostat, OECD, IMF, Worldbank and plugged it into a cool visualizer. Germany is by far the main contributor, followed by France, Italy and Spain. 

Per capita contributions though look a bit different with Luxembourg, Netherlands and Finland coming first (3855, 2,677 and 2,599, respectively). Germany still comes fourth and France fifth.

As a % of national GDP, the first three biggest contributors are... Estonia, Slovakia and Malta (13.9, 11.7 and 11.4%, respectively). Germany only comes in 8th position.

German solidarity should therefore be put into perspective... In any case, the consensus seems increasingly to be that the EFSF won't cut it... To the extent that there will not be any major overhaul of the degree of EU integration or the introduction of a system of fiscal insurance, only the ECB can save us now...

23 November 2011

High unemployment: Cyclical or Structural? Guess from the Graph...

ECB independence and democracy

"The legislature cannot transfer the power of making laws to any other hands; for being but a delegated power from the people, they who have pass it over to others" (Locke in the Second Treatise on Civil Government)... what about monetary policy?

Higher income earners are more likely to vote Republican

Contrary to the misconception that high income states being Democrats suggests higher income earners are not more likely to vote Republican, within a given State (whether led by Republicans or Democrats), one does indeed observe that the likelyhood of voting Republican increases with income.

If that is true, then income polarisation can reasonably be expected to lead to more political polarisation, which - all other things held constant, would provide a plausible explanation for the deadlocks that increasingly characterise Contemporary American Politics.

Germany and the Eurozone

Is Germany becoming part of the Eurozone periphery? Not quite but as Andrew Watt reports, the recent weak Bond Auction (35% of its 10 years bonds failed to get bids) is worrying on a number of counts.

An optimistic perspective would suggest that this may lead to the realisation that some structural changes are required thereby giving the impetus to long awaited regulatory changes and necessary reflationary policies.

Current austerity policies have been severely misguided not only because of their regressive impacts but also because of their self-defeating logic.

18 November 2011

Bigger financial sector, bigger GDP?

Apparently not, Gunther Capelle-Blancard and Claire Labonne recently found no evidence that for a clear and positive relationship between finance and growth.

This is because while financial deepening may generatea certain positive effects on growth (e..g: through more optimal capital allocation and diversifying risk), it also hurts growth through two mechanisms:  

1) It generates a bubble in the credit market which - as has been witnessed recently - may have slightly adversed effects on economic performance;

2) It distorts the allocation of talents in the economy.

Household Debt Contributes to Unemployment

Calculatead Risk points us to an article by Amir Sufi, Atif Mian and Kamalesh Rao who find that "consumption shock due to weak balance sheets explains 65% of job losses from 2007 to 2009". Also check out the graph below displaying employment growth across countries in the period 2007-2009.

De Grauwe "Who cares about the survival of the eurozone?"

"CEPS Senior Fellow Paul De Grauwe expresses astonishment in this new Commentary at the continued insistence in both Brussels and Frankfurt on budgetary austerity as the necessary and sufficient response to stop the government debt crisis in the eurozone. In his view, the austerity programmes should be softened and spread over a longer period of time, allowing the automatic stabilisers in the national budgets to prevent the economies from spiralling downwards. Furthermore, he reiterates his argument that the ECB should take up its role of lender of last resort in the government bond markets of illiquid but solvent member countries of the eurozone."

17 November 2011

Active labour market policies in the crisis

Good interview of Jochen Kluve. He argues that to target the problem of unemployment, we should first start by providing with job search assistance programs, loosely referred to as activation.

Some form of work Subsidy programs can then be appropriate, provided that displacement effects (the reduction or crowding out of regular employment elsewhere in the economy through competition in the goods market - p15, Simon Chapple, 1999) and substitution ("displacement within a firm which hires workers from an active labour market policy" - p8, ibid ) are not to large.

If that doesn't work, providing the unemployed with training schemes may be appropriate, ideally on a fairly long term basis. In Kluve's view, direct job creation in the not for profit sector or local government should be avoided as it engenders nefast effects. For instance, public employment schemes targeted at the young may fail to raise their human capital on the one hand, and on the other may lead municipalities to hire the unemployed instead of more qualified candidates.

Note however that this latter claim is at odds with some of the more recent macro-evaluation literature. For instance, Estevão (2003) finds that "direct subsidies to job creation were the most effective" for raising employment rates.

10 November 2011

La grande braderie - 1980s French Privatisation

"The first postwar privatisation programme in France, which became law on 6 August 1986 (no. 86-912),3 ushered in something of a 'golden age' of privatisation. The programme was ambitious and far-reaching: it sought to privatise, in the short space of five years, 66 firms, embracing 27 independent groups, with a total workforce of 900,000 and an estimated value of 300 billion francs overall (amounting to one quarter of the then total capitalisation of the Paris Bourse)."

(page 216, Mairi Maclean "Privatisation, dirigisme and the global economy: An end to French exceptionalism?" in Modern & Contemporary France).

Debunking the myth that the working class is responsible for the crisis

09 November 2011

"Back to the future": Privatisation as a solution to problems

"The world bank recommended liquidation or divestiture of state assets in twenty five of the thirty eight structural adjustment loans it made to developing countries between 1980 and 1986….and increased market orientation of state firms in thirty six of the thirty eight loans”

(Feigenbaum and Henig, 1994, page 199: The political underpinnings of privatization: a typology)

The Economist's interactive guide to reducing government debt

06 November 2011

Europe needs a large Social Sciences and Humanities -centered research programme to tackle its "Grand Societal Challenges"!

Sign the open letter:
"An Open Letter to the European Commissioner for Research and Innovation,
Maire Geoghegan-Quinn.

A sustained and substantial European investment in cutting-edge Socio-economic Sciences and the Humanities (SSH) can unlock new knowledge and insights that are necessary for Europe
  • to overcome inequality, exclusion and poverty and to adapt to demographic change (migration, ageing, gender relations etc.);
  • to develop resilient institutions that can strengthen sustainable growth, innovation processes, and social and political participation;
  • to exploit cultural diversity as a source for creativity, adaptive capabilities and social innovation;
  • to advance our understanding of cognitive processes and create educational opportunities in inclusive and democratic societies;
  • to understand the complexity of value systems, worldviews and behavioural patterns, and address issues of openness or resistance to change and
  • to move towards successful intercultural dialogue and global diplomacy.

If you agree with the need for SSH to produce policy-oriented research for Europe, and if you wish to see a strong SSH-programme under the new European Framework Programme Horizon 2020 (2014-2020) we invite you to read the Open Letter to the Commissioner and sign it!
The voice of SSH researchers must be heard in the design of the new framework programme. Join your name to the list of colleagues from across Europe and beyond!"

27 October 2011

Are we out of it already?

The ESFS has been increased to 1 trillion euros and the Greeks will get a 50% writedown of their debt. US GDP is expanding at fastest pace, and the markets are having a blast: FTSE up almost 2.5%, DAX about 4.5% and the DOW 1.75%...

However, as Eurointelligence notes: " So is this a comprehensive agreement? Of course it is. They did what they set out to do. Will it solve the crisis? Of course, it will not. The probability that the Greek deal will come unstuck is close to 100%. " They argue that it's not clear that the Banks will meet their 'voluntary' targets (of about 100 billion euros) and if they did, it may not suffice to stabilise Greece's debt...

20 October 2011

Buiter on the Euro Area Crisis

"Two important parts of likely processes that will lead to a resolution are being held out by the refusal of the ECB to lend its support to necessary recapitalisation of banks through debt to equity conversions or the restructuring of sovereign debt. So it is not just that 27 countries are hard to coordinate...there is also wilful procrastination, ignorance and lack of leadership." (around 9mins30)

19 October 2011

Wages and unemployment in the current crisis

Andrew Watt tackles the claim that excessive wages are the cause of unemployment. This is in response to the claim by Tommaso Monacelli, Vincenzo Quadrini and Antonella Trigari that firms' deleveraging weakens their bargaining power vis-a-vis workers, leading to excessive claims.

18 October 2011

New report by the European Foundation for the improvement of Living and Working conditions

New report by the European Foundation for the improvement of Living and Working conditions is out. It reports the latest developments in working conditions and industrial relations. The graph below (page 3) displays the real GDP growth rates for different EU countries in 2009 and 2010.

06 October 2011

Representing Middle class interest

Jared Bernstein has a couple of Graphs that are worth a thousand words. The first graph displays the evolution of real median familly income  over the past two decades. The second plots real median income growth in two periods: from 1992 to 2000 and between 2002 and 2007. 

What this shows is that rule by the democratic party has been much more successful at advancing workers' wages. So, it does make a difference who is in power and the Republicans have been either unwilling or unable to promote real income growth.

Dunleavy on Cameron's Government

David Cameron is running a ‘ring-donut’ government with a weak centre, and his feeble grip on policy coordination suggests a failure of statecraft

The Organisation for Economic Cooperation and Development at 50

30 September 2011

Union preferences in the UK

US healthcare

Great graph on the inefficiency of the US healthcare system by Lane Kenworthy at Consider the Evidence:

Crisis' latest developments

- German Parliament approves the EFSF; two days ago the main German Business associations had urged them to do so.
- Protests in Greece continue.
- First six month in Ireland show some pick up in the economy

Meanwhile in the US the debate around fiscal policy continues:
- Brad Delong on why more stimulus in the US would pay for itself.
- Krugman on the fallacy of the 'high regulation - high spending as a cause of the crisis' thesis held by Republican.
- Robert Reich points out that one in three family with young children lives in poverty in the US

As no significant long term solution is found, Japanese style protracted low growth becomes more likely
Soros has a proposal to end the crisis

29 September 2011

The state of the union address of the president of the European Commission

“Once the euro area is fully equipped with the instruments necessary to ensure both integration and discipline, the issuance of joint debt will be seen as a natural and advantageous step for all. On condition that such euro bonds will be "Stability Bonds": bonds that are designed in a way that rewards those who play by the rules, and deters those who don't. As I already announced to this house, the Commission will present options for such "Stability Bonds" in the coming weeks. 

Some of these options can be implemented within the current Treaty, whereas fully fledged 'euro bonds' would require Treaty change.  We can do a lot within the existing Treaty of Lisbon. And there is no excuse for not doing it, and for not doing it now.  But it may be necessary to consider further changes to the Treaty.”  

Interview with Acemoglu

Here is an excerpt of the interview by The Region of Acemoglu on the Transitions in Political Economy. The full interview can be found here

Region: There’s so much more to ask about, and we haven’t even touched on your massive body of research on institutions and on transitions in political economy. Perhaps we could end with that, with your work with James Robinson on transitions in political economy. I wonder if you could share any thoughts you’ve had about how that research applies to the Arab Spring.

Acemoglu: Yes, for the last 15 years, most of my research is exactly what you could call, broadly, political economy. Why don’t I talk about that a bit, and then we can kind of transition into transitions.

Region: Perfect.

Acemoglu: My professional research didn’t start with political economy, although when I originally began to study economics in high school and college, I was interested in what today you would call political economy—the interaction of politics and economics.

26 September 2011

On the problem of trading short term pains for long term gains

In a speech to the house of Common several decades ago, Aneurin Bevan (British Labour Politician) described "the central problem falling upon representative government in the Western world as how to persuade the people to forgo immediate satisfactions in order to build up the economic resources of the country..." [quoted from Hall 1986: 281, originally quoted in Wilson, 1971: 19)

25 September 2011

Capital inflows and the debt crisis

Compelling alternative hypothesis for the current debt crisis at the streetlightblog. The post argues that southern Europe's integration to European Monetary Union led to massive capital inflows to those economies. 

This resulted in persistent current account deficits and the eventual sudden stop of capital to those countries, thereby precipitating the crisis.

24 September 2011

When Marx Met Engels, the Renegade Industrialist - in Bloomberg

Interesting commentary by Mary Gabriel on the relationship between Marx and Engels - the fact that it is published on Bloomberg is also unusual. Are 'radical' political economy theories being given more space in mainstream media as a result of the crisis?

21 September 2011

'Grow or wither away'

The IMF warns of 'slowing growth' which calls for.... delaying excessive austerity in the short term. Well, better late than never, but one wonders why we had to wait for the risk materialising itself instead of anticipating this, as many economists had done.

12 September 2011

Is this the end for the Eurozone?

Greece's economy is contracting, which was of course predictable given the austerity package. If the greek authorities have not been able to reign the budget by more than 5% (the estimated contraction of the Greek economy), higher deficits can be expected... 

Meanwhile, there is still no clear roadmap on the part of European Leaders and the ECB leadership is itself split as apparent with the recent resignation of Jürgen Stark. The ruling of the Constitutional court may effectively ruled out the required steps to address the crisis: Eurobonds and a fiscal union.

The Euro exchange rates with the Yen is now at a 10 year low, and this morning the 10 year spread for Greece was 18.97, 10.330 for Portugal and at 3.736 for Italy (From Eurointelligence)

05 September 2011

Andrew Watt sums up the summer

Good summary of the Summer by Andrew Watt:
"La Rentrée is upon us. The summer, such as it was, is over. Time to reflect. It’s Friday, late and I am tired. Fortunately I can be very, very brief. Four things are important to grasp.
  1. The European economy and, more  latterly, its labour market had begun a recovery that was, overall, sluggish, and uneven between countries. But it was a start. Unemployment was falling slowly.

02 September 2011

IMF confirms what we already knew: Austerity is bad for the economy!

"Using this new dataset, our estimates suggest fiscal consolidation has contractionary effects on private domestic demand and GDP. By contrast, estimates based on conventional measures of the fiscal policy stance used in the literature support the expansionary fiscal contractions hypothesis but appear to be biased toward overstating expansionary effects." Source

01 September 2011

The Robin hood syndrome among the rich is spreading

After the US and France, the German happy few also call for more taxation... Let's hope that governments hear them!

The role of actors in welfare state development

The role of political parties, unions and business in driving welfare state change is a contested issue in political economy. 

Recent work by Emmeneger and Marx (2011) challenges the notion that employers favoured higher protection of employment in Germany. This is important because Germany represents the ideal type of a coordinated market economy. The Varieties of Capitalism (Hall and Soskice, 2001) literature would therefore make us expect that employers had an important role in promoting higher jobs protection. This followed the functional needs of the firms to solve the coordination problem that surrounds investing in non-transferable/specific skills. This interest of the firm in developing welfare state policies is for instance historically apparent in a cross class alliance between certain firms and labour (see for instance Swenson 1991).

This follows in the footsteps of Korpi (2006) that argued that employers were at best passive in accepting new welfare state policies. In the traditional Power Resource Approach, labour strength is a key driver of welfare state development.

As important is Jensen's (2011) contention that unions and left parties may have different social policy preferences. The former primarily favours labour market policies while the latter prefers familly and old age policies. Within the labour movement more generally, labour has been increasingly divided between insider s and outsiders (Rueda, 2007) and there has been a breakdown between high and low skill workers (Iversen and Soskice, 2009). While class politics is itself a contested issue (Weakliem, 2011), these divisions have led to a dualisation of welfare state policies (see Bruno Palier's work).

Thus, there are multiple potential dividing lines in the actors that are purported to push for more welfare state policies. It will be interesting to analyse how the current economic and financial crisis is affecting the role actors can play in welfare state development.

30 August 2011

Delong on pros and cons of US expansionary policy

The case seems pretty overwhelming:

"When the U.S. government can borrow at a real interest rate of -0.65%/year for five years, the case for larger deficits now--for pulling spending forward from the future into the present and pushing taxes back from the present into the future--is unanswerable: of course the government should borrow more on such terms: households value the taxes they will pay in the future if taxes are pushed back as much less painful than the taxes they would otherwise pay today, and a huge number of government spending programs offer at least a zero percent real rate of return via their effect on the productive capacity of the economy. Even if expansionary fiscal policy had no effect on capacity utilization and unemployment bigger deficits now while the government can borrow on such terms would be a no-brainer. And since expansionary fiscal policy does have such effects, it is something that you should advocate even if you have less than no brain at all--even if you have a negative brain."

Worth looking at Meltzer's arguments against more expansion and Delong's response

The economics of academic publishing

Interesting article by George Monbiot on academic publishing. His quote of Deutsche Bank analysis sums it up pretty well:

"But an analysis by Deutsche Bank reaches different conclusions. “We believe the publisher adds relatively little value to the publishing process … if the process really were as complex, costly and value-added as the publishers protest that it is, 40% margins wouldn’t be available.”(11) Far from assisting the dissemination of research, the big publishers impede it, as their long turnaround times can delay the release of findings by a year or more(12)."

The Socio economic determinants of labour market policies

For those interested in Active Labour Market Policies, check out the new paper by Barbara Vis "Under which conditions does spending on active labor market policies increase? An fsQCA analysis of 53 governments between 1985 and 2003".

This article examines the conditions under which governments increase spending on active labor market policies (ALMPs), as the European Union and the organization of economic co-operation and development recommend. Given that ALMPs are usually expensive and unlikely to win a government many votes, this study hypothesizes that an improving socio-economic situation is a necessary condition for increased spending. On the basis of the data of 53 governments from 18 established democracies between 1985 and 2003, the fuzzy-set qualitative comparative analysis shows that there are different combinations of conditions, or routes, toward activation and that an improving socio-economic situation is needed for each of them. Specifically, the analysis reveals that governments activate under decreasing unemployment combined with (1) trade openness, or (2) the absence of corporatism in the case of leftist governments, or (3) the presence of corporatism in the case of rightist governments. These findings advance our understanding of the politics of labor market reform.

Institute for New Economic Thinking

Interesting set of interviews about different ways to be an Economist. The broader project of the Institute for New Economic Thinking is also worth checking out given the dismal state of economic theory following the 2008 economic crisis.

The End of Loser Liberalism

New book by Dean Baker: The End of Loser Liberalism. The first paragraph of the first chapter is telling: 

"Money does not fall up. Yet the United States has experienced a massive upward redistribution of income over the last three decades, leaving the bulk of the workforce with little to show from the economic growth since 1980. This upward redistribution was not the result of the natural workings of the market. Rather, it was the result of deliberate policy, most of which had the support of the leadership of both the Republican and Democratic parties."

18 August 2011

17 August 2011

Double-dip recession on the horizon

Euro area and EU27 both experienced near zero growth for the second quarter (0.2%). This will put governments in a very difficult situation, stuck between between Scylla (debt crisis) and Charybdis (economic crisis). 

Given the repercussion of the latter on the former, it would ill advised to insist on expenditure control. With a falling GDP it is nearly impossible to reduce debt as % of GDP, both for 'mechanical' (Debt is weighted by GDP) and dynamic reasons (falling growth reduces revenues and increases expenditures)

5000 pageviews reached

14 August 2011

Summer pain in the financial markets

In the last two weeks, the DAX lost 23.41%, the CAC40 20.92%, and the S&P500 lost 16%... The markets picked up a bit on 11th/12th, let's see whether this proves shortlived tomorrow



Soros on Germany's responsibility

"Germany and the other eurozone members with AAA ratings will have to decide whether they are willing to risk their own credit to permit Spain and Italy to refinance their bonds at reasonable interest rates. Alternatively, Spain and Italy will be driven inexorably into bailout programs. In short, Germany and the other countries with AAA bond ratings must agree to a eurobond regime of one kind or another. Otherwise, the euro will break down."(The full article can be accessed here).

It is interesting to note that in line with neo-functionalist theory, every new step in European integration generates the need for an additional step, and so on. Completing the Single Market required a Single currency, the Monetary Union requires a Fiscal Union; will this call for an enhanced Democracy at the EU level?

11 August 2011

Manufacturing and the welfare state

Rodrik on why deindustrialisation may be a problem...It is fair to say that the implications for the welfare state are not positive either. 

Politically, deindustrialisation removes one of the major constituency behind the expansion of the welfare state. It also makes it harder for trade unions to organise labour.

From an economic perspective, earlier literature had pointed out the role of industrialisation in the emergence of the welfare state. Limited unemployment makes it easier to introduce unemployment insurance. Productivity growth formed the basis for wage increases thereby expanding the revenues of governments.

EU Free movement of labour crumbles

The Commission accepts that Spain can temporarily restrict the free movement of Romanian workers, presumably because of "special circumstances" including the fall in GDP, high unemployment rates, etc.

06 August 2011

The US debt downgrade has started...

“The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,” S&P said in a statement late yesterday after markets closed.

From Krugman:

"More than that, everything I’ve heard about S&P’s demands suggests that it’s talking nonsense about the US fiscal situation. The agency has suggested that the downgrade depended on the size of agreed deficit reduction over the next decade, with $4 trillion apparently the magic number. Yet US solvency depends hardly at all on what happens in the near or even medium term: an extra trillion in debt adds only a fraction of a percent of GDP to future interest costs, so a couple of trillion more or less barely signifies in the long term. What matters is the longer-term prospect, which in turn mainly depends on health care costs.

So what was S&P even talking about? Presumably they had some theory that restraint now is an indicator of the future — but there’s no good reason to believe that theory, and for sure S&P has no authority to make that kind of vague political judgment."

02 August 2011

To What Extent Did the Financial Crisis Intensify the Pressure to Reform the Welfare State?

New article by Barbara Vis,Kees van Kersbergen, Tom Hylands.
"If ever there was momentum to roll back the welfare state, it is the (aftermath) of the financial crisis of 2008–09. All theoretical perspectives within comparative welfare state research predict radical reform in this circumstance, but does it also happen? Our data indicate that – at least so far – it does not. Focusing on a selection of advanced welfare states (the UK, the USA, Germany, the Netherlands, Denmark and Sweden), we find that these countries face similar problems and that their initial response to these problems is also similar. The latter is surprising because, theoretically, we would expect varying responses across welfare state regime types. 

Rather than retrenchment, we observe a first phase of emergency capital injections in the banking sector and a second of Keynesian demand management and labour market protection, including the (temporary) expansion of social programmes. Continuing public support for the welfare state was a main precondition for this lack of immediate radical retrenchment. However, the contours of a third phase have become apparent now that budgetary constraints are forcing political actors to make tough choices and introduce austerity policies. As a result, the question of who pays what, when, and how will likely give rise to increasingly sharp distributional conflicts." 

The third phase involving retrenchment has clearly begun.

Welfare regimes and Youth Unemployment rates in the crisis

Whereas before the crisis most countries had youth unemployment rates between the 20ish % and the 5-10 % range, the vast majority of countries have seen this rate go above 15%. Coordinated Market  Economies have fared better: Netherlands, Austria, Germany, Denmark; but also Malta managed to stay under 15%.

Most countries have added 5 to 10 percentage points to youth unemployment rate following the crisis, some have seen this rate double! More than 30% of the youth is now unemployed in Greece, Estonia, Latvia, Slovakia and Lithuania, and more than 40% in Spain! 

Interestingly, most Bismarckian welfare regimes fare decently, the worst outcome among this cluster is France. In line with what Sapir had noted with respect to the equity and efficiency of the system, the Southern Welfare regimes fare worst with respect to unemployment rates.

High and persistent rates of youth unemployment will depreciate skills, generate social exclusion and ultimately reduce future fiscal revenues and growth prospects. How to adress this issue is likely to remain one of the biggest challenge of European welfare states in the near future.

Source: Report by European Foundation for the Improvement of Living and Working Conditions

27 July 2011

Misconceptions about working time in the EU27

The role of the 'market'
Mostly, the market  in the sense of the free bargaining between the individual worker and his individual employer do not freely establish the working time for workers in the EU27. On average, collective agreements set working time for 75% of workers in the EU27.

Working hours in different sectors
In 2010, workers in the manufacturing sector worked the longest weekly hours (37.6 hours in the metal working sector), followed by the public sector (37.5 in local governments) and workers in the service sectors came last (37.3 hours in the banking sector).

Working hours in different countries
The shortest actual working week was in Finland and the longest in Romania. Greece was in highest range with 40 hours a week and the UK was in the lowest range at 37.5 hours.

Source: EIRO
More information on these issues can be found here and here.

Statisticless homeless deaths in France

I just found this website which aims to record the deaths of homeless people in France. The numbers are by no mean exhaustive and concerns cases of death that result in one way or another from living on the streets. Of course, these statistics are notoriously hard to collect and variation in numbers accross years cannot be used to infer any sort of trends. Needless to say that given these difficulties, these numbers are almost certainly a gross under-estimation of the true underlying numbers. They have statistics for the past couple of years, which look like this:

239 in 2007
386 in 2008
405 in 2009
414 in 2010

They also have a dataset for the years 1998-2003 which records more than 1000 deaths together the name and age of the person (where available). Excluding the datapoints where the age is missing the distribution looks like this:

26 July 2011

The crisis: Deficits as the temporary fix in the tensions between legitimation and accumulation

Drawing on Claus Offe work (e.g.: contradictions of the welfare state, 1984) on the contradictions of state functions in stabilising the capitalist system, one can conceptualise the current crisis as the realisation of inherent contradictions. The state fulfils two key functions: one of legitimation and one of accumulation. 

In its legitimating role, the welfare state can compensate, insure and protect workers of vagaries of the market system. Hence, we have witnessed a dramatic expansion of welfare state spending under governments of both the right and the left in the past three decades. This makes the capitalist system legitimate.

In its accumulating role, one finds the traditional tools of Keynesian demand management, of providing public goods, and of expanding the welfare state so as to promote the moderation of wages. This fosters accumulation of the system (i.e.: rising profits).

24 July 2011

Mill on Conservatives

Taken from Brad Delong post on 'The Heritage Filter: Does America Have a Future in Which There Are Smart Conservatives?':

"John Stuart Mill famously wrote to John Pakington:

I never meant to say that the Conservatives are generally stupid. I meant to say that stupid people are generally Conservative. I believe that is so obviously and universally admitted a principle that I hardly think any gentleman will deny it."

22 July 2011

What Crisis?

Those who follow the French media will be surprised to learn that Lilliane Bettencourt is not the wealthiest person in France, it is Bernard Arnault. 

With his 29 billion euros in 2011, the wealthiest European was worth 2.2 million years of the French minimum income (and it's fairly high in comparative terms), 9.8 million times the median wealth of an adult in the world, or 51 million times the annual poverty threshold. By contrast, annual spending on unemployment benefits in France was under 27 billion euros in 2006.

It's also interested to note that the combined wealth of this top 10 amounts to more than 160 billion euros, which puts the recent net contribution of the private sector to the most recent Greek bailout package into perspective...

This table was taken here

Statement of the Council of the European Union on Greece and related matters

The full declaration can be accessed in full here. The relevant stuff boils down to this:

'Could be worse':
"We agree to support a new programme for Greece and, together with the IMF and the voluntary contribution of the private sector, to fully cover the financing gap. The total official financing will amount to an estimated 109 billion euro."
"We have decided to lengthen the maturity of future EFSF loans to Greece to the maximum extent possible from the current 7.5 years to a minimum of 15 years and up to 30 years with a grace period of 10 years."
"The financial sector has indicated its willingness to support Greece on a voluntary basis through a menu of options further strengthening overall sustainability. The net contribution of the private sector is estimated at 37 billion euro"

'Goes in the right':
"We agree that reliance on external credit ratings in the EU regulatory framework should be reduced, taking into account the Commission's recent proposals in that direction, and we look forward to the Commission proposals on credit ratings agencies."

'Not so good':
"Public deficits in all countries except those under a programme will be brought below 3% by 2013 at the latest."

EU27 labour market stabilising

This figure is taken from the recent report by EUROFOUND (page 1). The figure below shows where the adjustments are taking place... (page 8 of the same report). Not surprisingly, most job reductions now come from the public administration, followed by financial intermediation and manufacturing.

13 July 2011

The dependent variable problem in quantitative studies of Active Labour Market Programmes: Uncovering hidden dynamics?

My new working paper in the series on the Reconciliation of Work and Welfare in Europe can be accessed here.


The question of what explains variation in expenditures on Active Labour Market Programs (ALMPs) has attracted significant scholarship in recent years. Significant insights have been gained with respect to the role of employers, unions and dual labour markets, openness, and partisanship. However, there remain significant disagreements with respects to key explanatory variables such the role of unions or the impact of partisanship.

Qualitative studies have shown that there are both good conceptual reasons as well as historical evidence that different ALMPs are driven by different dynamics. There is little reason to believe that vastly different programs such as training and employment subsidies are driven by similar structural, interest group or indeed partisan dynamics. The question is therefore whether different ALMPs have the same correlation with different key explanatory variables identified in the literature? Using regression analysis, this paper shows that the explanatory variables identified by the literature have different relation to distinct ALMPs. This refinement adds significant analytical value and shows that disagreements are at least partly due to a dependent variable problem of „over-aggregation‟.

To read more, see the website of the  here.

06 July 2011

On Regulation and law

« Entre le fort et le faible, entre le riche et le pauvre, c’est la liberté qui opprime et la loi qui affranchit. » (Lacordaire) 
[Between the strong and the weak, the rich and the poor, it is freedom that oppresses and law that frees]

When It Comes to Argentinas Economy, the NYT Redefines "Stagnant"

When It Comes to Argentinas Economy, the NYT Redefines "Stagnant"

17 June 2011

The evolution of French Labour Market Policy

We now spend 30 billion euros on unemployment benefits, about 15 billion euros on active measures (excluding training) and about the same on professional training. In addition, various social contributions break costs us almost 20 billion. While spending on unemployment benefits and active measures have been rising steadily since the 1970s, early retirement schemes started following from the mid 1980s onwards. Various implicit and explicits subsidies were introduced at the end of the 1980s and have represented the fastest rising item.

Looking at the same policies in terms of their relative weight in the budget shows that in relative terms spending in unemployment benefits has remained stable at about 30-40%. Spending on Training and active measures have relative to other spending items been decreasing. The big winner of course is the social contributions break which now accounts for more than 20% of the spending...

Source: French Employment ministry

15 June 2011

Updated ICTWSS database

The ICTWSS database covers four key elements of modern political economies in advanced capitalist societies: trade unionism, wage setting, state intervention and social pacts. It contains annual data for 34 countries running from 1960 till 2007, and covers 90 variables... Some new variables that may be of interest, for instance the composition of union members. 

New LSE blog on Africa

08 June 2011

How the internet is revolutionising research

Check out this article "Quantitative Analysis of Culture Using Millions of Digitized Books" - in the words of the authors: "We constructed a corpus of digitized texts containing about 4% of all books ever printed. Analysis of this corpus enables us to investigate cultural trends quantitatively." !

Krugman and Eggertsson on why more spending may make sense even when debt is high

The key message to take home:
"One thing that is especially clear from the analysis is the likelihood that policy discussion in the aftermath of a deleveraging shock will be even more confused than usual, at least viewed through the lens of the model. Why? Because the shock pushes us into a world of topsy-turvy, in which saving is a vice, increased productivity can reduce output, and flexible wages increase unemployment. However, expansionary fiscal policy should be effective, in part because the macroeconomic effects of a deleveraging shock are inherently temporary, so the fiscal response need be only temporary as well. And the model suggests that a temporary rise in government spending not only won’t crowd out private spending, it will lead to increased spending on the part of liquidity-constrained debtors." (page 23 - Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo approach)

An Answer to the Meaning of Life

An Answer to the Meaning of Life

06 June 2011

Humala likely winner of Peruvian Presidential elections!

Though the results are still preliminary, it seems likely that the candidate for the left has won.

With an estimated real growth rate of 8.8% for 2010 (11th highest in the world for that year), the country remains fairly poor with a GDP per capita in Purchasing Power Parity of $9,200 (115th position). Unemployment rate currently stands at 7.9%, but inequality is high with a GINI coefficient of 49.6 (25th highest in the world). The poorest ten percent of households have 1.5% of total income/consumption while the top ten percent has 37.9%.... It is not hard to imagine why people supported the candidate with the redistributive agenda. For more background information and sources, go here.

Academic journal dedicated to studying my home town

Its mission "consists in making free and easily accessible scientific articles on Brussels' reality in order to stimulate their use in the public debate. Brussels Studies is an entirely trilingual journal (French, Dutch and English [yes every article - welcome to Belgium!]) which presents on its website articles that are accessible to non-specialised readers" - check it out.

Also have a look at this article by a friend of mine on whether Brussels could be chosen using centres of gravity: ‘diplomatic’, ‘demographic’, ‘metropolitan’ and ‘civic’

A Competent candidate withdraws his nomination...

Beyond Strauss-Kahn: Facts on the prevalence of rapes in France

Unless one was lucky enough to be stuck in some Island with neither electricity nor newspapers for the past couple of weeks, one cannot help but be fed up with the Strauss-Kahn trial that has spread like a virus across much of the media.  

Clearly what's important about this issue is not the affair itself, but the underlying social phenomenon that it is located in. In France it had the fortunate effect of attracting attention to France's inability to tackle this issue effectively. Partly, this stems from the difficulty to prosecute those who commit rapes. 

05 June 2011

Robert Lucas on the crisis: causes and consequences

Interesting set of slides; I particularly like that one below, which basically shows that in terms of GDP deviations from trend we're still far from the 1929 slump. I agree with Lucas that the role of monetary policy, though politically unpopular, avoided the worst of the crisis. However, his contention that governments are now to blame seems pretty far fetched to me. The basic idea, based on perfect rationality of agents, is that the US government potential plan to raise taxes on the rich has an adverse effect on the expectations of these agents, which then feeds into lower investment decisions, etc.

23 May 2011

Gender Pay gap

The following table is taken from the European Commission DG employment website. It shows the average Gender pay gap in different EU27 Member States. The first striking thing is the EU wide pay gap between women and men. This is not necessarily the result of discrimination towards women, though it does suggest that women are still disadvantaged in the labour market.

Differences in educational attainment, allocation across different occupations, and different 'work-life' balances can account for gender pay gaps. In other words, there could be an average Gender Pay even in the absence of direct discrimination, i.e.: being paid less in the same sector controlling for educational attainment.

06 May 2011

Keynesian and Chicago economics

Classic quote by Krugman discussing what others say about Keynesian economics:

"Mulligan is critiquing something he heard about Keynesian economics somewhere, maybe in a bar, without bothering to inquire at all whether that’s how it really works. And I stand by my equally well-sourced assertion that Chicago economics relies on goat sacrifices."

04 May 2011

Characterising institutional change

In their book "Beyond Continuity: Institutional Change in Advanced Political Economies" Streeck and Thelen (2005: 1-33) identify types of gradual transformation:

1) Displacement refers to the 'slow rising salience of subordinate relative dominant institutions' or in layman's terms to fact that dominant institutional arrangements are replaced by dominated institutional arrangements. The case in point was liberalisation of certain markets in the 1980s. Liberalism was already partly present but in many respects it was not the dominant institution and was only 'activated' in the 80s.

Institutional stability in European welfare states

How should we characterise changes in the welfare state? Originally, orthodox economics suggested that there was an optimal way to organise the economy. As a logical consequence of this, welfare states and the economy in which they are embedded would evolve towards best practice. Indeed, that was also the 'convergence thesis' that standard (pre-new growth) theory would predict. Countries with lower levels of development would have higher returns to capital. Provided that capital markets were free, capital would flow towards high return countries, thereby resulting in a natural tendency for economies to converge.

The Alternative Vote

Excellent briefing note by the Political Studies Association. The executive summary in particular is pretty informative and helps to discard the ******** that we've been hearing for what it is:
"The basics of AV
 - A move to the Alternative Vote (AV) would not be a radical change from the current system of First Past the Post (FPTP). AV is not a proportional system.
- Rather, AV is majoritarian: candidates win by securing a majority of the votes in their constituency. Under FPTP, only a relative majority is required; under AV, the goal is that winning candidates should secure an absolute majority.
- AV allows voters to rank candidates in order of preference. If no one wins more than 50 per cent of first preferences, second and sometimes lower preferences are taken into account.

03 May 2011

Back from the dead? Understanding the death of Keynesianism and its potential revival

Current debates about whether to further support the economy or to focus on reigning in the  deficits are reminiscent of an older question about whether Keynesianism is dead. Regardless of what one think should be the appropriate response in the current crisis, it is clear that post 1970s governments' attention have de facto shifted to controlling inflation, often at the expense of unemployment. Why this has happened is still not entirely understood.

The first way to approach this question is by asking what determines macroeconomic policy more generally. Here, three sets of explanations stand out.

The State

"It grows everywhere, whatever the poitical method a nation may adopt. Its expansion is the one certain thing about our future"  [Page 294 Schumpeter (1952) Capitalism, Socialism and Democracy. London, Allen and Unwin.]

Total public social spending as % of GDP

02 May 2011

Financial storm versus nature's tsunami: impact on the NIKKEI225 index

Rational financial markets?
*graph generated with Bloomberg interactive charts

The determinants of happiness

There is a lot of talk these days that economic growth is not what matters. Often this follows the (re-)discovery of the fact that large N studies do not seem to indicate a long run relation between happiness and income. I'm quite convinced by the conceptual inadequacies of economic indicators such as GDP. The obvious question is the so what matters for happiness ? A research note by Deutsche Bank Research "the happy variety of capitalism" looks precisely at some simple descriptive stats. I've selected three of the graphs they have produced. Well, for the sceptics of indicators, what these graphs show is that income, unemployment and education are indeed important benchmarks of genuine progress for developed societies...

30 April 2011

Warren Buffett on derivatives... in 2003

Mr Buffett argues that such highly complex financial instruments are time bombs and "financial weapons of mass destruction"[for the context]

24 April 2011

How unfair is current tax policy in the US? Very!

Tax policy is the contentious partisan issue in the US and elsewhere. The current climate of fiscal 'austerity' combined with mounting levels debt is generating further conflicts between the 'anti-excessive-spending' and  the 'we-need-to-continue-the-stimulus' camps. In the 'anti' camp, whether in the US or other parts of the developed world, the proposals are to curtail social policy, reduce the wages of public employees, increase the retirement age and so on and forth...

You may be forgiven for concluding that this is because there is no other way to find the needed source of financing. In that case, have a look at Thomas Piketty publications page and the dataset for his article « How progressive is the U.S. federal tax system ? A historical and international perspective ». I think it  helps to put the current debate in perspective by assessing how much scope there is to increase taxes. So here is the tax rates for different income groups back in the 1960s when it had its longest period of uninterrupted economic growh. When combining all the taxes on the top 1% the rate reaches 70%.

Now compare this with the situation in 2004. Notice anything? Yes, it's hard to be convinced by people arguing that raising taxes on high income would amount to 'bank bashing', 'soak-the-rich' and populist non-sense.

I'll leave you with a graph of the share of total income that goes to the top 0.1% of the US income distribution.