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, Estev√£o (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!"