IS THIS THE RIGHT TIME TO ADOPT POLICIES FOR THE LONG TERM?
In this recent article, Alessandra Bonfiglioli (UPF) and Gino Gancia (CREI) argue that periods of high economic uncertainty like the current one are particularly favorable for the adoption of long-term policies, such as fiscal stabilizations and other structural reforms. The reason is that high uncertainty implies that economic performance and electoral outcomes depend more on luck and less on policy choices. This makes politicians less reluctant to adopt policies with current costs but future benefits. Continue reading “Spotlight on Faculty Research: Profs. Alessandra Bonfiglioli and Gino Gancia”
What do you do when you receive your monthly payment? Do you leave the office a bit earlier and have some drinks with your friends? Now, imagine you are a self-employed, non-paid, agricultural worker who works to support your family in the Andeans regions of Peru. Moreover, suppose you are credit constrained and with limited access to markets. What would you do if you start receiving monthly cash transfers from your generous government? Would not you take a break? After all, you work very hard and need some rest, right?
Such a program does exist and is named JUNTOS (“together” in Spanish). It gives around US $40 per month to mothers of poor children if they send their kids to school and to health centers on a regular basis. The objective of the program is to reduce current and future poverty through cash transfers and investments in children’s human capital.
Labor economists would say that JUNTOS generates an income effect: if your income is higher you would consume more leisure and work less (assuming that leisure is a normal good). However, most of the empirical literature on cash transfers and labor supply find no effects on participation in the labor market, hours of work, and earnings. This literature relies on comparisons between households who receive the transfer to households who do not. Does this mean that labor supply does not respond to cash transfers? Continue reading “Cash Transfers and Labor Supply in Peru”
A joke often retold in Bosnia and Herzegovina says: “Why is there no sex in any state firms or government buildings? Because everyone is related to each other”. Thanks to prevailing nepotism in the public sector, that is. This joke perfectly portrays the self-ironic attitude of the Balkan mentality that develops as one quickly learns that succeeding in life evolves more around building “a network” than spending time in the library. Yet, in February of 2014, “that joke isn’t funny anymore”. Continue reading “A Balkan Spring?”
Ryan D. Griffiths, Pablo Guillen, and Ferran Martinez i Coma of the University of Sydney released a working paper (PDF) in September with a model of Catalan independence. The abstract:
We propose a game theoretical model to assess the capacity of Catalonia to become a recognized, independent country with at least a de facto European Union (EU) membership. Support for Catalan independence is increasing for reasons pertaining to identity and economics. Spain can avoid a vote for independence by effectively ‘buying-out’ a proportion of the Catalan electorate with a funding agreement favorable to Catalonia. If, given the current economic circumstances, the buying-out strategy is too expensive, a pro-independence vote is likely to pass. Our model predicts an agreement in which Spain and the European Union accommodate Catalan independence in exchange for Catalonia taking a share of the Spanish debt. If Spain and the EU do not accommodate, Spain becomes insolvent, which in turn destabilizes the EU. The current economic woes of Spain and the EU both contribute to the desire for Catalan independence and make it possible.
The first time I heard of Noam Chomsky was in the early nineties. During my senior year in college I was assigned to read a small book, “The true thinkers of our time”(1989), a gallery of interviews with a select group of scientists from a wide array of disciplines. The author, a French journalist named Guy Sorman, had chosen them using three simple criteria: 1) once they showed up in their corresponding disciplines it became impossible to keep on thinking about it in the same way; 2) they had to be alive; and 3) they were willing to talk to him.
The book covered a wide spectrum, from the origins of the universe all the way to modern economic thinking. Each section presented two or three opposing views on the same topic, which were fiercely discussed and smartly presented, allowing amateurs to grasp the frontiers of human knowledge.
Chomsky had made his way into the group deservedly. He had revolutionized the field of linguistics, posing a theory that conceived language as a biological capacity. He identified common patterns to all languages (i.e. all made up plurals by adding characters in the end, none at the beginning) and hypothesized that while the environment allows our linguistic capacity to develop, it falls short of explaining its extraordinary complexity.
I mention this to highlight the thinker, the man working alone and facing the problems and puzzles of his time through a sheer exercise of athletic thought and intelligence. The fame and scientific status he earned by making his most relevant contributions early in his life (all date from around his thirties) would be applied later to bring the world’s attention on a set of political causes, most of them left-winged, all rooted in the United States plethora of foreign policy wreckages. He became an outcast, a role he obviously feels very comfortable with, always pointing towards the elephant in the room.
Happy New Year to the entire GSE community! I’m sure that I am not the only one with a resolution to read more books, so I thought I would try to help. Since few people fell in love with economics through graduate textbooks, here are some recreational economic reads to look forward to in 2014.
Happy Holidays to everyone in the GSE community and beyond!
In honor of this day of massive signaling (and possible deadweight losses), I wanted to share a post by Derek Thompson of The Atlantic. The topic is “If Economists Wrote Christmas Cards.” I doubt that Hallmark cards hires economists as writers. Derek Thompson explains-
Cash is the most efficient gift, according to economists. Cash is also a terrible gift,according to economists. By guaranteeing that the recipient can buy exactly what she wants, you guarantee that the recipient will consider you an unemotional robot.
That’s why the vast majority of economists in the University of Chicago’s IGM poll said it’s absurd to give cash to loved ones for the holidays. “In some cases,”Steven Kaplan said, in a stirring defense for thoughtful gifts, “non-pecuniary [not cash-related] values are important.”
For everyone in the community, both those who will be giving and receiving gifts this holiday season and those who will not, I wish that your highest ordinal rankings be satisfied and may your deadweight losses not be too large!
Since the advent of the Eurozone sovereign-debt crisis, economic commentators have drawn attention to macroeconomic imbalances within the Eurozone. This column presents evidence on the link between macroeconomic imbalances and differences in culture – or more specifically, interpersonal trust. A conservative estimatation (sic) suggests that a one standard-deviation increase in trust reduces macroeconomic imbalances by about a quarter of a standard deviation. Moreover, differences in interpersonal trust can explain a fifth of the variation in intra-Eurozone imbalances.
This is just one more example of the creative research being done in greater GSE community.
The authors have a working paper on this topic here.
While deep methodological differences exist across economists, many disagreements involve “talking past each other.” Each side uses similar words to discuss fundamentally distinct, though related, concepts. This is especially a problem with every-day language words and leads to more confusion than understanding.
One problematic term is information. Everyone believes they have a reasonable definition and that others have the same concept in mind. This is unfortunate and stagnated the discussion. Only through clarity of thought and language can these issues be resolved.
Complete and Perfect Information, or Ignore for Now
Doing what was necessary for early models, the economists started easy. They ignored it. They approximated that every actor knows everything. That made life easy.
Since Marshall and Walras, economics focused on equilibria. Starting from perfect competition, complete and perfect information are crucial. How do supply and demand equilibrate? Everyone knows everything. After a few easy steps, boom, supply=demand.
While all economists admit perfect information is an untrue assumption, it is still the default in many models.
Conclusions are easy to draw. I can look at any study and draw many different conclusions or policy prescriptions. That does not mean I am right or even that the data supports my argument.
Floyd Norris of the NYTEconomix fell into this trap yesterday. He claimed, indirectly, that the US federal government is not bloated. I take bloated to mean too big or too intrusive. To argue this, he cites the latest job numbers.
In September, before the government shutdown, the government had 2,723,000 employees, according to the latest job report, on a seasonally adjusted basis. That is the lowest figure since 1966. Continue reading “Jumping to Conclusions”
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