06 Jul 2015
by Jim Rose
in applied price theory, applied welfare economics, budget deficits, business cycles, comparative institutional analysis, constitutional political economy, currency unions, economic growth, economic history, Euro crisis, fiscal policy, fisheries economics, global financial crisis (GFC), international economics, macroeconomics, Public Choice, rentseeking
Tags: Euro sclerosis, Greece, insurance attacks, sovereign defaults, speculative attacks
The roots of Greece’s crisis are simple. Before Greece joined the Eurozone, investors treated it as a middle-income country with poor governance — which is to say, a credit risk.
After Greece joined the Eurozone, investors thought that Greece was no longer a credit risk — they figured, if push came to shove, other Eurozone members like Germany would bail Greece out. They were wrong.
Michael Dooley put forward a theory of speculative attacks on currencies as insurance attacks on currencies for emerging markets after the East Asian financial crisis:
First generation models of speculative attacks show that apparently random speculative attacks on policy regimes can be fully consistent with rational and well-informed speculative behaviour.
Unfortunately, models driven by a conflict between exchange rate policy and other macroeconomic objectives do not seem consistent with important empirical regularities surrounding recent crises in emerging markets. This has generated considerable interest in models that associate crises with self-fulfilling shifts in private expectations.
In this paper we develop a first generation model based on an alternative policy conflict. Credit constrained governments accumulate reserve assets in order to self-insure against shocks to national consumption. Governments also insure poorly regulated domestic financial markets.
Given this policy regime, a variety of internal and external shocks generate capital inflows to emerging markets followed by successful and anticipated speculative attacks.
We argue that a common external shock generated capital inflows to emerging markets in Asia and Latin America after 1989. Country specific factors determined the timing of speculative attacks. Lending policies of industrial country governments and international organizations account for contagion, that is, a bunching of attacks over time.
His model was not within the context of a currency union but his basic theory is correct.
There are speculative attacks on a currency or a bank run after foreign markets revises their estimates of the available central bank reserves and international lines of credit to bail out the banking systems and/or foreign debt.
Michael Dooley was dealing with the emerging economies of Southeast Asia and their official lines of credit that insure their foreign exchange liabilities and domestic banking system. Greece is about lines of credit for similar purposes to other European union member states.
via 12 charts and maps that explain the Greek crisis – Vox and The Most Important Graphs of 2011 – The Atlantic.
05 Jul 2015
by Jim Rose
in economics of bureaucracy, economics of education, economics of media and culture, politics - Australia, politics - New Zealand, politics - USA, Public Choice, rentseeking
Tags: academic bias, bureaucratic bias, expressive voting, Leftover Left, media bias, occupational choice, political bias, rational ignorance, rational irrationality, social psychology, Twitter left
Why is it that the economics profession is the only profession questioned on the grounds of its political diversity?
1) Academic psychology once had considerable political diversity, but has lost nearly all of it in the last 50 years;
2) This lack of political diversity can undermine the validity of social psychological science via mechanisms such as the embedding of liberal values into research questions and methods, steering researchers away from important but politically unpalatable research topics, and producing conclusions that mischaracterize liberals and conservatives alike;
3) Increased political diversity would improve social psychological science by reducing the impact of bias mechanisms such as confirmation bias, and by empowering dissenting minorities to improve the quality of the majority’s thinking; and
4) The underrepresentation of non-liberals in social psychology is most likely due to a combination of self-selection, hostile climate, and discrimination.
via Psychology’s Political Diversity Problem | Psychology Today.
05 Jul 2015
by Jim Rose
in comparative institutional analysis, constitutional political economy, development economics, economic history, growth disasters, growth miracles, poverty and inequality, Public Choice
Tags: capitalism and freedom, extreme poverty, global poverty, India, Leftover Left, The Great Escape, The Great Fact, top 1%
04 Jul 2015
by Jim Rose
in income redistribution, labour economics, politics - New Zealand, poverty and inequality, Public Choice, rentseeking
Tags: antimarket bias, Christopher Snowden, distributive justice, Eric Crampton, expressive voting, Leftover Left, moral panic, rational ignorance, rational irrationality, social justice, top 1%, Twitter left
03 Jul 2015
by Jim Rose
in applied price theory, applied welfare economics, currency unions, economic growth, economics of bureaucracy, economics of regulation, Euro crisis, health and safety, income redistribution, industrial organisation, labour economics, law and economics, minimum wage, occupational regulation, property rights, Public Choice, rentseeking, survivor principle, unions, welfare reform
Tags: cost of doing business, Eurosclerosis, Greece, Italy, PIGS, Portugal, Spain
Figure 1: Doing Business rankings, PIGS, 2014
Source: World Bank Doing Business 2015.
All in all, Italy and Greece are a dog of a place to enforce a contract. The long-suffering taxpayer is better off paying taxes in Greece than in Italy! Not surprisingly, trading across borders is the greatest strength in doing business in the PIGS. The European Union does have some benefits.
Figure 2: Doing Business rankings, Greece and Italy, 2014
Source: World Bank Doing Business 2015.
All in all, Italy and Greece are equally bad places to do business and Italy is much worse when it comes to taxes. About the only saving graces of Italy is the registration of property and the protection of minority interests in companies.
Figure 3: Doing Business rankings, Spain and Portugal, 2014
Source: World Bank Doing Business 2015.
Spain and in particular Portugal are much better places to do business than Italy and Greece.
03 Jul 2015
by Jim Rose
in economics of bureaucracy, economics of education, environmental economics, global warming, rentseeking
Tags: academic bias, climate alarmism, global warming, green rent seeking, philosophy of science, publish or perish, scientific fraud
03 Jul 2015
by Jim Rose
in economic history, economics of media and culture, energy economics, entrepreneurship, environmental economics, global warming, industrial organisation, politics - Australia, politics - New Zealand, politics - USA, rentseeking, survivor principle
Tags: climate alarmism, global cooling, global warming, media bias
03 Jul 2015
by Jim Rose
in constitutional political economy, income redistribution, Public Choice, public economics, rentseeking
Tags: British economy, British politics, Director's Law, expressive voting, growth of government, median voter theorem, size of government
…the poorest 30 percent of households receive significantly more in cash benefits than they pay in tax. The next 10 percent receive on average £596 pounds a year more in cash benefits than they pay in tax, and the top 60 percent all pay more in tax than they get back in cash benefits.
02 Jul 2015
by Jim Rose
in political change, Public Choice
Tags: EU, Euroland, European politics, expressive voting, Joseph Schumpeter, Leftover Left, rational ignorance, rational irrationality
Kiwiblog put me onto the story in the Guardian about how only one third of Europe’s population is governed by the centre-left and the left is lost all but one of the last 13 elections in Europe. The exception was Greece, which they may regret.
Austria, Croatia, the Czech Republic, France, Italy, Malta, Slovakia and Sweden are the only EU members that are on the centre-left. In 2011, only 14.5% of the 28 countries’ total population was led by the centre-left. In 2007, it was nearly 45%.
The reason for the shift to the right can be explained by Joseph Schumpeter’s theory of democracy. Schumpeter disputed the widely held view that democracy was a process by which the electorate identified the common good, and that politicians carried this out:
- The people’s ignorance and superficiality meant that they were manipulated by politicians who set the agenda.
- Although periodic votes legitimise governments and keep them accountable, their policy programmes are very much seen as their own and not that of the people, and the participatory role for individuals is limited.
Schumpeter’s theory of democratic participation is that voters have the ability to replace political leaders through periodic elections.
Citizens do have sufficient knowledge and sophistication to vote out leaders who are performing poorly or contrary to their wishes. The power of the electorate to turn elected officials out of office at the next election gives elected officials an incentive to adopt policies that do not outrage public opinion and administer the policies with some minimum honesty and competence.
Power rotates in the Schumpeterian sense. Governments were voted out when they disappointed voters with the replacement not necessarily having very different policies. Greece is the exception to this.
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