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Thursday, April 24, 2014

Hans-Werner Sinn at Project Syndicate "Europe’s Next Moral Hazard"

The critical limit beyond which creditors become anxious has been raised significantly by the bailout architecture put in place over the last two years. This will bring a few years of calm as debt levels climb steadily to that limit. Then the storm will come, battering ordinary citizens, while today’s leaders remain high and dry, drawing pensions.

How poorer nations benefit from EU membership (BUT NOT Greece) | vox

How poorer nations benefit from EU membership | vox

Greece as the outlier

Overall, these results show substantial increases in per capita GDP for all countries that joined the EU in the 1980s and in 2004, with one exception – Greece. The results suggest that Greek per capita GDP would have been higher if Greece had not joined the EU in 1981. But does this imply Greece would be better off leaving the EU as quickly as possible? Obviously not. From 1981 to 1995, growth rates in the EU were relatively higher, and Greece experienced divergence (Vamvakidis, 2003). The opening up of the uncompetitive domestic industry may have been too sudden.4 Yet, entry into the economic and monetary union represents a turnaround, with growth rates faster than in the EU for 1996-2008, driven by shipping, tourism, and the financial sector. Mind the latter is one of the few sectors in which structural reforms were implemented (Mitsopoulos and Pelagidis 2012.) Until the Eurozone crisis, integration delayed a broad range of structural reforms in Greece. Signs are that this is now slowly changing (Fernández-Villaverde et al. 2013).
The Economist 's Free Exchange Blog adds:

The sliver of hope for Greeks, if there is one, is that this state of affairs suggests that an improvement in macro and micro policy could lead to really rapid catch-up growth, as Greece finally reaps the benefits of full integration with the EU and makes up its current output shortfall. But what a long, painful, disillusioning road to get there.

Robert Kaplan : "Why the European Union Will Survive"

Why the European Union Will Survive

Sunday, April 20, 2014

Book Review: Policy Alienation and the Power of Professionals: Confronting New Policies by Lars Tummers

Book Review: Policy Alienation and the Power of Professionals: Confronting New Policies by Lars Tummers

also here (pdf)

Nowadays, public policies often focus on economic values, such as efficiency and financial transparency. Public professionals often resist implementing such policies. We analyze this using the concept of ‘role conflicts’. We use a novel approach by conceptualizing and measuring role conflicts on the policy level, thereby linking policy implementation and social psychology research. We construct and test scales for policy-client, policy-professional and organizational-professional role conflicts. Using survey data, we show that policy-professional and policy-client role conflicts negatively influence the willingness of public professionals to implement policies. Concluding, we conceptualized and measured three role conflicts that can occur during policy implementation.

Thomas Sargent 's 12 Economics Principles

Economics is organized common sense. Here is a short list of valuable lessons that our beautiful subject teaches.

  1. Many things that are desirable are not feasible.
  2. Individuals and communities face trade-offs.
  3. Other people have more information about their abilities, their efforts, and their preferences than you do.
  4. Everyone responds to incentives, including people you want to help. That is why social safety nets don’t always end up working as intended.
  5. There are trade-offs between equality and efficiency.
  6. In an equilibrium of a game or an economy, people are satisfied with their choices. That is why it is difficult for well-meaning outsiders to change things for better or worse.
  7. In the future, you too will respond to incentives. That is why there are some promises that you’d like to make but can’t. No one will believe those promises because they know that later it will not be in your interest to deliver. The lesson here is this: before you make a promise, think about whether you will want to keep it if and when your circumstances change. This is how you earn a reputation.
  8. Governments and voters respond to incentives too. That is why governments sometimes default on loans and other promises that they have made.
  9. It is feasible for one generation to shift costs to subsequent ones. That is what national government debts and the U.S. social security system do (but not the social security system of Singapore).
  10. When a government spends, its citizens eventually pay, either today or tomorrow, either through explicit taxes or implicit ones like inflation.
  11. Most people want other people to pay for public goods and government transfers (especially transfers to themselves).
  12. Because market prices aggregate traders’ information, it is difficult to forecast stock prices and interest rates and exchange rates

h/t Ezra Kline and Jim Rose 

Tuesday, April 15, 2014

Paul Krugman reviews Piketty's "Capital" at NYRB

Andrew Hussey at The Observer interviews Thomas Piketty

Mohamed A. El-Erian at Bloomberg View : "What Greece Could Tell Us About Ukraine"

As tensions escalate in the eastern part of Ukraine, the country's officials are in Washington looking to put the finishing touches on an agreement with the International Monetary Fund that provides immediate financial relief and opens the doors to help from others. Given the situation on the ground, these already-complex negotiations must find a way to balance economic, political, security and social considerations. Also, the parties need to come up with a lot of money to cover the country’s financing requirements. In thinking about these tough challenges, I found myself wondering whether they could have any connection to last week’s successful bond issuance by Greece. If not yet, they possibly will down the road.

Greece’s quick return to international capital markets stands in sharp contrast to the experience of Latin American countries in the 1980s, Russia after its 1998 debt restructuring, and Argentina after its 2001 default. It reflects a change in investors’ willingness to forgive and forget in today’s more globalized financial markets, especially when the offending sovereign has strong backing from the official sector.

Monday, April 14, 2014

The Economist : “The slumps that shaped modern finance”

Free Exchange/The Economist : "The Greek miscalculation"

Chris Dillow at Stumbling and Mumbling : ""Capital"and "Labour""

Tuesday, April 8, 2014

Hugo Dixon : Reuters : "Greek rebound is astonishing"

Matthew Yglesias at new site "Vox" : ""The short guide to Capital in the 21st Century""

Philippe Legrain : Project Syndicate : ""Europe’s Bogus Banking Union""

Gideon Rachman ; FT; "The eurozone faces problems that are beyond the control of the president of the ECB" (sub-heading)

Jens Weidmann : France's budget policies 'test case' for euro fiscal rules : Reuters