By Alexander Apostolides on May 27, 2011

Two events of interest next week

The NGO Support Centre and the Management Center is having a a discussion on Federalism and Europe on Monday 30 May, at 19:00, at Fulbright Center. Speakers include Dr. Michael Keating (politics;Aberdeen), MEP Mr. Takis Hadjigeorgiou, and Turkish republican party member Mr. Ozil Nami.

On Wednesday the first of June at 19:30 the ever active (for which i am grateful) OPEK- Όμιλος Προβληματισμού για τον Εκσυγχρονισμό της Κοινωνίας μας- with the EU parliament invite people to join the discussion with the topic «ΥΠΕΡΒΑΙΝΟΝΤΑΣ ΤΗΝ ΟΙΚΟΝΟΜΙΚΗ ΚΡΙΣΗ: Η Ε.Ε. ΚΑΙ Η ΕΛΛΑΔΑ at the house of the European parliament on Byronos Avenue 30. Speachers will be Λουκάς Τσούκαλης, καθηγητής, πρόεδρος ΕΛΙΑΜΕΠ, and Γιώργος Ευσταθίου, Sec. Gen of ΟΠΕΚ.

hope to see you there!

By Alexander Apostolides on May 23, 2011

Why academics fight... and why community quotas on academic events is repuslive

I always used to find it so amusing to see how serious the interpersonal rifts exist between academics, especially economists (which I had more exposure to it might be valid in other disciplines as well). It is not that I felt there was an ivory tower of academia where all flaws of character are left behind, but I could not understand the real anger people felt for each other.

I know understand why. Academics trade on ideas. Thus not only are ideas very hard to pin down (and thus one can steal and idea from another), they are very easily picked up by another and twisted into something that goes against the principles the original creator had in mind -> thus creating real anger.

A great idea is the emergent Peace economics movement in Cyprus. It was an idea that started by many persons at the same time (the Wolfson inaugural meeting was one of the most inspiring I have ever visited) and that is developed by many at the same time for the same ideal of helping promote and insure a stable solution to the Cyprus question to the benefit of all.

Sadly like many ideas that gain grass root support many then jump in the bandwagon. I happen to know that the latest "forum" that is organised by a foreign university this week (sadly with EU money)was an idea of a person who worked hard form the beginning to make people think the solution in Economic terms. This person was not rejected by the "Forum" organizers to be there and present to present his work (and thus save the organisers the inevitable red faces) with the excuse being that a strict quota of Turkish and Greek Cypriots is applied in the event --> something anyone working on the academics of the Cyprus problem has never accepted.

Ideas and interested academics should be free to meet and promote practical ways of brinigng peace in Cyprus -> Quotas on members based on community is a idea brought from outside from people who do not understand that the Cyprus problem was never a problem of interpersonal relations between the main actors. For once I am angry to see the effort of so many being twisted by persons who come in and might even damage the existing great atmosphere that economists between economists on both sides (and third parties) who are working on the issue. I just wish that the damage caused this week will be minimal by these hijackers, and that those who have truly have been working on the issues can get their just reward for all their effort.

By Alexander Apostolides on May 21, 2011

Free Amjad Baiazy


Friend and fellow blogger Amjad has been arrested by Syrian police as he tried to go back to the UK and continue his studies. He was instrumental in letting us know what was happening in Egypt, and helped with text to speech service from Egypt to the world. Please help spread the word.



Amjad Baiazy, age 29, Syrian citizen living in the UK. Arrested at Damascus International Airport on the morning of May 12, 2011 as he was returning to the UK. Amjad is a young Syrian civil activist who has worked with MSF and has spent many years participating in exchanges to build bridges of understanding between youth in Syria, the Middle East, and Europe.

By Alexander Apostolides on May 19, 2011

Great Letter by Cypriot Economist and fellow blogger

Dr. Panicos Demetriades brilliantly encapsulates in a letter in the Financial times what I have been teaching in Economics of the European union for the past two weeks: that it is Germany who is out of step with the rest of Europe and thus it is Germany that needs to readjust its exchange rate to make its export more expensive.

Right now Germany is getting the best of all worlds - it has successfully lobbies for the ECB to raise interest rates in order to cool time domestic spending; it has prevented losses on the German banking system by keeping Greece afloat for enough time for the German Banks to offload their debt; and the concerns about Greece are keeping the Euro low which allow it to massively increase its exports without any accusations of "beggar thy neighbour policy". Yes it gave money for the bail outs but that money was loaned (and has been receiving interest on) and not a handout as the German media have suggested.

Thus it is the German economy that is out of lockstep that the rest of Europe and it is the German economy that needs a separate currency that is to appreciated. The ECB Raising interest rates at a time where at least 3 Eurozone states are already finding it difficult to repay their debts sounds illogical until on factors in that the desire for Germany to cool inflation it its own country takes precedent over what is happening in souther Europe.

By Alexander Apostolides on May 17, 2011

New economic Papers - Inequality in the extremely long run

A interesting new working paper by the Department of Economics of Oslo: using correction method to existing social tables to estimate inequality form Ancient Rome to India under partition. The paper can be seen here:

Inequality and growth in the very long run:
inferring inequality from data on social groups
J rgen Modalsli, University of Oslo

Abstract:
Income distribution data from before the Industrial Revolution usually
comes in the shape of social tables: inventories of a range of social groups
and their mean incomes. These are frequently reported without adjusting
for within-group income dispersion, leading to a systematic downward bias
in the reporting of pre-industrial inequality. This paper suggests a correction
method, and applies it to an existing collection of twenty- ve social tables,
from Rome in AD 1 to India in 1947. The corrections, using a variety
of assumptions on within-group dispersion, lead to substantial increases in
the Gini coe cients. Combining the inequality levels with data on GDP, a
robust positive relationship between income inequality and economic growth
is con rmed. This supports earlier proposals, based on fewer data points,
of a \super Kuznets curve" of increasing inequality over the entire pre-
industrial period

a brilliant piece again on Al Jazeera by a very respected Economic Historian

Following the great article By Geoffrey Sachs, All Jazeera ahs published a piece by Dani Rodik of Harvard that points out that regulation is not just necessary for growth, it is nesseary for democracy and hence for proper fuctioning institutions with that democracy. See the orginal article here.

The crucial role of democracy in economics
I have been presenting my new book, The Globalisation Paradox, to different groups of late. By now I am used to all types of comments from the audience. But at a recent book-launch event, the economist assigned to discuss the book surprised me with an unexpected criticism.

"Rodrik wants to make the world safe for politicians," he huffed.

Lest the message be lost, he then illustrated his point by reminding the audience of "the former Japanese minister of agriculture who argued that Japan could not import beef because human intestines are longer in Japan than in other countries."

The comment drew a few chuckles. Who doesn't enjoy a joke at the expense of politicians?

But the remark had a more serious purpose and was evidently intended to expose a fundamental flaw in my argument. My discussant found it self-evident that allowing politicians greater room for maneuver was a cockamamie idea - and he assumed that the audience would concur. Remove constraints on what politicians can do, he implied, and all you will get are silly interventions that throttle markets and stall the engine of economic growth.

This criticism reflects a serious misunderstanding of how markets really function. Raised on textbooks that obscure the role of institutions, economists often imagine that markets arise on their own, with no help from purposeful, collective action.

Adam Smith may have been right that "the propensity to truck, barter, and exchange" is innate to humans, but a panoply of non-market institutions is needed to realise this propensity.

Consider all that is required. Modern markets need an infrastructure of transport, logistics, and communication, much of it the result of public investments. They need systems of contract enforcement and property-rights protection. They need regulations to ensure that consumers make informed decisions, externalities are internalised, and market power is not abused. They need central banks and fiscal institutions to avert financial panics and moderate business cycles. They need social protections and safety nets to legitimise distributional outcomes.

Governance in economics

Well-functioning markets are always embedded within broader mechanisms of collective governance. That is why the world's wealthier economies, those with the most productive market systems, also have large public sectors.

Once we recognise that markets require rules, we must next ask who writes those rules. Economists who denigrate the value of democracy sometimes talk as if the alternative to democratic governance is decision-making by high-minded Platonic philosopher-kings - ideally economists!

But this scenario is neither relevant nor desirable.

For one thing, the lower the political system's transparency, representativeness, and accountability, the more likely it is that special interests will hijack the rules. Of course, democracies can be captured too. But they are still our best safeguard against arbitrary rule.

Moreover, rule-making is rarely about efficiency alone; it may entail trading off competing social objectives - stability versus innovation, for example - or making distributional choices. These are not tasks that we would want to entrust to economists, who might know the price of a lot of things, but not necessarily their value.

True, the quality of democratic governance can sometimes be augmented by reducing the discretion of elected representatives. Well-functioning democracies often delegate rule-making power to quasi-independent bodies when the issues at hand are technical and do not raise distributional concerns; when log-rolling would otherwise result in sub-optimal outcomes for all; or when policies are subject to myopia, with heavy discounting of future costs.

Independent central banks provide an important illustration of this. It may be up to elected politicians to determine the inflation target, but the means deployed to achieve that target are left to the technocrats at the central bank. Even then, central banks typically remain accountable to politicians and must provide an accounting when they miss the targets.

Similarly, there can be useful instances of democratic delegation to international organisations. Global agreements to cap tariff rates or reduce toxic emissions are indeed valuable. But economists have a tendency to idolise such constraints without sufficiently scrutinising the politics that produce them.

The importance of democratic deliberation

It is one thing to advocate external restraints that enhance the quality of democratic deliberation - by preventing short-termism or demanding transparency, for example. It is another matter altogether to subvert democracy by privileging particular interests over others.

For instance, we know that the global capital-adequacy requirements produced by the Basel Committee reflect overwhelmingly the influence of large banks. If the regulations were to be written by economists and finance experts, they would be far more stringent. Alternatively, if the rules were left to domestic political processes, there could be more countervailing pressure from opposing stakeholders (even though financial interests are powerful at home, too).

Similarly, despite the rhetoric, many World Trade Organisation agreements are the result not of the pursuit of global economic well-being, but the lobbying power of multinationals seeking profit-making opportunities.

International rules on patents and copyright reflect the ability of pharmaceutical companies and Hollywood - to take just two examples - to get their way. These rules are widely derided by economists for having imposed inappropriate constraints on developing economies' ability to access cheap pharmaceuticals or technological opportunities.

So the choice between democratic discretion at home and external restraint is not always a choice between good and bad policies. Even when the domestic political process works poorly, there is no guarantee that global institutions will work any better. Often, the choice is between yielding to domestic rent-seekers or to foreign ones. In the former case, at least the rents stay at home!

Ultimately, the question concerns whom we empower to make the rules that markets require. The unavoidable reality of our global economy is that the principal locus of legitimate democratic accountability still resides within the nation state.

So I readily plead guilty to my economist critic's charge. I do want to make the world safe for democratic politicians. And, frankly, I wonder about those who do not.

Dani Rodrik, Professor of International Political Economy at Harvard University, is the author of The Globalization Paradox: Democracy and the Future of the World Economy.

A version of this article first appeared on Project Syndicate.

The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera's editorial policy.

By Alexander Apostolides on May 06, 2011

Do you want to know how a real estate bubble sounds in opera?

As music and mathematics are linked the excellent planet money has placed the USA real estate crash into notes and has had baritones sing it.

I think this should be mandatory for all who are in these markets. If people who insisted that the rise was not a bubble (just before it blew in their faces) heard it reach the top range of sounds produced by the wonderful voice of a trained opera singer i wonder if they would have paused and recollected if a condo in Florida could really increase in price by 300% in a year.

Another Great Rap video of Keynes Vs HayeK

Should the government spend a country's way in out of resession?

Another great video by Econ stories:



I use them in class and they have a great reception.

New OECD report - the rich are getting richer except in Greece, Turkey, Hungary and Belgium

The excellent blog and radio show "Planet Money" has brought to my attention that even through inequality within countries was rising in the boom, inequality is rising in the recession too.

Very interesting to note that Greece is not one of them - although i think this shows that recession hit everybody badly and the rich did not have the umbrella of government support that the poor have (and not that George Papandreou id following his "socialist principles")

According to the report there are three reasons for still rising inequality even in hard times:
I would however add a very important reason that is not mentioned by the report. The owners of capital were the big winners of globalisation as global wage demands were moderated through competition in the boom and they have successfully managed to protect their margins through the boom --> look at the support of stock markets and financial institution even of capital such as general motors. As a result owners of capital got away with sharing the less of the burden of the recession. Taxpaying public of Iceland, Ireland and the US know all about that. Sadly the UK is misled to focus on public spending and not on the reason that capital ownership was supported when it made bad decisions and is refusing to pay for the support or for future insurance that such things will not happen again.

The other three reasons acroding to the OECD for the rise of inequality:
[Quoting PLanet money]
"Why is this happening? Here are three possible answers from the report.


1. Robots, etc.

Trade barriers have come down. Technology has advanced. The combination of these two factors has disproportionately benefited highly-skilled workers. You want to be the guy building the robot, not the guy whose job got replaced by a robot.

2. Rich people marry rich people

Inequality is calculated by household, not by individual. And a few changes at the household level have driven some of the increase in inequality.

For one thing, it's become more common for people to choose spouses in their own income bracket. In other words, rich people are now more likely to marry other rich people, and poor people are more likely to marry other poor people. (There's a creepy term for this: "assortative mating.")

Single-parent households and single-person households without children have also become more common. Both groups are disproportionately likely to be at the bottom of the income ladder.

3. Free-wheeling job markets

State ownership of corporations has declined. Price controls have become less common. Minimum wages have fallen relative to average wages. Legal changes have made it easier to fire temporary wokers.

Taken together, these changes have actually improved overall employment levels. (Businesses are more likely to higher hire workers when they can pay lower wages and when it's easier to fire people.)

But despite the gain in employment, the same shifts may also have driven up inequality. In the words of the report, "the high-skilled reaped more benefits from a more dynamic economy.""

A divisive article by a very divisive economist: Corruption is a Developed rather than a developing country problem

Reposting form all jazerra a great article by Jeffrey Sachs. Sachs has been a divisive figure but does point out that many of the issues we think as problems of the less developed world (LDCs) originate from the willingness of the advanced world to corrupt and undermine weak institutional systems in the LDCs. In the wake of the latest crisis it is a bit rich to preach corporate governance to LDCs...

The global economy's corporate crime wave
Advanced economies with "good governance" are facing alarming incidents of business corruption at the highest levels.
Jeffrey Sachs

Two years after the US financial crisis, not a single Wall Street executive has faced jail time [GALLO/GETTY]
The world is drowning in corporate fraud, and the problems are probably greatest in rich countries – those with supposedly "good governance".

Poor-country governments probably accept more bribes and commit more offenses, but it is rich countries that host the global companies that carry out the largest offenses. Money talks, and it is corrupting politics and markets all over the world.

Hardly a day passes without a new story of malfeasance. Every Wall Street firm has paid significant fines during the past decade for phony accounting, insider trading, securities fraud, Ponzi schemes, or outright embezzlement by CEOs. A massive insider-trading ring is currently on trial in New York, and has implicated some leading financial-industry figures. And it follows a series of fines paid by America's biggest investment banks to settle charges of various securities violations.

There is, however, scant accountability. Two years after the biggest financial crisis in history, which was fueled by unscrupulous behaviour by the biggest banks on Wall Street, not a single financial leader has faced jail. When companies are fined for malfeasance, their shareholders, not their CEOs and managers, pay the price. The fines are always a tiny fraction of the ill-gotten gains, implying to Wall Street that corrupt practises have a solid rate of return. Even today, the banking lobby runs roughshod over regulators and politicians.

Corruption pays in American politics as well. The current governor of Florida, Rick Scott, was CEO of a major health-care company known as Columbia/HCA. The company was charged with defrauding the United States government by over billing for reimbursement, and eventually pled guilty to 14 felonies, paying a fine of $1.7bn.

The FBI's investigation forced Scott out of his job. But, a decade after the company's guilty pleas, Scott is back, this time as a "free-market" Republican politician.

When Barack Obama wanted somebody to help with the bailout of the US automobile industry, he turned to a Wall Street "fixer," Steven Rattner, even though Obama knew that Rattner was under investigation for giving kickbacks to government officials. After Rattner finished his work at the White House, he settled the case with a fine of a few million dollars.

But why stop at governors or presidential advisers? Former Vice President Dick Cheney came to the White House after serving as CEO of Halliburton. During his tenure at Halliburton, the firm engaged in illegal bribery of Nigerian officials to enable the company to win access to that country's oil fields – access worth billions of dollars. When Nigeria's government charged Halliburton with bribery, the company settled the case out of court, paying a fine of $35m. Of course, there were no consequences whatsoever for Cheney. The news barely made a ripple in the US media.

Impunity is widespread – indeed, most corporate crimes go un-noticed. The few that are noticed typically end with a slap on the wrist, with the company – meaning its shareholders – picking up a modest fine. The real culprits at the top of these companies rarely need to worry. Even when firms pay mega-fines, their CEOs remain. The shareholders are so dispersed and powerless that they exercise little control over the management.

The explosion of corruption – in the US, Europe, China, India, Africa, Brazil, and beyond – raises a host of challenging questions about its causes, and about how to control it now that it has reached epidemic proportions.

Corporate corruption is out of control for two main reasons. First, big companies are now multinational, while governments remain national. Big companies are so financially powerful that governments are afraid to take them on.

Second, companies are the major funders of political campaigns in places like the US, while politicians themselves are often part owners, or at least the silent beneficiaries of corporate profits. Roughly one-half of US Congressmen are millionaires, and many have close ties to companies even before they arrive in Congress.

As a result, politicians often look the other way when corporate behaviour crosses the line. Even if governments try to enforce the law, companies have armies of lawyers to run circles around them. The result is a culture of impunity, based on the well-proven expectation that corporate crime pays.

Given the close connections of wealth and power with the law, reining in corporate crime will be an enormous struggle. Fortunately, the rapid and pervasive flow of information nowadays could act as a kind of deterrent or disinfectant. Corruption thrives in the dark, yet more information than ever comes to light via email and blogs, as well as Facebook, Twitter, and other social networks.

We will also need a new kind of politician leading a new kind of political campaign, one based on free online media rather than paid media. When politicians can emancipate themselves from corporate donations, they will regain the ability to control corporate abuses.

Moreover, we will need to light the dark corners of international finance, especially tax havens like the Cayman Islands and secretive Swiss banks. Tax evasion, kickbacks, illegal payments, bribes, and other illegal transactions flow through these accounts. The wealth, power, and illegality enabled by this hidden system are now so vast as to threaten the global economy's legitimacy, especially at a time of unprecedented income inequality and large budget deficits, owing to governments' inability politically – and sometimes even operationally – to impose taxes on the wealthy.

So the next time you hear about a corruption scandal in Africa or other poor region, ask where it started and who is doing the corrupting. Neither the US nor any other "advanced" country should be pointing the finger at poor countries, for it is often the most powerful global companies that have created the problem.

Jeffrey D. Sachs is Professor of Economics and Director of the Earth Institute at Columbia University. He is also Special Adviser to United Nations Secretary-General on the Millennium Development Goals.

The article was first published by Project Syndicate.

The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera's editorial policy.

By Alexander Apostolides on May 05, 2011

While the Government Berates the best Technocrat we ever had, Europe rewards

Dr. Orphanides of the central bank of Cyprus by placing him at the head of of the steering committee of the European Systemic Risk Board (ESRB). In a period that we celebrate even the tiniest victory for our beleaguered economy this acclaim has gone unnoticed by the local media. The committee will have a great role to play in shaping the future rules and regulations of the financial industry and no doubt it will seek to enforce and shape new Basel rules of banking as well as additional banking directives.

Thus the comment by Dr. Orphanides that ""A crucial weakness is that insufficient progress has been made, and one that needs to be addressed urgently, on how to allow major institutions to fail," must have made the big banks sweat with anxiety and made them call their army of lobbyists to the fray.

Of course Dr. Orphanides is right: the feeling that banks got away with paying for the damage when the crisis they fueled hit, even though they profited in the (personally and as corporations)in the bubble is not just a moral argument but an economic one. Removing the chance of bankruptcy removed the proper calculation of risks as moral hazard meant that there was money to be made if suspenseful and the looses would be borne by others. Great to see Dr. Orphanides trying to refocus the world on what got us in such a big financial crisis in the first place.