A great article by by Hugh Gusterson but i think he avoid seeing how this took place which is important. Professionalization of academic publishing inevitable; we need make the top 1% universities in the world which are well funded that their ability to pay all these exorbitant fees is putting a wall on research and idea dissemination.
By Alexander Apostolides on September 26, 2012
What if economists were special persons with superman powers - they would hten have a bestiary entry. Noahpinion has done just such an entry. I have to say they are clear biases showing but the entry for the monetarists and Austrian economists are dead on. Enjoy light hearted humour and the realisation of how much economists has fragmented...
By Alexander Apostolides on September 24, 2012
A thoughtful post by Adonis Pigasiou on the current state of Cyprus (written before the Kyprianou statement on leaving the Euro)
Blame game persists as Cyprus’s quest for a bailout has turned into a saga by Adonis PegasiouOriginal is here: Cyprus has been locked out of international markets for more than a year now and it is only thanks to a Russian loan that it managed to postpone a bailout request from the EU last summer. With the Russians being hesitant to renew their lending to the Cypriot government, President Christofias has been left with no option but to seek aid from the IMF and the EU. Nevertheless, he is still being accused by the opposition parties of trying to further delay the adoption of any measures, at least so until the presidential elections which are scheduled to take place in February 2013 – the burden of a possible ‘surrender’ to the IMF ‘neoliberal’ doctrine may prove unbearable for AKEL (Cyprus’s communist party currently backing the government). The pending adoption of painful yet all too necessary measures has sparked an over-stretched row of confrontation between government and opposition parties as to who is to blame for the current state of the Cypriot economy and the downgrading of the status of the Cypriot economy to ‘junk’. Government members refuse their share of the blame by highlighting the collapse of the banking system as the main reason behind the country’s current precarious situation. Mainly because of Cyprus’s establishment as a successful global financial centre, the banking system of Cyprus is indeed disproportionately large in relation to the country’s GDP, as illustrated in the table below: Banking system in Cyprus with heavy exposure to Greece (IMF, 2011) Total Percentage to GDP Total Bank Assets in Cyprus €152 billion 835% Assets of commercial banks with Cypriot parents €92 billion 500% Exposure of these banks to Greece €29 billion 160% Cypriot banks have consistently tried to expand their presence in the Greek market and, as a result, they are now loaded with a disproportionate amount of non-performing loans. In addition, and most importantly, there has been an unsound purchasing of Greek bonds over the past few years, even a few months prior to Greece’s request for aid, which has proved to be a mistake and substantially damaging for the capital ratios of the banks. The extensive haircut performed on Greek bonds has forced Cypriot banks to incur heavy capital write-downs and has left them with no other option but to turn to the state for aid. Even though the exact amount of state aid needed has not yet been precisely defined, it is certain that the effect on the national debt will be immense, and possibly even detrimental thereto. On the other hand, opposition parties are adamant in highlighting that the government must be also held accountable for its lack of action, which further deteriorated the problematic situation. Christofias started his term in office with a remarkable support from all political parties (apart from right-wing DISY), and with a growing economy. Looking at some of the indicators then, national debt to GDP ratio was below 50%, one of the best in the EU, while unemployment was below 4%, a remarkable figure by European standards. Today, having nearly completed its term in office, the Christofias government is in political isolation (only AKEL still supports and participates in the government) and criticism is mounting over how badly the economy has been managed in the last 5 years. The debt to GDP ratio, without considering state aid that will be required by banks, is nearing 75% and is expected to grow even more, unemployment is above 10%, for the first since the events of 1974, and recession has hindered steady growth. Taking a step back from the debate, Cyprus has many traits that are akin to a Mediterranean model of Capitalism, as this is described in the comparative political economy literature (Amable, 2004). More precisely, this relates to the dominant and influential role of the state in the economy (as a strategic planner, an entrepreneur/owner of public utility enterprises and an employer, with a disproportionate amount of people being employed by the state) and a rather fragmented and unevenly developed welfare system (with peaks of generosity accompanied by macroscopic gaps of protection and relatively more employment than social protection (Ferrera, 1996)). Given this, the Cyprus government could have, especially given the global crisis, pursued those measures that touched upon long-lasting inefficient government practices that cost a great deal of money. For example, making the wage indexation system more just and restructuring it so as to protect the earnings of those in real need; prioritising the need to better target government allowances and benefits; taxing allowances in the public sector; strengthening the inland revenue department so as to combat tax evasion; facilitating foreign investment by eliminating red tape and many others. There is no doubt that such measures could have been pursued with greater commitment and no time delay. Furthermore and equally importantly, Cyprus, having suffered extensively from the collapse of the banking sector, should more eagerly pursue the establishment of a stronger and more efficient supervisory and regulatory framework, not only at the national but also at the European level. This would help in making the system more transparent and prevent future mistakes by bankers which could possibly jeopardise the whole economy for the sake of short-term profits and bonuses. Hope for Cyprus is all but lost but the bigger the delay in adopting measures, the more the economic uncertainty will be prolonged with additional adverse effects on the economy. The on-going blame game between politicians has done enough damage already. References: Amable B. (2004) The Diversity of Modern Capitalism, Oxford University Press Ferrera, M. (1996) ‘Southern Model of Welfare in Social Europe’, Journal of European Social Policy, 6 (1), pp. 17-37 IMF (2011) Cyprus Country Report No. 11/331 This entry was posted in Cyprus. Bookmark the permalink. --------------------------------------------------------------------------------------------------- Licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License. . You are free to copy content but you must link back to this blog and attribute the work to me (Alexandros Apostolides).. You cannot use my work for commercial purposes and you must share it under the same terms I do.
By Alexander Apostolides on September 01, 2012
I know and like Protesilaos personally for two years and I more often in agreement than not, but I must say that the following document (http://www.protesilaos.com/2012/08/euro-balance-payments.html) needed a response.
In the document Protesilaos criticised the obsession of many economists, including Krugman, of seeing the Euro crisis as essentially a balance of payments crisis that is made worse through the straightjacket of the Euro. He attacks the above by suggesting:
1) That the abstract of national trade is a statistical construct that is not very relevant to today’s G0 world of multinational manufacturing and services
2) That balance of payments are not linked to any socio-cultural characteristics
3) That imbalances within nations are frequent and they do not illicit such worries over the viability of a currency.
I disagree with all of the above.
a) This is not the first crisis that the EU has faced; in fact all European crises, whether triggered by exogenous factors (the oil price hikes in the 1970s) or by endogenous factors (Germany’s decision to keep interest rates high in the early 1990s) always end up becoming balance of payments problems as that is the essential weakness that underlines the European project. Although balance in trade was traditionally in surplus for the “core” of Europe and in deficit for the “periphery”, this was more than made up by the great migration of periphery workers to the core, whose remittances kept the balance. Where balance did not exist, nations would depreciative their currencies, hoping to remove balance of payment constraints, an option that is not available in the Eurozone. Depreciation was not necessarily a good option as it integrates a vicious cycle: “periphery” countries with limited raw materials found that a depreciation triggered another round of inflation (through the increase of the price of imported primary goods) leading to a further decline in competitiveness in the balance of trade, needing further future depreciations
b) No one claims that macroeconomics is not essentially an abstract idea, but its usefulness is not to be denied. National Accounts, trade statistics and others count what is going on in aggregate in an area defined by a set of rules where one authority holds power. It happens that we call this area a nation, and that since nations have their own set of rules for individuals, factories or companies, it is a very good summariser for economic vitality. Since a nation has substantial power over the individual then its decisions must be made while focused on the increase of the greater good – hence the need to think in terms of nations.
c) Just because there is a construct in creating a national level data the idea is still valid and useful. It enchases our ability to understand what is going on and perhaps find out what are the underlying causes a problem in a way that the microeconomics data might not be able to (people are not very good with data overload; machines are but are not very good on insight). Sure national data are a summary and as all summaries you lose detail but you gain insight – the long view. Yes the interactions of individuals across borders are not easily being pinpointed, but it is clear that if Greece fails to land a multinational firm making parts for a German auto company its balance of payments position will deteriorate over time, dampening the possibility of having economic growth (unless you have it on credit – and we all see the problems of that strategy).
d) Yes nations do have internal imbalances, and they rightly worry nations – they are not being as frivolous as Protesilaos suggests in ignoring their internal balance of payment problem areas. Italy is suffering from this problem through a North South divide, so in the US, and both have affected the political climate either through requests for limiting the national authority over the regional areas. Both countries a chucking huge sums of money on the problem, being aware that they risk having areas which are permanently in poverty who decide to undermine the national union.
e) I am afraid only with federation where they will be automatic aid to areas under deficit will the Balance of payment issues of the European Union will this problem cease to be so damaging to Europe, but since the mood in Europe is turning against a federation, I have to agree with Krugman and others that the Balance of payment imbalances between the “core” and “periphery” will remain one of the central weakness of the European Project.