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Showing posts from December, 2012

Happy Holidays and Macro Follies

This will be my last post until 2013.  I wish all my readers a prosperous 2013. My first posts on this blog looked at the Hayek-Keynes rap by EconStories (see here and here ). EconStories have followed this up with an hilarious festive album of macro-follies - see video below (hat tip - Graeme Acheson). 


As someone who has supervised nearly 10 PhD students over the past decade, I am always delighted to hear that my former students are doing well in their academic careers. Graeme Acheson , who was my first PhD student, has just been appointed to a full professorship at the University of Stirling . He starts his new post at the end of January. Well done to Graeme!

Economics of Terrorism

Click here to read Graham Brownlow's post at the Extremis Project . In his post he discusses the economics of anti-terrorism policies in Northern Ireland during the Troubles. Interestingly, he views the state funding provided to DeLorean in the context of the British government's anti-terrorism policy.    

Central Bank Targets

Politicians like to pretend that central banks are independent of the government in that they are not subject to political interference when it comes to making monetary policy. Governments may have incentives to use monetary policy for their own ends rather than the good of the economy, which results in a  political business cycle . In order to commit to not interfering in this way, governments grant central banks operational independence and require them to hit a target. For about two decades many central banks around the world have had an inflation target. But the flatlining of economic growth in many economies is causing governments and central bankers to rethink this target -  click here for Stephanie Flanders' post on this.   

Flatlining Economy - Innovation Crisis or Financial Crisis?

Is the continued sluggishness of the world's advanced economies a result of the financial crisis or is it a crisis in innovation?  Has the financial crisis exposed a deeper malaise in advanced economies in that they are no longer making technological breakthroughs?  Since the Industrial Revolution, economic growth has been spurred on by large technological breakthroughs - think steam, railways, the telegraph, electricity, the combustion engine, flight, chemical engineering, the computer, and the Internet. But have we run out of innovation with the result that economic growth will stagnate?  Click here to read an op-ed piece by Kenneth Rogoff on this issue (hat tip: Graham Brownlow). Rogoff argues that the malaise is due to the financial crisis not an innovation crisis.    

Bankers and History

As I write this post, I'm sitting in a coffee shop waiting to speak to a group of senior bankers at Ulster Bank about what we can learn from the history of financial crises. The four lessons I will be sharing with them are: (1) the 2008 crisis is totally different from anything that has come before in terms of its scale and scope; (2) if bankers aren't properly incentivised, they will take on too much risk; (3) asset markets can reverse, but this is only a concern if the assets are financed via debt; and (4) politics matters - crises ultimately have a political root.     

Gender Wage Gap

The folks at have sent me an infographic on the gender wage gap in the United States ( click here ). The puzzle is this: although women achieve higher scores in college than their male peers, women earn less than men. This holds true across all levels of education. Why? Discrimination may be part of the story, but child-rearing may explain a large chunk of the gap. A neat study would be to look at the effect of child-rearing on the wage gap. In other words, does the wage gap exist for childless women? If so, the puzzle deepens.    

Are Central Banks Independent?

Are central banks independent of political influence? Do we want them to be independent of the government? Can central banks really be independent? Do democratic polities and central banking mix? Do we need central banks?  Click here to listen to a short and fascinating podcast by Gerald P. O'Driscoll Jr.  on the myth of central bank independence.  Hat tip to Graham Brownlow.    

Chancellor's Autumn Statement

The Chancellor made his autumn statement today - five days into December! You can read the entire speech here   and the BBC's synopsis  here . Two things stand out for me. First, the projections for future economic growth are pure guesses - it is hard to see the UK economy growing at 2% plus after 2014. Second, Bradford & Bingley and Northern Rock Asset Management have been brought unto the nation's balance sheet, adding £70bn to national debt! The Labour government had conveniently kept most of the financial interventions from 2008 off the nation's balance sheet. Including these interventions increases UK national debt dramatically - click here . 

Javier Hernandez - Crime Fighter?

As human beings we have a deep-seated desire to explain natural and social phenomena. We have an in-built search mechanism which looks for causation in order to explain the world around us. For example, the US stock market declined on the day after Obama's election. Why? Most people connected the two events, but the two may have been totally unrelated.  Another example can be found in today's Metro where it is claimed that crime falls and birth rates go up in Mexico City whenever Javier Hernandez is playing for Manchester United. These may simply be crude correlations and there may be no causation whatsoever. It requires rigorous statistical testing to demonstrate correlation never mind causation!     

Sending Out An SMS

The majority of the readers of this blog were born or were young children in 1992.  As a result, you have grow up in a world with mobile phones and SMS. On this day in 1992, the first text message was sent by an engineer working for Vodafone ( click here to read more). Some 8,000,000,000,000 texts are sent every year.   Has texting benefited society? Some have expressed fears that texting damages children's language and literacy development. However, some recent studies have found the opposite! Has it made us more productive? Constant bleeps or vibrations break our concentration, possibly making us less productive. Niall Ferguson has recently argued that texting is making kids stupid. He has suggested that parents remove mobile devices from their kids and send them to book camp , where they spend two weeks reading and discussing classic literature. Texting may also result in underdeveloped social skills - we text rather than talk. I am also concerned about the long-term d