Daron Acemoglu is Blogging

The guy is basically top of the game in Economic History writing, seventh most cited economist according to Repec. He and James Robinson have started a blog called “Why Nations Fail” to coincide with their new book of the same title.

Summary as lifted from their site:

Is it culture, the weather, geography? Perhaps ignorance of what the right policies are?

Simply, no. None of these factors is either definitive or destiny. Otherwise, how to explain why Botswana has become one of the fastest-growing countries in the world, while other African nations, such as Zimbabwe, the Congo, and Sierra Leone, are mired in poverty and violence?

Daron Acemoglu and James Robinson conclusively show that it is man-made political and economic institutions that underlie economic success (or the lack of it). Korea, to take just one of their fascinating examples, is a remarkably homogeneous nation, yet the people of North Korea are among the poorest on earth while their brothers and sisters in South Korea are among the richest. The south forged a society that created incentives, rewarded innovation, and allowed everyone to participate in economic opportunities. The economic success thus spurred was sustained because the government became accountable and responsive to citizens and the great mass of people. Sadly, the people of the north have endured decades of famine, political repression, and very different economic institutions—with no end in sight. The differences between the Koreas is due to the politics that created these completely different institutional trajectories.

Based on fifteen years of original research, Acemoglu and Robinson marshal extraordinary historical evidence from the Roman Empire, the Mayan city-states, medieval Venice, the Soviet Union, Latin America, England, Europe, the United States, and Africa to build a new theory of political economy with great relevance for the big questions of today, including:

  • China has built an authoritarian growth machine. Will it continue to grow at such high speed and overwhelm the West?
  • Are America’s best days behind it? Are we moving from a virtuous circle in which efforts by elites to aggrandize power are resisted to a vicious one that enriches and empowers a small minority?
  • What is the most effective way to help move billions of people from the rut of poverty to prosperity? More philanthropy from the wealthy nations of the West? Or learning the hard-won lessons of Acemoglu and Robinson’s breakthrough ideas on the interplay between inclusive political and economic institutions?

Why Nations Fail will change the way you look at—and understand—the world.

Follow the blog, you will become a more fulfilled human being if you get off on learning interesting things.


Update: Whoa, whoa, whoa, they don’t allow comments! Minus points. Bad Acemoglu and Robinson!

Bulgaria under the yoke of Communism again

Spiegel: Great Wall this week became the first Chinese automobile manufacturer to open an automobile assembly plant inside the European Union…

…Bulgaria, the EU’s poorest country, is attractive as a labor market because it is an oasis of cheap wages and low taxes. Workers are considered well educated and the country is ideal as the site for a company like Great Wall to launch. Given that wages for factory workers have risen considerably in China in recent years, assembly sites abroad have become increasingly attractive for some manufacturers.

(H/T). Some thoughts:

  1. Don’t overweight cheap labour and underweight transport costs and clustering in thinking about global trade.
  2. There will be more of this. In the end the country with the most people wins – that means China for a while and India afterwards.
  3. There should be less of this, trade barriers mean international investments need to be made that would not were the EU a true open borders free trade area.
  4. East Asian labour is remarkably low-skilled and poorly educated despite what positive prejudices  you might hold.
  5. Technology is highly mobile and drives convergences in incomes all round the world in interesting ways.
  6. The future prosperity do the world depends on the rich world restraining its xenophobic hostility to foreign capital, as much as foreign workers. You boss may one day speak another language and earn much of his money in a foreign currency, that should be fine so long as she still pays your wages.
  7. We live in interesting times.

You can think a foetus is a person and still think abortion is okay

On abortion, no, just no:

On the one side, it’s not a human, just a blob, entirely up to the woman what she wants to do with it.

On the other it’s one of God’s chosen creatures and so deserving of the same protections the rest of us get.

You can think a foetus is a person and that a woman is allowed to abort it.

If a woman’s body is her own – and it is – then even if someone is reliant on her for life she has the right to refuse that support. A foetus’s right to life does not involve the right to use someone else’s body…

You wake up in the morning and find yourself back to back in bed with an unconscious violinist. A famous unconscious violinist. He has been found to have a fatal kidney ailment, and the Society of Music Lovers has canvassed all the available medical records and found that you alone have the right blood type to help. They have therefore kidnapped you, and last night the violinist’s circulatory system was plugged into yours, so that your kidneys can be used to extract poisons from his blood as well as your own. [If he is unplugged from you now, he will die; but] in nine months he will have recovered from his ailment, and can safely be unplugged from you.

So the argument should not be sidetracked by debates on whether a foetus is alive or not. The real crux of the matter is whether a woman’s body is her own or that of society.

You could say that the woman chose to have sex and that implies an obligation to the consequence of that. But that just underlines the real reason most religious people are against abortion; babies are punishment sluts for having sex.

Consider for example, if you really, actually, honestly thought life began at conception then you would be in constant mourning. At least half of all fertilised eggs fail to implant. That means that for every person born at least one has already died, the attrition rate makes abortion seem trivial. There is basically no better way to spend money to save lives than working to improve that statistic. Yet anti-choicers spend money punishing sluts campaigning to lower the termination limit on abortions.

Call it revealed preferences, anti-choicers like punishing women, but not working to improve embryonic implantation rates. Makes you question their motivations, no?

Cognitive Biases and Workfare

That last post got me thinking about cognitive biases. Being in contact with the unemployed  makes you more miserable than otherwise, but not because it actually increases your chances of unemployment – it isn’t contagious. So people’s change in behaviour or happiness must be a result of new information or old information which they were previously choosing to ignore.

While Chris (and Layard) are correct, workfare or active labour market polices can be good things, the positive effects – lower inflation and higher growth – are diffuse and the negative effects felt by both those in workfare and who meet those in workfare. So it is possible that seeing what unemployment is really like, and the exploitative practices associated with workfare is new information for some people.

Alternatively, people choose to know less about unemployment than they could and unconsciously engage various cognitive biases to effect this. To this extent cognitive biases protect most people from the negative effects of unemployment.

This means that theoretically the left should welcome workfare, for it finally destroys the recent idea, codified by Thomas Friedman, that we need to build our own economy and that we can be in control of Brand Me. Thinking an individual is responsible for their own economy and economic position is fanciful. Just as blaming the unemployed for their plight is a variant of the fundamental attribution error so too is entrepreneurial fetishism. Calculus was invented twice at the same time; someone was going to invent a pretty mp3 player eventually; somebody was going to get social networking right, some ideas are just in the air. That doesn’t mean it doesn’t make sense to handsomely reward entrepreneurs, because it means we get a more pregnant air from which they pluck ideas, but it does mean we shouldn’t attribute too much genius or control to any one person or group.

That is standard fair on the left, waking up the sheeple…

…so it should be some consolation that workfare will work to either let the employed know how horrible being jobless really is, or will breakdown whatever protective cognitive barriers they’ve erected to protect themselves from those grim truths.

Cognitive biases can lead to sloppy policy so inasmuch as they protect individuals by imposing costs on others they are good things to eliminate but it has to be remembered that they do something useful by protecting people from unpleasant truths. So finding policies that break through them will not be unambiguously good but I hope they will eventually be good.

Workfare’s Impact on Those in Work

Consider these paragraphs:

Example 1:

She was put on a work placement with Superdrug over the Christmas holidays, unpaid. Just JSA and travel expenses. After the new year she was told by Superdrug not to go back, without any explanation.

Example 2:

Poundland requested two candidates a week to be “inducted”. They then spend the next two weeks stood up on the tills for JSA plus travel. At the end of the two week placement they are no longer needed and sent back to us.

Liberal Conspiracy reports the sort of experience that would make anyone angry and any employee worried about their employer’s conduct. Next consider this paragraph:

It is shown that, over all respondents, well-being is typically negatively correlated with others’ unemployment. However, closer examination reveals a distinct pattern in this correlation: the well-being of the employed is often lower when the unemployment rate of others is higher; on the contrary, the unemployed report higher levels of well-being as others’ unemployment rises. The psychological experience of unemployment is tempered by the labour market status of those with whom the individual is in close contact, as models of comparisons or norms would imply. This relationship could also help to explain the polarisation of work between households.

Andrew Clark‘s paper is proof of the old saying that “misery loves company” and conversely that “happy people hate the company of the miserable,” a saying less well known, but true nonetheless. The two excerpts are connected. Liberal Conspiracy has discussed the growing phenomenon of workfare, imported from Australia and the US but always intellectually popular with  the right of this country. Working for your crust of bread, ostensibly for your own good.

What has not been discussed so far is the effect of workfare on those in work. That’s understandable, workfare’s main problems impact those involved, but workfare’s impact will be even more penetrating than already reported, and harmful in ways not yet discussed.

There are two reasons higher unemployment makes the unemployed more happy, one it allows them to discount any feelings of personal failing – hey, there’s a depression! What can I do? – and two it means there are other people in the same circumstance with which they can socialise: Clark found a strong effect on the reported wellbeing of the unemployed when more than one unemployed person was at home with them because they could share household tasks and lessen the increase housework associated with unemployment.

Similarly, employed people surrounded by the unemployed report liow well being for a couple of reasons.  Predominantly though, it is caused by increased nervousness; caused by an increased recognition that their employment situation is precarious and that they too could become unemployed (from Chris: pdf, pdf).

By bringing the unemployed into closer contact with the employed workfare will reduce the wellbeing of the employed if it reinforces feeling of insecurity with respect to keeping a job and powerlessness over one’s employment prospects. Unfortunately, this appear to be exactly the sort of workfare we’re getting.

A workfare which worked, in which the unemployed were given skills and opportunities to find jobs themselves or massaged into jobs when this failed would raise the wellbeing of those newly employed by getting them a job and the wellbeing of those already employed by making them feel more secure in their job and the job market in general. Very little research has been done on what effect workfare has on the attitudes of those already working in firms making use of it, but anecdotally it appears workfare as currently practiced is hurting everyone.

Lets buy off the Falkland Islanders

The Heresiarch suggests we just give the Falkland Islands to the Argentines. They’re expensive, pointless things to own so I’ll sign up to this plan. But, I think it would be fairer to pay off the islanders than to just abandon them.

£750,000 will buy you this farm in Scotland: the weathers shit and the company’s miserable so they should fit right in. £1,000,000 a family should do it and would only cost £1 billion pounds. Let put that in context; it cost £260 million  to just shell and bomb Libya and they’re basically on our doorstep. A billion on the Falklands is an investment that would pay off in no time and we may even be able to raise some or all of the money from the Argentines themselves!

I’ve heard that it is worthwhile keeping the islands because there might be oil there. Bullshit I say. I pay whatever the international going rate for energy is. Sure, lets use the navy to secure natural resources and superprofits for firms-registered-in-but-barely-operating-in-Britain, but don’t tell it is something in my interests.

Get rid of rocks in the middle of the Atlantic, they are invariable poor investments (apart from Saint Helena).

What are existing companies for?

Rick‘s post is good, firms really are meant to be run only for shareholders, and this makes Neil Morrison wibble asking business to pull out its finger all the more silly:

We all know the state of the economy. We all know that unemployment is at the highest level for the best part of two decades. We know that youth unemployment is a social tragedy. And we know that the Government is ill-equipped and ill prepared to deal with it.

So who is going to make the difference?

Well the answer is that business is partly responsible for getting us into this mess, and we are the only people who can get us out of it. And we aren’t going to do that by focussing on cost cutting, rationalisation, downsizing and offshoring. Nor are we going to, in the long run, add value to our business by doing so.

I know that I run the risk of being called naïve here. But is chasing short-term share holder return really less naïve than building long-term structural value in your business? I think not.

Rick asked if the question made sense given the incentives of those with power. An important question to ask. I would rather know, even if those with power could be convinced, would it matter?

Frankly, the only answer we can give is no. Productive and employment growth is widely distributed. It isn’t just young firms that add jobs or experience explosive growth. Contrary to what you may imagine, high tech firms can grow as sluggishly as any other and big firms can sometimes just get even bigger.

Even if shareholders did have all the power (and management ensure they don’t) then we should still not expect compliance with Neil’s request. Firstly, it is a jungle out there, secondly everyone would be playing for uncertain returns.

It isn’t a case of making short-term sacrifices for long-term gains; it is one of  gambling with your firm’s life. If you are a small firm then life is dangerous, even if you are large you are always at risk of downfall. “Nearly three-quarters of the 100 giant firms had disappeared or were smaller in 1995 than in 1912 [pdf].” In fact, the extinction rate of firms is very similar to that of biological species [pdf]. There is no toughing it out for the greater good; you either survive, which is your aim anyway, or end up make the biggest sacrifice of all.

On the other hand, it may be that “cost cutting, rationalisation, downsizing and offshoring” are bad at producing long run value added for a firm, but it is difficult to establish that in advance. Those horrible euphemisms are bad for those people experiencing them, but they might or might not be good for the firm, only time and firm entry and exit of firms and facilities will tell.

Not very stirring, it certainly gives you no way to beat your manly chest and declare ” I shall save these people from unemployment and short-termism,” but it is a damn sight more useful to know. So what are existing firms for? Same as new firms, to produce, experiment and survive.

Unemployment up/down a bit

Unemployment up 0.1%, this is non-news. The economy still sucks, we all knew that already. This also isn’t new evidence of the Tory’s terrible economic stewardship. Employment, unemployment etc. are all within the margin of error for those measurements, and monthly data tell us nothing in isolation. So, meh, is my reaction.

No, not really

…a substantial proportion of us still think of the monarchy as an embarrassment at best, and at worst, to quote Cooke, “dangerous to the liberty, safety and public interest of the people”…

I don’t think seeking analogies between Charles I and Elizabeth the II is the best way to gain support for the republican cause. At least not with the historically literate. I believe that Andrew Marr’s The Diamond Queen must have been terrible watching for a republican, but that is no excuse to play fast and loose with history.

In the seventeenth century there was an ever-present danger of expropriation, a collision of landed and merchant interests and religious persecution; all of which often pursued to the point of death.

This meant the royal family really were  “dangerous to the liberty, safety and public interest of the people.” But not, of course, the sort of “freedom from want” liberty Laurie subscribes to, but a bourgeois liberty for capitalists to operate without interference. Today, the soon to be Charles III has been mean about some architects…

 Although lines like this from our Laurie do make one titter:

Instead, we are served a twee little panegyric to the many unlikely hats of Elizabeth Windsor. 

The Uppance Cometh

Mwahahaha. Remember, schadenfreude should be thoroughly enjoyed before policy analysis. It is good when people who professionally jeer at civil libertarians and cheer at heavy handed policing get a taste of poetic justice. This may have a chilling effect on free speech, but I doubt some mean bobbies will cause a rupture in over 100 years of boisterous British press history.

By the way, I was at the LibCon editorial meeting for this and this is an exact transcript:

Sunny Hundal: Hao! Dai ye! We won again! This is good, but what is best in life?

Hopi Sen: The open steppe, fleet horse, falcons at your wrist, and the wind in your hair.

Sunny Hundal: Wrong! Don! What is best in life?

Don Paskini: To crush your enemies, see them driven before you, and to hear the lamentation of their women.

Sunny Hundal: That is good! That is good.

QE is Probably Going to Have to be Paid Back

I’ve already taken a pop at Richie today over QE and now I’m going to have a go at Chris, which is an all the more worrying prospect, intellectually speaking.

1. Richard Murphy is basically right to say that this means that government debt is lower than official figures show, if we consider the government and Bank of England as a single entity. What’s happening is that government borrowing is being financed not by debt sales to the private sector but by an increase in base money. This is entirely consistent with the government budget constraint (pdf). Warren Buffett was quite correct to say that you cannot have a debt crisis if the authorities can print their own money.

I think the collorary to this is that if actual government debt is lower than the official figures then the price level is about to become much higher than it is now. QE is backed by a credible commitment to unwind it to reduce the amount of base money circulating. Taking the Bank and Government as one does not lead us to the situation described above where some debt does not exist. We have a situation where some debt exists in the odd form of a credible promise that at a future date someone will be being burning money.

Evidence for this abounds. The price level is not significantly above where it should be if the Bank of England had fanatically maintain an inflation rate of 2%. According to some rough calculations, since 1997 the price level is about 20% higher than a 2% level rule would suggest. Since QE was initiated in 2009 it is somewhat above even than high trend, but that was the point of QE, there is very little evidence that investors view QE as bound to be inflationary due to it being later monetised.

That low inflation isn’t consistent with a large scale monetisation of Government debt unless there is significant slack in the economy such that nominal increases mostly show up as increased real activity. I think there is room for more monetary expansion, and a little credible commitment to recklessness may be useful at the moment, but I know Chris holds that this is unlikely.  

If markets are pricing in a monetisation of UK debt (and subsequent change in price level) they are pricing in only a very modest erosion of the Bank of England’s holdings. Chris can argue that we don’t need to consider Gilts held by the Bank of England under QE as real liabilities, but he needs to take that up with the markets, not me, it is they who are predicting much lower inflation for the UK ahead.

When there is a shortage of safe assets it is easy to sell safe assets


We’ll never sell those gilts back. The IFS says we have £280bn of new gilts to sell over the next three years to fund the deficit. There is not a hope we’ll add £350 billion of resale of gilts on top of that. The only likelihood is in fact of more QE: over that period there is no way the market can absorb £280 billion of new debt.

From Richie via Tim.

If the UK can issue safe assets in the form of Government debt (which judging by our interest rate we can), then we categorically will be able to sell it. There is a global shortage of safe assets as this graph illustrates and large global demand for them.

Asians save lots, but don’t have robust enough state or financial institutions to produce safe assets. That is, they want to be able to transfer consumption from now into the future but lack an infrastructure capable of delivering this at prices which are satisfactory.

The UK can issue lots of debt so long as people believe it will pay it back in full in a currency still worth more or less how much they expect. There is no danger of not finding buyers so long as those conditions hold, and they look like they will for the foreseeable future.

The same is true of nearly all developed economies with their own currency. Look at the US, belching out debt and facing record low interest rates and a market hungry, begging, ravenous for more (via Delong).








This strengthens Richie’s case for larger budget deficits but weakens his case for unwinding QE by monetising the debt. I do not know how he can hold both opinions simultaneously.

I’ve been Threatened with Legal Action (CC: @Unity_MOT and @bloggerheads)

As of Friday 3rd February, my main worry for this site was that I had not been blogging frequently enough. You know how it is, work gets on top of you, you move house, you decorate, you get to know the local area (Hackney, since you ask, lovely) and on top of all that I have a Masters to study for: blogging just slipped down my priorities list.

That all changed, briefly, on Friday. A past commenter – who, out of undeserved politeness, I will allow to remain anonymous for the purposes of this discussion – e-mailed to ask me to remove a comment from an old post. To maintain my erstwhile commenter’s anonymity I cannot link to the post or the comment, but I will say it was a post mocking one of the stupidest things I’ve ever seen and the comment in question was written in support of this “dumber than a bag of hammers” event.

I informed my commenter that I more of less only remove comments which are libelous (which I don’t believe I’ve had to thus far) or abusive etc (which has occurred here) and that I considered the matter over with. Anyway, I told him helpfully, his comments were in the cache anyway, so there is no way he can completely erase his internet trail. If you think you might regret saying something really stupid, the last thing you should do is write it down on the internet where it will stay forever.

Next came the boring part, a blogger was issued with a vague legal threat. My commenter was applying for a government job and doesn’t want anyone to be able to find out he holds ludicrously silly beliefs so get his own way he has taken to bullying people on the internet. Pfft, I thought, but held fire just in case. I e-mailed Tim Ireland and Unity for advice and in short was recommended to respond with a brief “fuck off.” All’s well that ends well as they say, crisis over.

My goodbye e-mail was along similar lines to those suggested but a little more verbose:

Hello [Redacted],
Please forgive my late response.
First of all, may I say that I do not respond well to bullying. Threatening to pursue “legal remedy” is just that, bullying, and there is now zero chance of my helping you.
Sadly (for you) and happily (for me), after seeking advice with regard to your legal threat, I am now confident that it was completely specious, empty and vexation and, as such, your comment will be staying put.
Please consider this email a request that you cease and desist any further attempt to contact me about this matter; I will regard any further attempt to intimidate me as harassment under the Protection from Harassment Act 1997.
In short, I refer you to the reply given in the case Arkell vs Pressdram.
Yours Sincerely,