Thursday, November 20, 2014

Aristides Hatzis: The Economic Crisis and the Economic Science

ELIAMEP
Crisis Observatory

November 19, 2014

Aristides N. Hatzis, Associate Professor at the University of Athens (Department of Methodology, History & Theory of Science), answers the following questions of the Crisis Observatory, concerning Economics and the way it is being taught since the beginning of the crisis.

Question 1: In the wake of both the financial crisis and the economic crisis that ensued (and continues to cause problems, especially to the European economy), Economics came under harsh criticism. This criticism involved its failure to foretell the crisis, but also the validity of its established models and approaches in general, as well as their capacity to correctly diagnose economic problems and to offer appropriate policies therefore. In your opinion, is this criticism justified and, if so, what do you think are the lessons that Economics should draw from the recent crisis?

Question 2: Based on your previous response, what do you think that ought to change in the way Economics is being taught in universities, considering that the economic policy makers of tomorrow are today's the students of Economics?

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Tuesday, November 4, 2014

Impact of the Work of Gary S. Becker

University of Chicago
November 3, 2014

Keynote Address by James Heckman and remarks by Robert J. Zimmer, president of the University of Chicago, and Lars Peter Hansen, the David Rockefeller Distinguished Service Professor in Economics, Statistics, and the College. James Heckman is the Henry Schultz Distinguished Service Professor in Economics and the College.

Wednesday, October 29, 2014

Where not to invest in Europe

Economist
October 29, 2014


Doing business in Europe's periphery is hampered by slow legal systems

The World Bank released its annual "Doing Business" report on October 29th, ranking the world's 189 countries by how attractive they are to companies. That tiny Singapore led the list again this year and Eritrea was stuck in last place was not particularly surprising. Other performances were less easy to explain. Ukraine—which since February has been embroiled in a conflict with neighbouring Russia—leapt up the rankings, partly because some of the data capturing improved administrative practices was collected before hostilities flared.

Yet the report's most interesting data—on the time it takes to settle a dispute, or wind up a company—sheds light on the lacklustre business investment in Europe's periphery since the financial crisis. Countries where it is quick and easy to enforce contracts or wrap up failing firms are usually more attractive to investors than places with lethargic legal systems. In Greece and Slovenia, hit hard by the financial crisis, it takes much longer to do these things than countries such as France and Germany, whose economies have generally performed better. The situation has got much worse over the last few years. It now takes over two months longer to enforce a contract through the Slovenian court system than it did a year ago. And to do that in Greece now takes more than four years, up around 18 months from 2010. The only bright spot is that there may be a lot more business for Greek lawyers in the near future.

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Read the Report

Sunday, October 5, 2014

Η συνταγματική αναθεώρηση ξεκινά από το άρθρο 110

του Γιώργου Τσεμπελή

Το Βήμα

5 Οκτωβρίου 2014

Πολλές συζητήσεις γίνονται για την αναθεώρηση του Συντάγματος και είναι πραγματικά καιρός για να προβούμε και σε ενέργειες. Σύμφωνα με το άρθρο 110 μια τέτοια απόφαση χρειάζεται κατ' αρχάς τη σύμφωνη γνώμη δύο διαφορετικών κοινοβουλίων, ενός εκ των οποίων με πλειοψηφία 3/5, και με ενδιάμεσες εκλογές. Αρα, αν δεν ξεκινήσει η διαδικασία άμεσα από την τωρινή Βουλή, θα περάσουμε αναγκαστικά άλλα τέσσερα χρόνια με τις ίδιες διατάξεις περί ευθύνης υπουργών -για να αναφερθούμε μόνο σε ένα καθολικά παραδεκτό πρόβλημα (τερατούργημα;) του τωρινού Συντάγματος, το άρθρο 86.

Δυστυχώς, σήμερα είναι πολύ μεγάλη η πιθανότητα να χαθεί η ευκαιρία και να περιμένουμε όντως άλλα τέσσερα χρόνια. Τα κόμματα, αντί να εστιάσουν στα σημεία συμφωνίας, όπως η αντικατάσταση του προαναφερθέντος άρθρου 86, η βουλευτική ασυλία (62), οι ανεξάρτητες αρχές (101A) και ο κύριος μέτοχος (14), έχουν το καθένα παραθέσει μια μέγιστη σειρά προτάσεων για αναθεώρηση. Και εδώ υπάρχει ένα τεράστιο πρόβλημα που πρέπει οπωσδήποτε να λυθεί στην πρώτη αναθεώρηση, όποτε κι αν γίνει τελικά αυτή: Το άρθρο 110, το οποίο «κλειδώνει» το Σύνταγμα τόσο ερμητικά που γίνεται πολύ δύσκολη η αναθεώρησή του. Γι' αυτό η αλλαγή του συγκεκριμένου άρθρου είναι ουσιαστικά και η μεγαλύτερη προτεραιότητα.

Στη συνέχεια του παρόντος άρθρου θα δείξω ότι παγκοσμίως τα μακροσκελή συντάγματα (όπως το ελληνικό με τις 27.000 λέξεις του) είναι όχι απλώς φλύαρα (όπως πολλοί συνταγματολόγοι πιστεύουν), αλλά και περιοριστικά. Επιπλέον, τα μεγαλύτερα συντάγματα «κλειδώνονται» πιο αποτελεσματικά από τα μικρότερα, ακριβώς για να διατηρηθούν οι περιορισμοί. Παρά τα τεχνάσματα των συνταγματικών συντακτών, όμως, αναθεωρούνται πιο συχνά, ακριβώς γιατί έρχονται σε αντίθεση με τις ανάγκες των κοινωνιών που ρυθμίζουν.

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Tuesday, August 12, 2014

Christoph Paulus, "A Debt Restructuring Mechanism for Sovereigns: Do we need a legal procedure?"

C.H. Beck / Hart / Nomos
July 2014

The Eurozone crisis which started in spring 2010 as a Greek budget crisis has alerted Europeans that the issue of defaulting sovereigns is not one reserved just for the poor and poorest countries on this globe. The crisis painfully amplified that developed countries, too, might be hit by this phenomenon. To be sure, this insight is far from novel - the history of defaulting states reaches back into history for at least two millennia. And yet, lawyers have surprisingly abstained more or less completely from discussing this subject and developing possible solutions. Beginning with the Argentina crisis in 2001, this neglect began to vanish to a certain degree and this movement got some momentum in 2010 by the Eurozone crisis.

The present book collects contributions from authors most of whom have participated in a conference on this issue in January 2012 at the Humboldt-Universität zu Berlin. The presentations, thus, provide a unique overview of the present discussion both from an economic and legal perspective.

Dr Christoph Paulus is professor at the Humboldt-Universität, Berlin. The authors are internationally reputed experts in their fields and are globally renowned for their expertise particularly in the field of defaulting sovereigns.

Saturday, May 10, 2014

The great trailblazer: Economists everywhere should mourn the passing of Gary Becker

Economist
May 10, 2014

If there is one person to blame for economists’ habit of opining on everything, it is Gary Becker, who died on May 3rd. Not content with studying the world’s economies, he was the first prominent economist to apply economic tools to all aspects of life. His revelation was the sort that seems obvious only in hindsight: that people are often purposeful and rational in their decisions, whether they are changing jobs, taking drugs or divorcing their spouses. This insight, and the work that followed from it, earned him a Nobel prize in 1992. No less an eminence than Milton Friedman declared in 2001 that Mr Becker was “the greatest social scientist who has lived and worked in the last half-century”.

At the heart of Mr Becker’s work was the view that “individuals maximise welfare as they conceive it.” Welfare need not mean income; it could derive from the pleasure of altruism or the thrill of deviancy. But critically, this thesis implied that people respond to incentives—a realisation that opened the door to insights across the whole range of human activity.

Mr Becker first used this approach in his doctoral study of discrimination, a raw issue in 1950s America. At the time economists’ models assumed that employers cared only about productivity, whatever the colour of the worker. Shunting this view aside, Mr Becker instead assumed that many individuals had a “taste for discrimination”, and perceived themselves to be worse off when forced to work alongside people of other races. He then explored how this preference affected labour markets.

In America, where the black population was roughly one-tenth of the total, discrimination against blacks led to relatively small reductions in white incomes but far more substantial ones for black workers. In South Africa, with a far higher proportion of blacks, discrimination brought much larger reductions in incomes across the economy. Mr Becker pointed out that although competition from more rational firms might gradually eliminate corporate discrimination, market forces alone would rarely erode discrimination rooted in the tastes of workers or consumers. His book on the subject, “The Economics of Discrimination”, became the foundation for subsequent research.

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Sunday, May 4, 2014

Gary S. Becker, Nobel-winning scholar of economics and sociology, 1930-2014

by William Harms

UChicago News

May 4, 2014

Nobel Laureate Gary S. Becker, AM'53, PhD'55, made historic changes to the study of economics and the social sciences, combining disciplines to understand decisions in everyday life, while spawning rich new questions for scholars in diverse fields to pursue.

Becker, 83, University Professor of Economics and of Sociology at the University of Chicago, died on May 3 following complications from a recent surgery. He won the Nobel Memorial Prize in Economic Sciences in 1992 “for having extended the domain of microeconomic analysis to a wide range of human behavior and interaction, including non-market behavior.”

Becker pioneered study in the fields of human capital, economics of the family, and economic analysis of crime, discrimination, addiction, and population. University of Chicago President Robert J. Zimmer said Becker will be remembered as one of the foremost economics scholars of the 20th century.

"Gary was a transformational thinker of truly remarkable impact on the world and an extraordinary individual,” Zimmer said. “He was intellectually fearless. As a scholar and as a person, he represented the best of what the University of Chicago aspires to be."

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Monday, March 24, 2014

Murray L. Weidenbaum, R.I.P.

by Thom Lambert

Truth on the Market

March 23, 2014

The world of economics and public policy has lost yet another giant. Joining Ronald Coase, James Buchanan, Armen Alchian, and Robert Bork is a man whose name may be less familiar to TOTM readers but whose ideas have been hugely influential, particularly on me.

As the first chairman of President Reagan’s Council of Economic Advisers, Murray Weidenbaum lay much of the blame for the anemic economy President Reagan “inherited” (my, how I’ve come to hate that word!) on the then-existing regulatory state. Command and control dominated in those days, and there was virtually no consideration of such mundane matters as the costs and benefits of regulatory interventions and the degree to which regulations were tailored to fit the market failures they purported to correct. Murray understood that such an unmoored regulatory state strangled innovation and would inevitably become co-opted by regulatees, who would use the machinery of the state to squelch competition and gain other advantages. He counseled the President to do something about it.

The result was Executive Order 12291, which subjected major federal regulations to cost-benefit analysis and stated that “[r]egulatory action shall not be undertaken unless the potential benefits to society from the regulation outweigh the potential costs to society.” Such basic cost-benefit balancing seems like nothing more than common sense these days, but when Murray was pushing the idea at Washington University back in the late 1970s, it was considered pretty radical. Many of the Nixon era environmental statutes, for example, proudly eschewed consideration of costs. Murray helped us see how silly that was.

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Saturday, March 15, 2014

Robert D. Cooter & Ariel Porat, "Getting Incentives Right: Improving Torts, Contracts, and Restitution"

Princeton University Press
February 2014

Lawyers, judges, and scholars have long debated whether incentives in tort, contract, and restitution law effectively promote the welfare of society. If these incentives were ideal, tort law would reduce the cost and frequency of accidents, contract law would lubricate transactions, and restitution law would encourage people to benefit others. Unfortunately, the incentives in these laws lead to too many injuries, too little contractual cooperation, and too few unrequested benefits. Getting Incentives Right explains how law might better serve the social good.

In tort law, Robert Cooter and Ariel Porat propose that all foreseeable risks should be included when setting standards of care and awarding damages. Failure to do so causes accidents that better legal incentives would avoid. In contract law, they show that making a promise often causes the person who receives it to change behavior and undermine the cooperation between the parties. They recommend several solutions, including a novel contract called "anti-insurance." In restitution law, people who convey unrequested benefits to others are seldom entitled to compensation. Restitution law should compensate them more than it currently does, so that they will provide more unrequested benefits. In these three areas of law, Getting Incentives Right demonstrates that better law can promote the well-being of people by providing better incentives for the private regulation of conduct.

Robert D. Cooter is the Herman F. Selvin Professor of Law at the University of California, Berkeley. His books include Solomon's Knot, The Strategic Constitution (both Princeton), and Law and Economics. Ariel Porat is the Alain Poher Professor of Law at Tel Aviv University and the Fischel-Neil Distinguished Visiting Professor of Law at the University of Chicago. His books include Tort Liability under Uncertainty, Torts, and Contributory Fault in the Law of Contracts.

Friday, March 7, 2014

How 'Law and Finance' transformed scholarship, debate

by Steven Neil Kaplan & Luigi Zingales

Capital Ideas

Spring 2014

It has been 15 years since the publication of “Law and Finance,” the paper Robert W. Vishny, Myron S. Scholes Distinguished Service Professor of Finance, wrote alongside three collaborators who were all at Harvard at the time: Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer. In that relatively short space of time, Vishny and his coauthors have helped to transform the study of finance and comparative economics. “Law and Finance” became not only one of the most important papers in finance, but one of the most cited papers in social science overall.

Indeed, the paper has had such influence on subsequent scholarship that its innovation and ambition are not always immediately apparent to researchers who were not immersed in the relevant research in the 1980s and 1990s.

At the time, academic research in finance generally examined securities in terms of what they paid off under different circumstances. Theorists had thought about the various “control rights”—the ability of shareholders to vote on directors’ tenure, and of debt-holders to repossess collateral—that come with securities, but there was little empirical work on the subject. Vishny and his coauthors were among the first researchers to look empirically at the rights that accompany securities, in addition to the cash flows.

That would have been innovative in itself, but “Law and Finance” approached the subject with tremendous breadth, with the team collecting data from no fewer than 49 countries. This breathed new life into comparative economic analysis, which, until the fall of the Berlin Wall, had been dominated by an old literature that compared the functioning of socialist and nonsocialist countries. That had died with the end of the Cold War, but it had not yet been replaced by a new framework for international comparisons that was rigorous and could be tested. As Vishny and his coauthors note in 1998, “Comparative statistical analysis of the legal underpinnings of corporate finance—and commerce more generally—remains uncharted territory.”

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Thursday, February 20, 2014

Tangled: The rich world needs to cut red tape to encourage business

Economist
February 22, 2014

The World Economic Forum, which held its annual gathering of the great and the good in Davos last month, takes advantage of its privileged mailing list to quiz its members on a whole range of issues, including the burden of government regulation. Singapore has come out on top as the least burdensome for the past eight years (see chart 3), whereas many EU countries are bumping along near the bottom. Of the 148 countries surveyed in 2013, Spain was ranked 125th, France 130th, Portugal 132nd, Greece 144th and Italy 146th.

Americans who complain about the Obama administration’s unhelpfulness towards business will also note ruefully that over the past seven years their country has slipped from 23rd to 80th place. In a separate survey conducted by America’s National Federation of Independent Business, the proportion of those who thought regulation was their biggest problem rose from under 10% in 2009 to 20% late last year.

Broadly speaking, in recent years emerging markets seem to have been cutting their red tape whereas the rich world has been strengthening its regulatory regime. This is problematic at a time when developed countries are struggling to generate growth and when prominent economists are talking about “secular stagnation”, a long-term slowdown in the growth rate.

Martin Baily of the Brookings Institution conducted a series of studies to find out why productivity in specific industries was higher in some countries than in others. He found that regulation was an important factor, often holding back competition so that inefficient companies survived for longer than they deserved.

BusinessEurope, a lobby group, calculates that the administrative burden on business in Europe amounts to 3.5% of GDP. Around half of this is due to individual member states implementing EU regulations too zealously, a peculiar habit known as gold-plating.

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Tuesday, February 18, 2014

Internalizing Cost-Benefit Analysis

by Jennifer Nou

RegBlog

February 18, 2014

Before an agency completes a cost-benefit analysis (CBA) subject to oversight by the White House Office of Information and Regulatory Affairs (OIRA), or by the courts if an agency decision is litigated, what forms of internal review of that analysis should the agency undertake on its own?

Old Executive Office Building - WinterOne increasingly common practice is for agencies to establish a centralized review office or officer charged with examining the internal cost-benefit figures developed by the agency’s rule-writing staff. Examples of such offices include the Environmental Protection Agency’s (EPA) Office of Policy or the Bureau of Economic Analysis within the Federal Trade Commission (FTC). These internal agency CBA reviewers are often trained economists who work closely with agency policymaking officials to evaluate internal CBAs before they ever face external review.

Such forms of pre-judicial and even pre-presidential review can help agencies insulate themselves from potential reversal. These mechanisms are gaining increasing significance amidst growing calls for independent regulatory agencies like the Securities and Exchange Commission (SEC) to conduct cost-benefit analysis and to institutionalize more rigorous regulatory analysis practices.

Executive orders currently require executive branch agencies, for their part, to submit “significant” regulatory actions to a further stage of external review by OIRA. Once an agency submits a draft regulatory action to OIRA, OIRA then coordinates a review process with other agencies and White House offices to help ensure, among other things, the regulatory action’s consistency with presidential priorities, as well as to prevent interagency conflicts and generally to promote the careful consideration of regulatory costs and benefits.

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Tuesday, December 3, 2013

Left and Right Are Both Wrong About Regulation

by Cass R. Sunstein

Bloomberg

December 3, 2013

In 1981, President Ronald Reagan instructed federal agencies that they could issue regulations only after demonstrating that their benefits justified their costs. With modest changes, Reagan’s successors, both Republican and Democratic, have continued to impose this requirement on agencies considering rules designed to protect clean air, food safety, workplace safety and much more.

But a crucial question remains: Can the government’s numbers be trusted, or are they just a lot of hot air?

In Washington, there are two radically different answers to this question. They tell us a lot about what is wrong with current political debates, and about what might be a sensible future path.

Within the Republican Party, not to mention the business community and conservative policy groups, many people share a single view: Government agencies are far too optimistic, even self-serving. Many Republicans think agencies systematically inflate benefits and deflate costs, cooking the numbers to make their rules appear far better than they actually are.

Within the Democratic Party, not to mention progressive organizations and liberal research groups, many intelligent people hold precisely the opposite belief. They insist that agencies systematically underestimate benefits and exaggerate costs. They think that in the real world, rules will impose only a small fraction of the costs that agencies project.

It turns out that neither side is right. Both Republicans and Democrats -- and industry and the public-interest groups -- have a great deal of confidence in evidence-free dogmas.

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Monday, October 21, 2013

Top 100 EU regulations cost the UK economy £27.4 billion a year – and costs outweigh benefits in a quarter of cases

OpenEurope
October 21, 2013

EU leaders will meet in Brussels this week to discuss ways to improve growth and competitiveness across Europe. Ahead of this meeting, Open Europe has today published a list of the 100 most costly EU regulations to the UK economy. Using data from the UK Government’s impact assessments of these rules, Open Europe estimates that the top 100 EU laws cost the UK economy £27.4 billion a year. This is more than what the UK Treasury expects to raise in revenue from Council Tax this year (£27 billion).

Open Europe’s ‘Top 100’ list identifies at least 24 EU regulations where the UK Government’s own impact assessment finds that the estimated costs outweigh the estimated benefits – meaning that they impose a net cost on the UK economy.

Though the impact assessments also claim that the 100 EU regulations deliver a combined net benefit, in fact, in some cases, these benefits are vastly over-stated. In the case of the EU’s flagship climate change package, for example, Open Europe estimates that 95% of the envisaged benefits have failed to materialise. Encouragingly, over a third of the regulations Open Europe has identified featured in the recent ‘Business Task Force’ report – endorsed by the UK government – outlining ways to cut the burden of red tape.

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Read the Paper (PDF)

Sunday, October 20, 2013

Η καταστροφή ενός θεσμού

του Αρίστου Δοξιάδη

Καθημερινή

20 Οκτωβρίου 2013

Η φορολογική επιδρομή του τελευταίου έτους δεν πρόκειται να βγει σε καλό, αλλά τουλάχιστο έχει μια κάποια εξήγηση: η κυβέρνηση αγωνιά να δημιουργήσει δημοσιονομικό πλεόνασμα, και δεν θέλει να περικόψει περισσότερο τις δαπάνες. Μερικές ρυθμίσεις όμως είναι εντελώς ακατανόητες. Ενώ θα έχουν ελάχιστο και αμφίβολο δημοσιονομικό όφελος, καταστρέφουν τα θεμέλια της παραγωγικής βάσης και απομακρύνουν την προοπτική της ανάπτυξης. Αναφέρομαι στις διατάξεις που αφορούν στην ευθύνη φυσικών προσώπων για χρέη εταιρειών προς το Δημόσιο. Διαβρώνουν τον θεσμό της Ανώνυμης Εταιρείας σε βαθμό που ακυρώνει όλα όσα έγιναν τα τελευταία χρόνια για να δημιουργηθούν ανταγωνιστικές επιχειρήσεις.

Υπάρχουν τουλάχιστο τρεις κρίσιμοι ρόλοι για να λειτουργεί καλά ο θεσμός. Πρώτος είναι ο μέτοχος, που είναι διατεθειμένος να βάλει χρήματα σε μια επιχείρηση που δεν την ελέγχει σε καθημερινή βάση. Για να το κάνει, πρέπει να ξέρει ότι δεν διακινδυνεύει τίποτε πέρα από το ποσό που κατέβαλε για να πάρει μετοχές. Αν η εταιρεία πτωχεύσει, δεν θα στραφεί κανένας εναντίον του για τα τυχόν χρέη της. Αυτή τη θεμελιακή αρχή καταπάτησε η κυβέρνηση με τον Ν. 4174/13, ορίζοντας ότι οι μέτοχοι θα πρέπει να επιστρέψουν μερίσματα που έλαβαν τα τελευταία τρία χρόνια πριν λυθεί η εταιρεία. Μπορεί δηλαδή να εμφανιστεί η εφορία κάποια μέρα και να ζητήσει από έναν πρώην μέτοχο χρήματα που είχε εισπράξει πριν από πέντε ή επτά χρόνια. Αν δεν τα έχει, μπορεί να χάσει το σπίτι του και να πάει φυλακή.

Δεύτερος είναι ο διευθύνων σύμβουλος, ή όποιος άλλος ασκεί διοίκηση. Αμείβεται ως στέλεχος. Δεν είναι δικά του ούτε τα κέρδη ούτε η περιουσία της εταιρείας. Για το ελληνικό κράτος αυτά είναι ψιλά γράμματα. Πρέπει να εξοφλήσει αυτός τα χρέη της εταιρείας προς το Δημόσιο, αν η εταιρεία δεν μπορεί να το κάνει. Εχει την ευθύνη ακόμα κι αν η εταιρεία καταστραφεί από σεισμό, ή επειδή μια μεγάλη κρίση εξαφάνισε τους πελάτες της, χωρίς ούτε να είχε δόλο ούτε να ήταν αμελής. Οσο πιο μεγάλη είναι η εταιρεία, τόσο πιο μεγάλο το ρίσκο να βρεθεί με ένα χρέος εκατομμυρίων από τη μια μέρα στην άλλη. Ο μόνος τρόπος να αποφύγει τον κίνδυνο είναι να κηρύξει πτώχευση με τα πρώτα σημάδια κινδύνου. Στην Ελλάδα, όποιος δεν έκλεισε από το 2010 την εταιρεία που διοικεί έχει αναλάβει μεγάλο προσωπικό ρίσκο.

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