Urging Economists to Step Away From the Blackboard

by Brendan Greeley

Bloomberg
November 29, 2012

Ronald Coase published his career-making paper, The Nature of the Firm, 75 years ago. He won the Nobel prize for economics in 1991. In a lecture in 2002, he argued that physics has moved beyond the assumptions of Isaac Newton, and biology beyond Darwin. (Not that he knew them.) But economics, he said, had failed to advance past the efficient-market assumptions of Adam Smith. This year Coase, a professor emeritus at the University of Chicago Law School, is attempting to start a new academic journal ambitiously titled Man and the Economy. The premise: Economics is broken. Coase’s journal is still just a plan, but his frustration with orthodox economics has energized his followers.

The financial crisis forced economists to confront the limitations of their profession. Former Federal Reserve Chairman Alan Greenspan admitted as much when he told Congress in October 2008 that markets might not regulate themselves after all. Coase says the problem runs deeper: Economists study abstractions and numbers, instead of firms and people. He doesn’t believe this can be fixed by tweaking models. An entire generation of economists must be encouraged to think differently.

The idea for the journal stems from his collaboration with Ning Wang, an assistant professor at the School of Politics and Global Studies at Arizona State University who grew up in a rice- and fish-farming village in the Hubei province of China. Coase, 101, began working with Wang in the 1990s at the University of Chicago. Neither has a degree in economics; the two understood each other. “We’re not constrained by a mainstream, orthodox view,” says Wang. “A lot of people would see this as a weakness.” Coase declined to be interviewed.

When Coase and Wang hosted a conference on China in 2008, they noticed that many Chinese academics had never talked to either policymakers or entrepreneurs from their own country. They had learned only what Coase calls “blackboard economics,” sets of theories and mathematical relationships between bits of data. “I came from China,” says Wang. “We have a lot of nationals come here; they’re taught game theory and econometrics. Then they’re going home … without a basic understanding of how the real world functions.”

In an essay published on Nov. 20 in Harvard Business Review, Coase argues that in the early 20th century, economists began to focus on relationships among statistical measures, rather than problems that firms have with production or people have with decisions. Economists began writing for each other, instead of for other disciplines or for the business community. “It is suicidal for the field to slide into a hard science of choice,” Coase writes in HBR, “ignoring the influences of society, history, culture, and politics on the working of the economy.” (By “choice,” he means ever more complex versions of price and demand curves.) Most economists, he argues, work with measures like gross domestic product and the unemployment rate that are too removed from how businesses actually work.

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See also

Timur Kuran, "The Long Divergence: How Islamic Law Held Back the Middle East"

Princeton University Press
2010

In the year 1000, the economy of the Middle East was at least as advanced as that of Europe. But by 1800, the region had fallen dramatically behind--in living standards, technology, and economic institutions. In short, the Middle East had failed to modernize economically as the West surged ahead. What caused this long divergence? And why does the Middle East remain drastically underdeveloped compared to the West? In The Long Divergence, one of the world's leading experts on Islamic economic institutions and the economy of the Middle East provides a new answer to these long-debated questions.

Timur Kuran argues that what slowed the economic development of the Middle East was not colonialism or geography, still less Muslim attitudes or some incompatibility between Islam and capitalism. Rather, starting around the tenth century, Islamic legal institutions, which had benefitted the Middle Eastern economy in the early centuries of Islam, began to act as a drag on development by slowing or blocking the emergence of central features of modern economic life--including private capital accumulation, corporations, large-scale production, and impersonal exchange. By the nineteenth century, modern economic institutions began to be transplanted to the Middle East, but its economy has not caught up. And there is no quick fix today. Low trust, rampant corruption, and weak civil societies--all characteristic of the region's economies today and all legacies of its economic history--will take generations to overcome.

The Long Divergence opens up a frank and honest debate on a crucial issue that even some of the most ardent secularists in the Muslim world have hesitated to discuss.

Timur Kuran is professor of economics and political science and the Gorter Family Professor of Islamic Studies at Duke University. He is the author of Islam and Mammon: The Economic Predicaments of Islamism (Princeton).

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Data protection at the cost of economic growth?

by Elina Pyykko

Centre for European Policy Studies
November 16, 2012

The Data Protection Regulation proposed by the European Commission contains important elements to facilitate and secure personal data flows within the Single Market. A harmonised level of protection of individual data is an important objective and all stakeholders have generally welcomed this basic principle. However, when putting the regulation proposal in the complex context in which it is to be implemented, some important issues are revealed. The proposal dictates how data is to be used, regardless of the operational context. It is generally thought to have been influenced by concerns over social networking. This approach implies protection of data rather than protection of privacy and can hardly lead to more flexible instruments for global data flows.

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For Investors, Costly Academic Studies

by Daniel Akst

Wall Street Journal
November 7, 2012

A wide variety of investment strategies are described in the finance literature, but they do have something in common: after the professors write about them, returns are diminished.

That’s the finding of a couple of finance professors who looked at 82 market anomalies exploited by investors and then described in academic papers. In a working paper, the authors estimate that “the average anomaly’s post-publication return decays by about 35%.”

Mostly this seems to be the result of investors learning about the strategy from the academic papers and trading on it, thereby diminishing the precious anomaly in just the way markets are supposed to work. The effect is most pronounced, the professors write, “in large market capitalization stocks, high dollar volume stocks, low idiosyncratic risk stocks, and stocks that pay dividends.”

Link

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The End of ‘Marriage’

by Laurie Shrage

New York Times
November 4, 2012

The institution of marriage has become the focus of public debate and reform, not just in the state-by-state political battles familiar to us in the United States, but across the world. Some of the longstanding practices currently being scrutinized both here and in other countries include parental approval in the choice of a spouse, permission for a husband to take more than one wife (polygyny), temporary marriage, close relative (incestuous) marriage, strict or permissive divorce terms, mandatory bride virginity, child marriage or betrothal and gender-structured marriage in which wives and husbands have different duties and privileges and therefore must be gender “opposites.”

Marriage reform is typically part of a larger agenda for social change. In earlier eras, challenges to bans on interfaith and interracial marriage were tied to political movements promoting religious, ethnic and racial equality and social integration. In the Middle East, Africa and Asia today, marriage reformers often aim to expand the rights and liberty of girls and women, while in the Americas and Europe, their primary aim is to advance social equality and respect for lesbians and gay men.

While marriage reform is moving forward in many countries (for example, to extend access to same-sex couples), many prominent legal and political theorists — such as Cass Sunstein, Richard Thaler, Martha Fineman, Tamara Metz, Lisa Duggan, Andrew March, and Brook Sadler (to name only some of those who have put their views in writing) — are proposing that the institution of marriage be privatized. More specifically, they propose that we eliminate the term “marriage” from our civil laws and policies, and replace it with a more neutral term, such as “civil union” or “domestic partnership.” The state would then recognize and regulate civil unions rather than civil marriage, and people would exchange marriage-like rights and duties by becoming “civilly united.” Some private organizations, such as religious institutions, might still perform and solemnize marriages among their congregants, but these marriages would have no official state recognition.

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Free Birth Control Cuts Abortion, Teen Pregnancy

by Daniel Akst

Wall Street Journal
October 5, 2012

A new study from Washington University in St. Louis finds that giving women free contraception sharply reduces abortions and teen pregnancy compared to the general population. Among participants, abortion was less than half as frequent. And the rate of teenage births was 6.3 per 1,000, far less than the national rate of 34.1 per 1,000.

Unlike the general population, most study participants chose implants or IUD devices, suggesting that when initial cost is not a barrier, women are much more likely to pick these highly reliable means of contraception. The study also suggests that the provision of “Obamacare” giving women in workplace health plans access to contraception without co-pays may be effective in reducing unwanted pregnancies.

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Why Should Regulators Have to Listen to You?

by Cass Sunstein

Bloomberg
October 4, 2012

The U.S. Bill of Rights declares that no one may be deprived of life, liberty or property “without due process of law.” The core meaning of this provision is that the government cannot hurt you -- by taking away your freedom or what you own -- without giving you an opportunity to have your say.

This right helps to define liberty under law. Public officials are fallible, and before they take action against you, they should hear you out to make sure that they have the facts straight. Human beings should also be treated with respect. If public officials proceed against you without giving you a chance to be heard, they are treating you disrespectfully.

In light of the defining importance of the due process clause, many people are stunned to learn a remarkable fact: When the government issues regulations, the Constitution doesn’t require officials to listen to you, even if your liberty and your property are at stake.

That is what the U.S. Supreme Court ruled in 1915, in a case with the somewhat ominous name of Bi-Metallic Investment Co. v. State Board of Equalization. The great jurist Oliver Wendell Holmes Jr. made it clear that while the government must give hearings to aggrieved individuals, the matter is different when a lot of people are simultaneously affected: “Where a rule of conduct applies to more than a few people, it is impracticable that everyone should have a direct voice in its adoption.”

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Το Άγος Της Προσοδοθηρίας

του Δημήτρη Δημητράκου

Ratio Vincit
1 Οκτωβρίου 2012

Αξίζει να διαβαστεί το άρθρο του Πάσχου Μανδραβέλη «Το έλλειμμα ανταγωνισμού στην αγορά» στην Καθημερινή της 30-9-12. Παραθέτω ένα χαρακτηριστικό απόσπασμα:

Μπορεί μάλιστα να περίμεναν [σ.σ. τα μέλη της τρόικας] ότι μειώνοντας τα εισοδήματα θα έπεφταν και οι τιμές· έτσι γίνεται σε όλο τον κόσμο, αυτό λέει και η οικονομική λογική. Αμ, δε! Σε μια χώρα που έχουν καταστρατηγηθεί όλοι οι νόμοι, θα την γλίτωνε ο νόμος της προσφοράς και της ζήτησης; Υπάρχουν, απίθανες -και συνήθως μεταμεσονύκτιες- διατάξεις που φτιάχνονται επίτηδες με στρυφνούς νομικούς όρους και παραπομπές σε παλαιότερους νόμους, έτσι ώστε νόμιμα να εξυπηρετούνται πελατειακά συμφέροντα. Και τα πελατειακά συμφέροντα του πολιτικού συστήματος δεν είναι μόνο οι δημόσιοι υπάλληλοι ή οι ταξιτζήδες. Είναι και οι επιχειρήσεις που διά νόμων λυμαίνονται μονοπωλιακά ή ολιγοπωλιακά κάποιες αγορές, απολαμβάνοντας υψηλά κέρδη.

Έτσι λειτουργεί η προσοδοθηρία : με την τακτική των (μεταμεσονυκτίων) τροπολογιών, οι οποίες έχουν εύστοχα ονομαστεί «ντροπολογίες». Πρόκειται για πρόσθετες παραγράφους που «τρυπώνουν» σε ένα νομοσχέδιο, με σκοπό να ευνοηθεί κάποια ομάδα συμφερόντων. Τα συμφέροντα αυτά μπορεί να είναι επιχειρηματικά, συντεχνιακά, επαγγελματικά κάθε είδους. Είναι κατά κύριο λόγο πελατειακά. Και οι εμβόλιμες διατάξεις που τα ευνοούν χαρακτηρίζονται σεμνότυφα ως «ευεργετικές». Κάποιοι, , δηλαδή, ωφελούνται εις βάρος των υπολοίπων, πράγμα που σκοπίμως αποσιωπάται με τη χρήση του επιθέτου «ευεργετικός». Κάποιοι πληρώνουν για αυτή την ευεργεσία και αυτοί δεν είναι οι πολιτικοί που εισηγούνται και ψηφίζουν τις διατάξεις αυτές. Οι πολιτικοί ευεργετούν με τα λεφτά των άλλων. Πληρώνουν οι ανυπεράσπιστοι, δηλαδή, οι φορολογούμενοι.

Οι «ευεργετικές» αυτές διατάξεις στρεβλώνουν την αγορά και βλάπτουν πολλαπλώς το κοινωνικό σύνολο. Δίνουν την ευκαιρία να εισπράξουν κάποιοι περισσότερα από όσα θα λάμβαναν αν δεν υπήρχε η πολιτική εύνοια. Αυτή αποκτάται με κάποιο κόστος. Το κόστος αυτό, όμως, είναι υπό τις τρέχουσες συνθήκες, μικρότερο από πού θα αντιστοιχούσε στην προσπάθεια βελτίωσης της παραγωγικότητας μιας επιχείρησης. Συνεπώς, ο προσοδοθήρας, σε αντίθεση με τον υγιή επιχειρηματία, έχει περισσότερα να κερδίσει επενδύοντας σε πολιτική εύνοια από το να επενδύσει σε εξοπλισμό ή σε ανθρώπινο κεφάλαιο. Αποσκοπεί όχι στο κέρδος – που είναι υγιές κίνητρο σε μια οποιαδήποτε επιχειρηματική δραστηριότητα, αλλά στην πρόσοδο, δηλαδή, εισόδημα το οποίο εισπράττεται εκτός παραγωγής, που είναι έξω ή πέρα από την πραγματοποιημένη εργασία ή την επιχειρηματικότητα.

Είναι τόσο κακό αυτό; Ναι, είναι! Διότι βασίζεται σε μονοπωλιακές ή ολιγοπωλιακές καταστάσεις που δημιουργούνται τεχνητά και το όφελος του επιχειρηματία είναι εις βάρος άλλων. Το ίδιο, φυσικά, ισχύει και για μη επιχειρηματικούς κλάδους, όπως είναι τα συνδικάτα, διάφορες επαγγελματικές ομάδες και γενικότερα όσοι είναι σε θέση να αποσπούν «ευεργετικές» διατάξεις με απεργίες ή διασάλευση της τάξης. Η «ευεργεσία» παρέχεται εκεί με γνώμονα τη «δύναμη βλάβης» που διαθέτουν οι ομάδες αυτές, και όχι την παραγωγικότητά τους. Αυτό θα παρασύρει τον υγιή επιχειρηματία, αλλά και τον έντιμο επαγγελματία και μισθωτό, στο να επιδοθεί κι αυτός στην θήρα πολιτικής εύνοιας. Επί τέσσερις δεκαετίες η ευγενής αυτή τέχνη έχει αποφέρει καρπούς σε ορισμένους και έχει περιορίσει και τελικώς παραλύσει τους περισσότερους. Και οι περισσότεροι, κάθε φορά, μη αντιλαμβανόμενοι ότι μέσω της παντοδυναμίας του Δοβλετιού παράγεται και ενδυναμώνεται η προσοδοθηρία, εκτρέφουν το τον κρατισμό, ελπίζοντας ότι θα αποκτήσουν μέρος της προσόδου.

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To Encourage Biking, Cities Lose the Helmets

by Elisabeth Rosenthal

New York Times
September 29, 2012

One spectacular Sunday in Paris last month, I decided to skip museums and shopping to partake of something even more captivating for an environment reporter: Vélib, arguably the most successful bike-sharing program in the world. In their short lives, Europe’s bike-sharing systems have delivered myriad benefits, notably reducing traffic and its carbon emissions. A number of American cities — including New York, where a bike-sharing program is to open next year — want to replicate that success.

So I bought a day pass online for about $2, entered my login information at one of the hundreds of docking stations that are scattered every few blocks around the city and selected one of Vélib’s nearly 20,000 stodgy gray bikes, with their basic gears, upright handlebars and practical baskets.

Then I did something extraordinary, something I’ve not done in a quarter-century of regular bike riding in the United States: I rode off without a helmet.

I rode all day at a modest clip, on both sides of the Seine, in the Latin Quarter, past the Louvre and along the Champs-Élysées, feeling exhilarated, not fearful. And I had tons of bareheaded bicycling company amid the Parisian traffic. One common denominator of successful bike programs around the world — from Paris to Barcelona to Guangzhou — is that almost no one wears a helmet, and there is no pressure to do so.

In the United States the notion that bike helmets promote health and safety by preventing head injuries is taken as pretty near God’s truth. Un-helmeted cyclists are regarded as irresponsible, like people who smoke. Cities are aggressive in helmet promotion.

But many European health experts have taken a very different view: Yes, there are studies that show that if you fall off a bicycle at a certain speed and hit your head, a helmet can reduce your risk of serious head injury. But such falls off bikes are rare — exceedingly so in mature urban cycling systems.

On the other hand, many researchers say, if you force or pressure people to wear helmets, you discourage them from riding bicycles. That means more obesity, heart disease and diabetes. And — Catch-22 — a result is fewer ordinary cyclists on the road, which makes it harder to develop a safe bicycling network. The safest biking cities are places like Amsterdam and Copenhagen, where middle-aged commuters are mainstay riders and the fraction of adults in helmets is minuscule.

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Don’t Blame Trade for Climate Change

by Daniel Akst

Wall Street Journal
September 28, 2012

Could limiting trade, perhaps through emissions tariffs, combat global warming? Some people think so, since Western nations typically import items that produce significant greenhouse emissions in developing countries.

But two European climate change experts are doubtful such tariffs would do much good. In fact, in a new paper, they suggest that, absent international trade, developing nations such as China might emit even more greenhouse gases than they already do.

Looking at trade between the United States and China, it’s clear that carbon emissions embodied in imports from China far exceed those embodied in exports to that country, but mainly this is due to the size of the U.S. trade deficit. The authors figure that only about 20 percent of carbon transfers from China are attributable to China’s manufacturing emphasis on more polluting goods. And climate tariffs would have an impact only that portion of China’s exports to the U.S., the researchers report.

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Democracy’s Burning Ships

by Luigi Zingales

Project Syndicate
September 24, 2012

Since the late 1970’s, the academic diffusion of game theory has led macroeconomists to emphasize the importance of “commitment,” a strategy that aims to enhance long-term economic outcomes by restricting policymakers’ discretion. The idea seems counterintuitive: How can less produce more?

While not historically accurate, one of the best examples of a strategic commitment is provided by the legend of Hernán Cortés, according to which, in his quest to conquer Mexico, he decided to burn the ships that had brought his expedition from Spain. At first, this might seem like a crazy move: Why intentionally destroy the only possible way out in case of defeat? Cortes allegedly did it to motivate his troops. With no escape route, soldiers were highly motivated to win. Alexander the Great is said to have done something similar when conquering Persia.

To produce its benefit, a commitment strategy should be credible – that is, it cannot be reversed quickly. In this sense, Cortés’s strategy was perfect: in case of defeat, the Spanish would have no time to rebuild the burned ships. To work properly, a commitment strategy should also be costly in case of failure: had Cortés lost, no Spanish soldier would have escaped alive. It is precisely this cost that helped motivate his soldiers.

The problem is that we are bound to hear about only the successful historical examples of such a strategy. Had Cortés’s strategy failed, he would have gone down in history – if he was remembered at all – as an arrogant fool who thought that he could defeat a great empire.

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Trade facilitation matters!

by Gary Clyde Hufbauer, Martin Vieiro and John S.Wilson

Vox
September 14, 2012

Economists celebrate trade not only because they love watching ships cross the Pacific and cargo planes land at Paris Charles-de-Gaulle but also because increased trade demonstrably raises income and improves living standards. This column argues that a powerful way to boost trade is by focusing on trade facilitation, i.e. improving both hard infrastructure like ports and railways, and soft infrastructure such as shipping logistics.

Once upon a time, most economists thought that tariffs, quotas and exchange controls were the alphas and omegas of trade policy. Hence their consensus recommendations: slash tariffs, eliminate quotas, float the exchange rate and commerce would blossom. Not quite so! It turns out that trade costs decisively separate countries that participate fully in the world economy and countries that are marginalised. Perhaps the biggest new idea is that trade transaction costs are not simply a matter of geography and fate. Targeted policies – grouped under the label of trade facilitation – can sharply cut the burden even for landlocked countries. Singapore takes first place in trade facilitation rankings, not only because of a fantastic natural port but also because of superb governance. More surprising, perhaps, is that landlocked Austria ranks 11th, entirely owing to government emphasis on quality infrastructure and efficient border management.

Even the international politics of trade facilitation are positive. The potential gains from trade facilitation are so large and 'self-balanced' that it has been one of the brighter spots of the otherwise dim Doha Round of negotiations at the WTO. Even 'narrow' investments in trade facilitation lead to enormous rates of return. Helble et al. (2009) estimate that every dollar spent in aid-for-trade recipient countries on reforming trade policy and regulation (e.g. customs clearance, technical barriers, etc.) increases the country’s trade by $697 dollars annually.

While agreement on trade facilitation tops the list of any potential 'early harvest' package, Brazil, South Africa, and India have led a push against this proposal, arguing that any deal on trade facilitation must be coupled with an agreement on agriculture reform. Most recently, support is gathering for a stand-alone trade facilitation agreement outside the auspices of the WTO.

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The Stunning Triumph of Cost-Benefit Analysis

by Cass R. Sunstein

Bloomberg
September 13, 2012

It is not exactly news that we live in an era of polarized politics. But Republicans and Democrats have come to agree on one issue: the essential need for cost- benefit analysis in the regulatory process.

In fact, cost-benefit analysis has become part of the informal constitution of the U.S. regulatory state. This is an extraordinary development.

To understand the point, a little history is in order.

When Ronald Reagan became president in 1981, he was greatly concerned about excessive regulation. He was also aware that the federal bureaucracy was large, decentralized and sprawling. He was the boss, but he had limited tools by which to oversee federal rulemaking.

As one of his very early actions, Reagan issued an executive order with two essential components. First, he told executive agencies that to the extent permitted by law, they must not issue a regulation unless the potential benefits to society “exceed the potential costs to society.” Second, he directed the Office of Management and Budget to oversee a process to ensure compliance with the cost-benefit requirement (among others) and to promote consistency with the president’s goals. The Office of Information and Regulatory Affairs, within OMB, soon assumed that responsibility.

At the time, both the cost-benefit requirement and the OIRA process were exceptionally controversial, especially among Democrats and groups on the left. Some activists argued that the result would be to undermine important public protections, designed to safeguard health, safety and the environment.

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Investing in Good Governance

by Lucian A. Bebchuk

New York Times
September 12, 2012

Can investors generally beat the market by concentrating their portfolios on companies that practice good corporate governance? There is evidence that good-governance features included in standard governance indexes do improve the performance of companies – but that their significance is already reflected in market prices.

In a well-known study issued a decade ago, Paul Gompers, Joy Ishii and Andrew Metrick identified a trading strategy that would have produced abnormally high returns in the 1990s. The strategy was based on an index, the G-Index, consisting of 24 governance provisions that weaken shareholder rights.

In a subsequent study, Alma Cohen, Allen Ferrell and I showed that, among the 24 provisions, only six – including staggered boards, poison pills and supermajority requirements – really mattered. As a result, we constructed an E-Index based on these six “entrenching” provisions.

Those studies showed that buying shares in the 1990s of companies that scored well on the governance indexes and shorting companies that scored poorly would have beaten the market. The correlation between governance and stock returns has attracted interest from researchers, and the G-Index and E-Index have subsequently been used in hundreds of studies by financial economists.

In a recent study that will be published by The Journal of Financial Economics, Alma Cohen, Charles Wang and I document that the correlation between governance and stock returns in the 1990s did not persist in later years. This correlation disappeared because markets learned to distinguish between good-governance and poor-governance firms (as defined by the governance indexes) and to price the difference into stock values.

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Μεταχρονολογημένης επιταγής εγκώμιον

του Γιώργου Προκοπάκη

Protagon.gr
8 Σεπτεμβρίου 2012

Στην ελληνική οικονομία συνέβαινε μια παγκόσμια πρωτοτυπία (τουλάχιστον ως προς την έκτασή της). Επί χρόνια η αγορά ζούσε με ένα σημαντικό μέρος του τζίρου της σε μεταχρονολογημένες επιταγές. Η χρηματοδότηση της ρευστότητας γινόταν:

1. Από τις τράπεζες με το πιστωτικό όριο που έδινε κάθε τράπεζα στον επιχειρηματία πελάτη της – ουσιαστικά κυλιόμενα και ανακυκλούμενα δάνεια.

2. Από την ίδια την αγορά, η οποία αποδεχόμενη τις μεταχρονολογημένες επιταγές των δραστηριοποιούμενων στο πλαίσιό της, παρείχε ουσιαστικά το ισοδύναμο των κεφαλαίων κίνησης.

Η αγορά η ίδια λοιπόν παρείχε το «φθηνό χρήμα» στους επιχειρηματίες που ξεπερνούσε τις δυνατότητες των τραπεζών ή αρνιόταν να παράσχει το τραπεζικό σύστημα. Εκτιμήσεις ανεβάζουν τις δύο γραμμές χρηματοδότησης σε περίπου €30 δισ την κάθε μία, μέχρι τις αρχές της κρίσης. Δηλαδή, η αγορά, με τα επίπεδα φερεγγυότητας στα οποία είχε ισορροπήσει, είχε φτιάξει εκ των ενόντων ένα δεύτερο σύστημα βραχυχρόνιων χορηγήσεων. Ας θυμηθούμε πως κάθε τόσο έβγαινε στις εφημερίδες η είδηση ότι «οι ακάλυπτες επιταγές έφτασαν το τάδε ποσόν». Το ποσό αυτό μέχρι το 2009 ήταν της τάξεως των €100 με €150 εκατ. Τα «κόκκινα δάνεια» μέσα στην ίδια την αγορά ήταν μόλις μισό τοις εκατό! Ο μόνος λόγος που οι τράπεζες δεν ζήλευαν τις επιδόσεις της ίδιας της αγοράς, ήταν οι εγγυήσεις που έπαιρναν από τους πελάτες τους και οι οποίες κάτι άξιζαν. Το ενδιαφέρον βέβαια είναι πως, οι μεν χορηγήσεις των τραπεζών καταγράφονταν, έστω διαχεόμενες, στα βιβλία των τραπεζών. Το σύστημα χορηγήσεων με τις μεταχρονολογημένες επιταγές, υπήρχε, κινούσε (σε κάποιο βαθμό) την οικονομία, αλλά δεν καταγραφόταν πουθενά. Κι όμως ήταν καθημερινή πρακτική. Είναι χαρακτηριστικό πως η ελληνική νομοθεσία δεν αναγνωρίζει την έννοια «μεταχρονολόγηση» στις επιταγές. Αν πήγαινε όμως κάποιος να εισπράξει μια μεταχρονολογημένη επιταγή πριν την ώρα της, η ίδια η τράπεζα, παρανομούσα, τον έδιωχνε! Κυρίως, γιατί μετείχε σ’ αυτό το σύστημα παρα-χορηγήσεων «σπάζοντας» στο 80% τις επιταγές πελατών της. Ισορροπία του συστήματος!

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The Crisis of Capitalist Democracy

with Judge Richard A. Posner

Elmhurst College
The Democracy Forum
September 6, 2012

Richard Allen Posner is a judge on the U.S. Court of Appeals, Seventh Circuit; a senior lecturer at the University of Chicago Law School; and the author of nearly 40 books on an astonishing array of topics, including economics, jurisprudence, aging, terrorism, literature, plagiarism and sex. The Journal of Legal Studies calls him the most cited legal scholar of the last century. He now turns what The New York Times calls his "indefatigable intellect" to the ongoing economic crisis and the efforts of the "cumbersome, clotted, competence-challenged" American system of government to respond to it. A Democracy Forum Lecture.

Bargain bosses: American chief executives are not overpaid

Economist
September 8, 2012

The idea that American bosses are obscenely overpaid is conventional wisdom, and not just among the true believers at the Democratic convention. The New York Times complains of “fat paychecks [awarded] to chief executives who, by many measures, don’t deserve them.” Forbes, hardly the in-house journal of Occupy Wall Street, frets that CEO pay is “gravity-defying”. An issue in April gave warning that “our report on executive compensation will only fuel the outrage over corporate greed.”

This orthodoxy rests on three propositions: that CEO pay just keeps on going up; that it is not tied to performance; and that boards are not doing their job of holding fat cats’ paws to the fire. These propositions in turn rest on a bigger argument: that CEOs are using their political power to rig the system, and that an efficient market for talent would produce very different results.

Steven Kaplan of Chicago’s Booth School of Business has been poking holes in this orthodoxy for years. He has now gathered his research together in a new paper (“Executive Compensation and Corporate Governance in the US: Perceptions, Facts and Challenges”).

His argument is well-grounded and intricate. He distinguishes, for example, between “estimated” and “realised” pay. Estimated pay is the estimated value of the CEO’s pay, including stock options, when the board does the hiring. Realised pay is what the CEO actually makes when he exercises his options. There is a big difference. It is now impossible to talk sensibly about this subject without first grappling with Mr Kaplan.

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Ending the Financial Arms Race

by Kenneth Rogoff

Project Syndicate
September 6, 2012

People often ask if regulators and legislators have fixed the flaws in the financial system that took the world to the brink of a second Great Depression. The short answer is no.

Yes, the chances of an immediate repeat of the acute financial meltdown of 2008 are much reduced by the fact that most investors, regulators, consumers, and even politicians will remember their financial near-death experience for quite some time. As a result, it could take a while for recklessness to hit full throttle again.

But, otherwise, little has fundamentally changed. Legislation and regulation produced in the wake of the crisis have mostly served as a patch to preserve the status quo. Politicians and regulators have neither the political courage nor the intellectual conviction needed to return to a much clearer and more straightforward system.

In his recent speech to the annual, elite central-banking conference in Jackson Hole, Wyoming, the Bank of England’s Andy Haldane made a forceful plea for a return to simplicity in banking regulation. Haldane rightly complained that banking regulation has evolved from a small number of very specific guidelines to mind-numbingly complicated statistical algorithms for measuring risk and capital adequacy.

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Democracies and debt: Voters are now facing a harsh truth

Economist
September 1, 2012

Almost half the world’s population now lives in a democracy, according to the Economist Intelligence Unit, a sister organisation of this newspaper. And the number of democracies has increased pretty steadily since the second world war. But it is easy to forget that most nations have not been democratic for much of their history and that, for a long time, democracy was a dirty word among political philosophers.

One reason was the fear that democratic rule would lead to ruin. Plato warned that democratic leaders would “rob the rich, keep as much of the proceeds as they can for themselves and distribute the rest to the people”. James Madison, one of America’s founding fathers, feared that democracy would lead to “a rage for paper money, for an abolition of debts, for an equal division of property and for any other improper or wicked projects”. Similarly John Adams, the country’s second president, worried that rule by the masses would lead to heavy taxes on the rich in the name of equality. As a consequence, “the idle, the vicious, the intemperate would rush into the utmost extravagance of debauchery, sell and spend all their share, and then demand a new division of those who purchased from them.”

Democracy may have its faults but alternative systems have proved no more fiscally prudent. Dictatorships may still feel the need to bribe their citizens (eg, via subsidised fuel prices) to ensure their acquiescence while simultaneously spending large amounts on the police and the military to shore up their power. The absolute monarchies of Spain and France suffered fiscal crises in the 17th and 18th centuries, and were challenged by Britain and the Netherlands which, though not yet democracies, had dispersed power more widely. Financial problems contributed to the collapse of the Soviet Union.

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How to reduce high incarceration rates

by Ben Vollaard

Vox
August 24, 2012

How to reduce incarceration rates without fuelling a crime boom? This column argues that by being more selective over whom to lock up and for how long, scarce public funds can be put to better use.

Incarceration is costly – easily €100 to €200 per night per prisoner, depending on the country and the prison regime. That makes €36,500 to €73,000 per prisoner per year, excluding fixed costs of building prisons, and all other costs such as time not spent at work or with the family.

Given the pressure on government budgets, many states and countries are looking into reductions in prison expenditures. The short-term solution is to reduce the number of prisoners by way of early release. The longer-term solution is to change sentencing policy. This is all easier said than done, however, given public concerns about the effect of lower incarceration rates on crime. Incarceration also provides important benefits to society after all, including deterrence (Durlauf and Nagin 2011) and incapacitation (Owens 2009) of offenders.

We argue that a reduction in the number of inmates taxes these benefits of incarceration the least if it happens selectively. Being more selective in whom to incarcerate for how long puts scarce public resources to their best use.

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