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The economics of saving the world

by Cyrille Wed Sep 24th, 2014 at 02:11:24 AM EST

In his New York Times column, Paul Krugman reports on two new studies, both of which indicate that limiting carbon emissions would be much cheaper than initially thought, and may actually increase economic growth. This would be in part because fossil fuels have negative side effects over and above global warming, in particular health effects that "drive up medical costs and reduce productivity".

Further in his column, he takes a swipe at those on the left who claim that "saving the planet requires an end to growth" (a position he calls "climate despair", such as groups like the degrowth movement and the Post-Carbon Institute. This, he reckons, is in large part due to a misunderstanding of what growth is, where those making such claims probably see it as a "crude, physical thing, a matter simply of producing more stuff, [not taking] into account the many choices -- about what to consume, about which technologies to use -- that go into producing a dollar's worth of G.D.P."

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Final notes on Piketty's Capital

by Cyrille Wed May 28th, 2014 at 09:34:59 AM EST

Here is the final instalment of my notes on Piketty's Capital in the 21st Century. Like the previous ones (here, here, and here), it is cross-posted on my blog Anachronicles.

Chapter 12 sees Piketty going global. Having thus far kept a mostly national perspective, he now looks at capital at a wordwide level. That makes sense: colonies aside (and even they fell far short of today's cross-positions), major international investments is a relatively new phenomenon, as is the difficulty of associating a capital to a country.

This is another reason why the elevated levels of r (return on capital) could go on a bit longer: whereas developed countries are awash in capital, in fact probably have too much for their own good, this is not the case of the world as a whole -though the gap is less than one may have thought.

There, Piketty has an extremely interesting line of study. Having shown that the richest people saw their wealth grow faster than everyone else, he examined what caused this divergence (it is true both of highly concentrated and highly diversified massive fortunes, surprisingly) looking at the returns obtained by the dotations of various US universities. The picture is crystal clear: the bigger the amount to invest, the higher the returns it gets.

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More notes on Piketty's Capital

by Cyrille Fri May 23rd, 2014 at 01:34:12 AM EST

Right, I have now finished the book, for which I already published two sets of notes on the way (here and here).

However, there is so much material for discussion in the book after the point where I stopped my notes that, to make it a bit more readable, I will split the final notes in two more installments. I therefore return to part 3, looking at inequalities, from Chapter 9 onwards, and will stop at the end of Chapter 11.

Piketty being the specialist of inequality, there is little surprise that he gives a very good description of its historical evolution.

It's hard to pinpoint one thing in particular, but despite having over the last few years read each of his papers or articles that came my way, I kept finding things I did not know, that will probably alter my views of economics and politics in the future, even if I don't necessarily know in what way yet. For instance, I did not realise that Germany's top 1% had a markedly higher share of revenue than in any other continental Europe country. It is also interesting to look at the very different evolutions of minimum wages in France and USA (although that had very little impact on inequality at the very top, which is what took off of late).

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More notes on Piketty's Capital

by Cyrille Wed May 21st, 2014 at 02:01:50 PM EST

Right, I have now finished the book, for which I already published two sets of notes on the way (here and here).

However, there is so much material for discussion in the book after the point where I stopped my notes that, to make it a bit more readable, I will split the final notes in two more installments. I therefore return to part 3, looking at inequalities, from Chapter 9 onwards, and will stop at the end of Chapter 11.

Piketty being the specialist of inequality, there is little surprise that he gives a very good description of its historical evolution.

It's hard to pinpoint one thing in particular, but despite having over the last few years read each of his papers or articles that came my way, I kept finding things I did not know, that will probably alter my views of economics and politics in the future, even if I don't necessarily know in what way yet. For instance, I did not realise that Germany's top 1% had a markedly higher share of revenue than in any other continental Europe country. It is also interesting to look at the very different evolutions of minimum wages in France and USA (although that had very little impact on inequality at the very top, which is what took off of late).

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Further notes on Piketty's Capital

by Cyrille Sun Apr 20th, 2014 at 12:28:43 PM EST

I published a first set of notes on the book a little while ago. I still have not finished it, but am now much further. It's still an excellent read that I would recommend to anyone.

Some of the slightly odd trends are maintained, but also the further developments answer several of the questions that came out of the first chapters.

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In defense of tree-huggers

by Cyrille Fri Apr 18th, 2014 at 10:02:00 AM EST

Paul Krugman has recently published a blogpost and a chronicle talking about the evolution of the economics of fighting climate change. In it he states that people of both the left and the right are guilty of fallacies -to be fair he also says that the fallacies of the right are much more serious and damaging.

But we have come to expect that. So let's see what are the fallacies of the left:

"there are some people on the left who keep insisting that economic growth is incompatible with reduced emissions, and that therefore we have to turn our backs on growth." is from the blog post.

Strictly understood, and in a theoretical economics framework, this is of course a fallacy, as you could have plummeting emission intensity (ie, emission per unit of GDP).

Now, let's look at what it means in practice, and when you are not just in an economics framework:

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First notes on Thomas Piketty's Capital in the 21st Century

by Cyrille Sat Apr 12th, 2014 at 06:58:17 AM EST

Since being published in English (its original publication, in French, came a year sooner), Thomas Piketty's Capital in the XXIst Century has been heavily discussed - and reviewed.

I would like to comment and start discussions on some of its contents and assumptions. Since there have been questions about it, I will start writing even though I am yet to finish the book. Well, if I were to do it all in one go, it would be far too long a diary in any case. Please note that I am reading it in French, and thus cannot exactly quote the English version. At the point where I am in the book, little has been said of inequalities, which are the subject of part 3.

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An unfair test

by Cyrille Tue Apr 8th, 2014 at 04:29:41 AM EST

Via Paul Krugman, I read Ezra Klein's opening tribune on his new, independent website venture.

And it purports to show that politics makes us brain dead because, when presented with a political problem that fits our prejudice (or goes against them), we tend to reply according to the prejudice rather than according to our abilities, in this case a simple maths proportions problem (yes, I am surprised that most people failed the problem in the first place, and that it be called "difficult", go take a look).

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Unfit models

by Cyrille Sat Mar 8th, 2014 at 11:36:36 AM EST

In a recent conference about data analysis, I highlighted the importance of being well aware of one's model's assumptions. That all models are wrong should not be a reason never to use them, but you must be acutely aware of what their use implies.

I trust that you would agree with such an observation (OK, some will not want to use imperfect model at all, but that is going too far, and would have prevented any progress in human knowledge). But if you do, you should be pretty worried. Because most developed countries (and probably even more so less-developed ones) are now run on the basis of models whose assumptions are wildly violated -to the point where the rules of such models have made their way into their constitutions.

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Propaganda works

by Cyrille Sun Feb 9th, 2014 at 04:59:31 AM EST

As I recently wrote about, we are once again hearing calls for selling, well,everything public. And a French nominally (yes, already only nominally) socialist president is announcing a major turn rightwards -economically, that is- despite being at the helm of a country that has been performing markedly better than tenants of Aust(e)rian orthodoxy, such as the Netherlands or Finland.

And, you know what: he's getting praise for it.

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When a refutation is anything but

by Cyrille Mon Jan 20th, 2014 at 12:19:58 PM EST

For decades, many academics and pundits have pronounced that the 70s conclusively proved that Keynes had been completely wrong, and that it proved that Friedman had been completely right.

You see, there was a recession, and it should have created deflation, except if inflation was actually determined by expectations based on previous experience, in which case it would not be brought down by depression. Friedman went on to state that "inflation is always and everywhere a monetary phenomenon" which, if you think twice about it, is the most laughable statement.
And to this day, I keep reading articles, even by professors of economics in the UK, saying that the episode of inflation over 2% in the UK in the early years of the current Government is a clear indication that any stimulus would have had little to no effect, being swallowed by inflation.

That's what happens when you start believing that your model matters more than reality.

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Some thoughts about secular stagnation

by Cyrille Mon Nov 18th, 2013 at 05:35:10 AM EST

Via Paul Krugman, I saw that Larry Summers had given a presentation on the topic of secular stagnation at the IMF conference (admittedly, I wasn't invited this year, well, the letter must have been lost in the post ;-) ). If you'd rather read than watch, Krugman's summary is a nicely written one, and adds a few comments which can be interesting in themselves.

Well, I have not usually been inclined of late to say nice things about Larry Summers, although that was probably more about Summers the political persona. His academic research deserves more credit. So, much of it is interesting, although some of the conclusions he derives (and here Summers the neoliberal may be showing, for instance when he suggests that proper financial regulation may be a bad thing in the context of stagnation, which is bonkers) appear to either be there purely for provocation sake, or to be pre-conclusions looking for a justification. Still, I would have a few things to add, and I believe that the conclusions fall short in a couple of ways.

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Today in Newspeak

by Cyrille Wed Aug 7th, 2013 at 11:19:30 AM EST

This is cross-posted on my blog.

Reading the New Statesman correspondence section (yes, I know...), I came across a letter referring to a leader that had apparently stated that the UK needed an extra one million houses over the next five years is the level to meet present needs. The letter proceeds to explain via a small calculation that the figure is actually four millions over ten years. So far, so good (or not - I really have no idea about the actual figures, the calculation is worded in a way that might suggest that there is some confusion between yearly need and backlog, and I don't know the source of the numbers used), I don't mean to dispute the need for extra housing in the UK.

But the reader, after apparently making a call for a strong building program (this is about meeting present "needs", not fanciful wishes), then adds:
"A damaged economy cannot afford to allocate such a large share of limited resources to housebuilding."

This left me nonplussed on several levels.

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Greg Mankiw at it again...

by Cyrille Fri Jun 28th, 2013 at 01:31:10 AM EST

Greg Mankiw came up with a defense of the top 1% (note: I provide the link because that's the done thing. I don't actually recommend that you follow it...). Many people, such as Dean Baker, Harold Pollack, Paul Krugman and even The Economist (and this time I do recommend you follow the links), take this apart.

And yet, they are being much too kind.

Greg Mankiw has written an Economics textbook that is very well regarded, and is still the leader in the undergraduate universities market in the US (although Paul Krugman's seemed to be catching up fast). Because of that, a lot of people will like him or, at any rate, not want to appear to have too bad a word for him. Yet there is a point where this becomes enforced blindness.

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What happened to the scientific process?

by Cyrille Tue Mar 12th, 2013 at 05:14:44 AM EST

David Greenlaw, James Hamilton, Peter Hooper, and Rick Mishkin (no, those names did not mean much to me either) have published an op-ed in the Wall Street Journal based on their recent paper on debts, deficits and borrowing interest rates.

Thus far, the sentence reveals nothing extraordinary. What they end up concluding (the most policy-absorbed might have surmised it from where their op-ed was published) was that there was a strong relationship between debt level and interest rates. There is a detailed takedown of the conclusions by Matt O'Brien, so I'll focus on something else. The data they based their conclusion on can be plotted on a graph easily enough, like that:

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A heterodox proposal

by Cyrille Thu Mar 7th, 2013 at 03:53:58 AM EST

I've been thinking about regulatory environments lately -finance, insurance, but also medical or IT.

Actually the last two will be relevant to the idea only as illustration. The proposal is about the financial world.

So, as you may or may not know, norms like Basel (2 or 3 at any rate) or Solvency 2 will require a lesser quantity of capital set aside if you have an internal process to evaluate counterparty risk. This process must be pretty thoroughly documented internally (internally is an operating word here) and will be subjected to audits.

As you also know, audit firms are paid by the company that they are auditing. Thus creating the mother of all conflicts of interest.

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The disaster of axiomatic macroeconomic thinking

by Cyrille Tue Feb 26th, 2013 at 06:17:41 AM EST

On Friday (22nd February), Moody's downgraded the UK's credit rating by a notch. That is actually a non-event. Rating agencies clearly play to an ideological agenda (for instance, they consistently give a higher rating to a private company than to a state for a similar level of risk), and it's hard to see in what circumstances the UK, a country with its own central bank emitting fiat money, could default.

What makes it somewhat more interesting is that UK's chancellor, George Osborne, reacted that way :

"Tonight we have a stark reminder of the debt problems facing our country - and the clearest possible warning to anyone who thinks we can run away from dealing with those problems," he said.

"Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it.
"We will go on delivering the plan that has cut the deficit by a quarter, and given us record low interest rates and record numbers of jobs."
[...]
"As the rating agency says, Britain faces huge challenges at home from the debts built up over many, many years, and it is made no easier by the very weak economic situation in Europe.
"Crucially for families and businesses, they say that 'the UK's creditworthiness remains extremely high' thanks in part to a 'strong track record of fiscal consolidation' and our 'political will'.
[...]
"They also make it absolutely clear that they could downgrade the UK's credit rating further in the event of 'reduced political commitment to fiscal consolidation'.
"We are not going to run away from our problems, we are going to overcome them."

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Alternatives aplenty

by Cyrille Wed Nov 2nd, 2011 at 06:52:26 AM EST

It's now out in the open: Paul Krugman is flirting with Tara.

However, Robin Wells (Paul Krugman's partner) need not worry. Tara is actually the impersonation of our rallying cry, There Are Real Alternatives, and of course the arch-nemesis of Margaret Thatcher's frightening offspring, TINA (There Is No Alternative).

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What we stand for: Quasi-Rawlsian ethics

by Cyrille Sat Oct 2nd, 2010 at 09:17:02 AM EST

Recently, in a diary called Paris by Sven Triloqvist, poemless made the point that some people come to ET and struggle to understand what It is about. Why I find that this patchwork tendency also has an endearing feel to it, I must admit that I have struggled to get people to read ET regularly. And we may sometimes not even explicitly mention some points that we take for granted within our community -but which may be lost on a new reader.

So, I thought I would try to find and word some major tendencies that shape ET. I realize that the "we" in the title can seem presumptuous -after all, it is only I who write. But there are two reasons for it. First, I endeavour to identify common lines of thought -ones that, while we can find an individual frequent contributor who disagrees about any one of them, would probably be each be shared by the great majority of us, and a majority of them should be shared by any one of us. Second, I hope that ensuing discussions will make it that eventually it will be "we" writing.
I was initially going to have all topics into one diary, but quickly saw that it would be way too long -besides, I probably am not settled on the list yet.

So here goes with a first instalment: Quasi-Rawlsian ethics

for your weekend reading - Nomad

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What we stand for: Qualitativism

by Cyrille Fri Oct 1st, 2010 at 05:27:29 PM EST

As I explained in my earlier diary What we stand for: Quasi-Rawlsian ethics, I am trying to clarify our identity by highlighting common positions that we, as a group, overwhelmingly share.

I was going to touch about today's subject in a diary about the quest for sustainability, but comments by JakeS convinced me that it needed to stand on its own, as its roots were not merely -nay, not mostly, in the need for sustainability.

JakeS explained our not being productivists in those words: "There is a level of economic activity that would satisfy us, and it is for most of us somewhat below the current level of economic activity in The WestTM - or at least not greatly beyond it."

This is certainly a fair description of us as a group. To risk new words, I'd venture that we are exponents of Qualitativism vs Productivism and Consumerism

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