A working paper by students at Hamilton College out yesterday has the laudable aim of auditing the predictions made by political pundits in order to see whether they are any use or not. Unsurprisingly, it finds that Paul Krugman is the most useful columnist and that a bunch of hacks I’ve never heard of are the worst (it also, wonderfully, gives the success formula for prognostication as “avoid law school and adopt a liberal philosophy). Below the fold, a few points on a subject which many readers will know is dear to my heart.

[click to continue…]

The death of Osama bin Laden has inevitably produced a gigantic volume of instant reactions, to which I’m going to add. Doubtless I’m repeating what others have said somewhere, but it seems to me that most of the commentary has understated the likely impact, particularly as regard US politics. That impact is by no means all favorable – while the Republicans are the big losers, Obama will also be strengthened as against his critics on the left, among whom I’d include myself (admittedly as a citizen of a client state rather than the US proper).

[click to continue…]

Following on from Henry and John’s piece on ‘hard Keynesianism’, here is another angle on the politics of the EU. Economic historian Kevin O’Rourke has an excellent paper setting out a very nice framework for thinking about the Eurozone. It was presented at a conference of the Institute for New Economic Thinking held recently in Bretton Woods (yes, surely a good venue for such an event). There is also a short summary here.

Kevin’s creative insight is to combine the impossibility theorems from two bodies of literature – Mundell-Fleming on monetary policy, and Dani Rodrik on global governance – and to show that the Eurozone occupies an uneasy half-way house in both economic and political governance. The particular merit of setting out the issues like this is that it demonstrates why there are no optimal policy solutions, only difficult trade-offs, with different potential losers in each case. It is an innovative and stimulating exercise in political economy that deserves to gain a wide readership.

Mundell and Fleming’s economic trilemma posits that you can only achieve two of three objectives in monetary policy: that is, open capital markets, domestic control over monetary policy, and fixed as opposed to floating exchange rates. ‘European Monetary Union has thus solved the economic trilemma in a particularly radical way: capital mobility combined with the complete abandonment of national monetary sovereignty’.

The political trilemma, drawing on Dani Rodrik’s work, says that if you go for increasing globalization, you cannot simultaneously have both nation-state politics and democratic accountability. If you want the latter two (as in the ‘Golden Age’ of postwar capitalism), you need restrictions on capital mobility. If you go for closer economic integration, you could do it by imposing all the adjustment costs onto your own citizens, as in the era of the Gold Standard. But as Polanyi and others have pointed out, this is hard to sustain without massive repression, and pretty well impossible in the long run with universal enfranchisement. So the alternative is to construct a collective decision-making capacity at the transnational level. As O’Rourke notes:

What makes European Monetary Union such a radical solution to the political trilemma is that it not only abandons national monetary policy-making, but delegates it to a technocratic Central Bank… Moreover, this has occurred without common Eurozone policies in complementary areas, notably financial and banking regulation; and it has occurred without a move towards a common fiscal policy, which most economists also regard as a desirable complement to a common monetary policy.

[click to continue…]

The most recent data from Eurostat bring out starkly the implications of the current policy mix in the Eurozone. The peripheral economies continue to be spun around by an inflexible centre, and whether they fly off in a crisis remains anyone’s guess.

On the face of it, as the following graph suggests, some economies are easily diagnosed as having fiscal deficit problems. It is not hard to see how German public opinion can be persuaded that fiscal profligacy is the problem and that a dose of austerity will bring them back into line with German fiscal virtue.

Italy and Belgium actually have larger accumulated debts than Portugal or Spain, but they have no immediate problems keeping their debts rolling over. Britain falls into the same cluster with its combined debt and deficit problems, but no-one is seriously worried about its policy options.

The peripheral economies have problems that are different in kind, different from Germany and also from each other.

[click to continue…]

Matthew Yglesias is puzzled that women still want liposuction even if the fat comes back in other places. That doesn’t surprise me. If you had a pill that just induced redistribution of fat from unwanted places, a lot of people would take that pill. What strikes me about the study is the sheer weirdness of fat sort of migrating from you belly to your … triceps? Seriously?

It turns out, Dr. Leibel said, that the body controls the number of its fat cells as carefully as it controls the amount of its fat. Fat cells die and new ones are born throughout life. Scientists have found that fat cells live for only about seven years and that every time a fat cell dies, another is formed to take its place.

This seems like an obstacle not just to successful liposuction but to fat reduction by diet or exercise. How does anyone lose fat? Googling around, it looks as though there is some controversy about whether you can lose fat cells, or just make the one’s you’ve got smaller. Hmmm, learn something new every day. [click to continue…]