What explains differences in life expectancy at age 50? This column looks at the effect of wealth, education, and marital status. It finds that by far the most important factor is education, and explores what this might mean for policy.
Natural gas is seen as an attractive source of energy – it is cleaner than coal and often more reliable. But there are potential risks from the drilling and hydraulic fracturing process. This column shows how shale gas extraction could reduce property prices, and argues that policymakers need to bear this in mind when thinking about the costs and benefits.
Since the 1980s governments in the US, UK and France have been implementing ‘enterprise zones’ to tackle inequalities within cities. This column examines the latest French experiment in the 2000s. It suggests that the zones were largely successful in attracting small firms, but that this was mostly due to opportunistic relocation within municipalities.
The presidential election campaign is in full swing in the US. Whoever wins the presidential race will face the challenge of filling top positions in the federal administration. Since some political appointees traditionally come from the private sector, allegations of conflicts of interest will emerge. But are connected firms really expected to profit? This column sheds light on this issue.
Is a banking union the answer to Europe’s woes? This column argues that banking union is no panacea – and it may actually make monetary policy harder. It urges Europe’s policymakers to re-evaluate their proposals.
Should children be forced to do PE? This column presents some of the first evidence showing that physical education at primary schools helps to reduce obesity. In doing so, it provides support for the recommendations by the US Surgeon General and others that PE time should be increased in order to reduce the risk of childhood obesity.
As is well known among economists, Sweden had its own financial crisis in the early 1990s and their public finances were quickly consolidated. This column asks whether the Swedish policy measures serve as a role model for how to handle the current crisis?
Diane Coyle talks to Viv Davies about her recent edited volume on 'What's the use of economics?' They discuss what economists need to bring to their jobs and the way in which education in universities could be improved to fit economic graduates better for the real world. The interview was recorded in London on 22 September 2012.
Lessons from the past suggest democracies with strong economic fundamentals do not default on their debt. This column suggests high growth and low deficits are key but that growing discontent as the result of austerity may be the most important factor yet in influencing the probability of default. Eurozone countries, therefore, need to build a higher safety buffer of good fundamentals to ensure safety from default.
If there seems to be near unanimity among policymakers about the positive role of aid, the academic community has not found any robust evidence that aid contributes to development. This column presents a new empirical strategy that isolates the causal effect of aid on growth. The effect is found to be larger than previously estimated. The average developing country citizen would be about 15% poorer today had aid never been disbursed.
There has been much talk among economists of ‘global rebalancing’, with the focus on China and the US rebalancing their current accounts. But this column argues that the type of rebalancing that will bring real gains to the global economy is one that will be shaped by many countries, both industrial and developing.
As the EZ takes its first steps towards banking union, this column warns that such an approach – with banking supervision first and resolution and deposit insurance postponed to some undefined later stage – will lead to an unstable banking union. It adds that a strong European supervisor and a credible European resolution and deposit insurance authority should be introduced as part of the package.
In recent years major firms have moved away from hiring CEOs with technical expertise towards instead hiring leaders who are managers with generalist skills. This is wrong, according to the evidence presented in this column. In the highly-skilled setting of Formula One racing, the authors show that it is the experts who excel as leaders not managers.
The Asian financial crisis of the late 1990s shows what can happen when economists misdiagnose a crisis. This column argues the Eurozone crisis may have been made worse by over-simplifying it as a debt crisis. The author suggests that the large institutional changes now afoot – the shift from Eurozone I to Eurozone II – are finally addressing the root causes, but they may be too little too late.
It is often argued that trade unions lead to higher wages but, according to the findings presented in this column, collective bargaining cannot be blamed for sticky wages in Germany during the 1990s.
One recent trend in economics has been the use of randomised control trials, where policies are trialled on a sample of the population and the effects compared with a control group. But this column look at a policy in Denmark aimed at helping people find jobs and argues that success on a small scale doesn’t necessarily transfer once the policy is rolled out – especially when there are spillover effects.
Industrialised countries today face serious risks – for their financial sectors, for their public finances, and for their growth prospects. This column explains how, through our financial systems, we have created enormous, complex financial structures that can inflict tragic consequences with failure and yet are inherently difficult to regulate and control. It explains how this has happened and why there are more and worse crises to come.
Trade relationships often last for a surprisingly short period of time. Previously this was explained by failed export efforts. Instead, this column shows that it may be optimal for firms to export a certain product to a country only every once in a while. This requires less investment at the beginning and this strategy is often used by firms which are less productive or face credit constraints; this is especially true for farther and smaller markets.
The European Commission is planning a shake-up in financial supervision in Europe. This column argues that time will tell whether or not this is a good idea – for now all we have for certain is uncertainty.
The European Commission’s latest proposals for financial regulation are seen by many as the first steps towards a banking union. This column argues that there are a number of issues that need to be exposed and debated in public before the Commission decides on anything.
Five years after Lehman’s collapse, economics is under fire both from outside and inside the profession for irrelevance, arrogance and more. This column introduces a new Vox debate focused on two questions: What’s the use of economics, and how should we be teaching it to the next generation?
Unemployment in the US and UK is over 8% and in many Eurozone countries is far higher. This column argues that we can’t just blame the recession – this is also symptomatic of long-term trends that, without a concerted effort by policymakers, will continue to stunt growth, deepen income inequality, weigh on public budgets, and cause living standards in many countries to stagnate.
There were 35 million prisoners of war in WWII. This column presents new research on the use of their labour in Nazi Germany, quantifying the economic impact on the Nazi wartime economy.
Is the ECB right to buy up sovereign bonds in southern Europe? This column argues that the answer depends on who is right: Keynes or Hayek.
Germany’s large accumulation of TARGET2 claims has created fear that Germany stands to lose vast amounts of wealth if the Eurozone were to break down. After clarifying the issues using basic economic principles, this column shows that Germany could avoid large wealth losses by restricting euro-to-mark conversions to German residents.
The European Commission presented their plan for a single EZ bank supervisor this weekend. While it is a good start, this column argues that it avoids the hard truth driving the process: the Eurozone needs a lender of last resort and the ECB is the only one that can play the role. Admitting this truth makes it clear that the Eurozone also needs an arrangement with member governments on bank-bailouts cost sharing and institutions to minimise the ultimate costs.
Processing trade has been credited as a key driver of Chinese export performance but has been largely overlooked in Europe. This column argues that, despite its rather low profile in trade debates, EU inward-processing exports accounted for around 10% of total extra-EU exports in 2011. Processing trade may thus require further reflection on how best to maximise its benefits for EU's external competitiveness.
As the Fed announces a third round of quantitative easing, this column argues that it is unlikely to work. Investment and hiring are held back by huge uncertainty over the long-term outlook and the stimulus provides a monetary bridge over the election gap but little more.
Does your gender affect your chances of getting a loan? Looking at loan-level data from a large Albanian lender, this column discovers evidence for an own-gender bias of loan officers affecting the demand and supply of credit. The effect is larger when officers have little prior exposure to borrowers of the opposite sex and when they have more discretion to act on their gender beliefs.
To reduce favouritism in university promotions, Spain recently introduced a centralised system with random assignment of evaluators. This column presents evidence from a unique data set showing that favouritism still matters. Prior connections between candidates and evaluators have a dramatic impact on promotion. The net result is that outcomes are more random and candidates with many connections and from large universities benefit the most.
Reforming fossil fuel subsidies might seem to be an easy option – reduced fiscal outlays would help with debt problems while also helping to reduce greenhouse gas emissions. This column argues that, despite growing interest in reforming them, there still exists much confusion over the concept and magnitude of fossil fuel subsidies – and this needs to change first.
John Van Reenen talks to Viv Davies about fiscal consolidation during a depression. They discuss Van Reenen's recent work on quantifying the costs and benefits of delaying austerity measures until recovery is clearly established. They also discuss whether austerity has gone too far. Van Reenen presents the case for a more federal Europe. The interview was recorded at the LSE on 13 September 2012.
Optimism over India’s economy is fading. This column argues that India’s current economic slowdown reflects both cyclical and structural factors. It outlines the steps needed to get India back on course to reaching its growth potential.
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.
Many OECD countries suffer from high sovereign debts. Sooner or later, this problem must be addressed. Many argue that this will require some form of fiscal retrenchment or institutional reform or a combination of the two. This column argues that the two are not complements as many suggest – they are instead substitutes.
As multilateral attempts for climate-change mitigation stall, the two-way relationship between trade and climate change is likely to come under further scrutiny. This column explains how liberalised trade has several climate-related consequences. It argues that trade policy could enforce mitigation policies but that multilateral conventions are crucial in preventing undesired protectionist consequences.
Droughts in the US, India, and the Sahel are making headlines, with the farmers themselves often the first to lose out. This column presents findings from a randomised control trial exploring whether providing households with training and capital to diversify their incomes can cushion the shock of severe weather.
Global growth is slowing – especially in advanced-technology economies. This column argues that regardless of cyclical trends, long-term economic growth may grind to a halt. Two and a half centuries of rising per-capita incomes could well turn out to be a unique episode in human history.
The current EZ crisis is not Europe’s first sovereign-debt crisis. This column shows parallels can be drawn from an all-but-forgotten episode, i.e. the 1990 Faroese crisis. Just like Greece, the Faroes got into difficulty because of excess borrowing facilitated by a currency union with an AAA-rated partner undeterred as the sovereign debt spiralled upwards. In the Faroese case, the crisis was eventually resolved when political necessities outweighed the cost of the bailout.
Latin American economies performed remarkably well during the crisis – and the years before. This column compares the fiscal policies in the region with those of advanced economies and discusses the factors behind the differences, before outlining some areas for policy reform.
Even before the crisis, there were some who stressed that monetary policy should keep an eye on asset bubbles and the growth of credit. This column argues that the policy of inflation targeting, used widely in the 1990s and 2000s, did indeed lead to excessive credit growth that eventually bred financial instability.
Since 2001 Japan has had in place an ‘Industrial Cluster Policy’ aimed at making the most out of situating companies close together. This column looks at the benefits for firms in the same industry as well as for firms in different industries.
Many advanced country governments face the dual challenge of promoting job growth while pushing ahead with spending cuts. This column discusses how well-designed fiscal policy reforms can help boost employment without busting the government budget.
Over the last two decades, US aggregate wealth has fluctuated substantially. This column presents research that takes a first step towards measuring the reasons why. It finds that most recent fluctuations are driven by bubbles and argues that models of rational bubbles with financial frictions can improve our understanding of recent macroeconomic history.
The recent announcement by the ECB that it will start to buy Spanish and Italian sovereign debt has been warmly welcomed throughout Europe. But this column argues that by doing so the ECB is digging the euro’s grave. It says the solution is default, either through inflation or debt restructuring – and that debt restructuring has many advantages if it is done early enough.
Public spending on large-scale projects is often a way of sneaking in protectionism through the back door and there are many cases of outright corruption. With the EU and US pushing hard for more open public procurement elsewhere in the world, this column asks just how open these markets are, particularly in the EU, which claims to have the most open market in the world.
The austerity debate hangs on the question of how fiscal policy affects economic output – but answering that question is no easy task. This column presents a paper that, it argues, overcomes some of the problems with identifying cause and effect.
Xavier Freixas talks to Viv Davies about the recent changes in the European banking resolution regime. They discuss the tension between ex ante incentives and ex post efficiency in banking. Freixas argues that the best way to analyse a bank resolution situation is to think of it as a bargaining game between the bank's shareholders and the treasury. The interview was recorded by phone on 6 September 2012.
Do cash incentives matter in the public sector? This column looks at the use of incentive schemes, such as performance-related pay, in the British Labour government between 1997 and 2010. It finds that cash incentives do matter, but that their design is critical.
The need to rebalance the debts of several Eurozone members is a major root of the current crisis. This column argues that a purely intra-euro rebalancing strategy has its limits and that a weaker euro would help. It urges the European Central Bank to adopt looser monetary policy, which is anyway justified in a highly recessionary environment.
Income tax is always a controversial issue in the US, particularly in election year. But how progressive is the US income tax system? This column looks at data on over 100,000 taxpayers from the Internal Revenue Service 2000 Public Use Tax File. It finds the question has more than one answer.
Over the last decade we have witnessed increasingly devastating natural disasters: south-east Asia, Katrina, Haiti, New Zealand, and Japan to name a few. While much of the focus is understandably on the immediate impact, this column argues that the long-term economic costs are often underestimated or even overlooked.
Geographic distance continues to encumber international trade despite advances in transportation and communication technologies. This column shows that eBay, an online market, reduces the effect of distance on trade by 65%, mainly by reducing information frictions. As consumers 'put their money where their mouse is', welfare gains are largest where they are most needed, i.e. in remote countries with bad institutions.
The Eurozone debt crisis is not simply a problem for industrialised countries. This column shows how its effects are being felt throughout Africa.
The Eurozone crisis threatens not just European economies but economies all over the world. This column argues that a global problem calls for a global solution – and the solution this time round is monetary policy. The ECB needs to commit to keeping sovereign debt yields within reason while the Federal Reserve needs to work towards lowering long-term yields.
The foreign exchange market facilitates international trade and investment and is central to the global financial system. Market participants, both public and private, commonly think of the foreign exchange market as highly liquid at all times. This column challenges this view by documenting significant declines in liquidity during the recent financial crisis.
As the new football season kicks off, Europe’s top clubs are preparing to abide by UEFA’s Financial Fair Play initiative, designed to ensure financial discipline and make European football more competitive. But this column argues that the new rules could end up doing just the opposite.
Industrial development has long been considered crucial to economic growth and a higher standard of living. But what role do exports play in this story? This column confirms earlier findings that what products you export matters for growth – but shows that it also matters when you export them.
Before 2007, the widely accepted view was that systemic banks had to be bailed out no matter what. This column argues that views are changing – and for the better.