Sunday, December 30, 2012

A video of Hayek in 1980

An amazing video of a great thinker and a dominant influence of the XX century. At the age of 81 years old he still showed his enormous oratory and his ability to expose his arguments and do it in a profusely way.

Monday, December 24, 2012

Anscombe’s Quartet

The following chart (Anscombe’s Quartet chart) is the result of numbers that have identical statistical qualities (mean, variance, correlation, linear regression) but different visual patterns. Without visualization these patterns would have been difficult to spot.

Monday, December 17, 2012

Republican votes

I was reading this post about Republican votes in US and I came across this chart.

It shows the percentage of votes to Republicans in 2000, 2004, and 2008 elections (not 2012 unfortunately). It seems that less education and more salary both increase the chances of voting for Republicans (white voters). I want to focus on how chart is displayed. It seemed to me a bit confusing or at list no easy to read. So I tried to imitate Hans Rosling and designed this dynamic chart. It shows all the info except standard deviation. I don’t know if it is clearer but the attempt deserves to be here.

Saturday, December 8, 2012

Financial markets and economic growth 2

Last post reminded me about this article that appeared in February 2012 in The Economist. We were talking about the relation between economic growth and financial liberalisation. According to recent research the second improves the first but the price to pay for it is a higher risk and less financial and economic stability. Using Modern Portfolio Theory, we could argue that more stability can be found using diversification. So, a more diverse and opened society or country should improve its economic growth while keeping its economic stability under control. Unfortunately, diversification it’s becoming difficult to find. According to The Economist article, the correlation of international assets is becoming higher.
As The Economist says:
There is an irony at work here. Global funds are invested in Brazil and China because investors want a diversified portfolio. But the very act of diversification means that these markets become more tied to the developed world and the rewards of diversification are accordingly reduced. It is not really diversification when everyone has the same idea.

Saturday, December 1, 2012

Financial markets and economic growth

This article appeared in on November the 3rd 2011. Wrote by Popov and Smets from ECB it summarizes recent available research on the relation between finance and economic growth. According to them, a decade ago researchers were already convinced of the relation:
A host of academic papers had concluded that deeper domestic financial markets improve economic efficiency, lead to a better allocation of productive capital, and increase long-term economic growth (see Levine 2005 for a recent review) […] Financial market liberalisation – in particular, equity market liberalisation – has also been found to raise long-term growth by about 1% per year (Bekaert et al 2005).
financial markets provide valuable services, like channelling resources from people with money and no ideas to people with ideas and no money, screening out unproductive projects, and actively monitoring and providing value-enhancing services to productive projects
But other researchers argued that this growth increase is not for free:
more dynamic financial industries and more integrated financial markets are associated with more frequent financial shocks and higher macroeconomic risk. For example, there has been a strong perception that foreign capital increases volatility both in the financial markets and in the real economy (Stiglitz 2000).
Authors Popov and Smets, argue that
there is a tradeoff between growth and risk and that vibrant financial markets may tend to exacerbate this tradeoff
In summary, although well-developed financial systems play a crucial role in stimulating growth they are also associated with more frequent financial shocks and higher macroeconomic risk.

The truth, authors say, is that this is an old debate:
Schumpeter’s view was that cycles are efficient. Because productive ideas do not arrive at a constant rate, economic growth tends to be associated with a boom phase, followed by a recession that ensures that unproductive projects are cleansed from the economy. In contrast, Minsky (1986) – and also Kindleberger (1978) – contended that finance tends to cause an inefficient boom-bust cycle. Good times give rise to speculative investor euphoria and excessive debt and leverage which ultimately leads to a costly financial crisis.
All this reminds me about the Modern portfolio theory which essentially says that increasing asset returns are inherently linked to more risk and diversification can reduce that risk.

Tuesday, November 27, 2012

Proficiency in English.

Proficiency in English.

English has become the world’s language. It is probably the most important language ever. Today, no professional can survive without a proficient level. This is almost a fact everywhere, although, there are differences between professions and countries. It´s much more important for an economist than for a firemen it´s much more important in a small country that depends on international trade than a big one. However, in broad terms, it can be said that,  wherever you live, whatever you do, you better learn and become proficient in the use of the English language. 

Its importance will only increase in the future and second languages will not get even closer. This is not specific of languages buut a common consequence of globalization. International trade and growing international relations need and demand less costs of transactions, language diversity only increases it.

EFP (Education First) shows in this map the level of English per country and some interesting correlations.

Sunday, November 18, 2012

World inequality

On the first of November Branko Milanovic updated his inequality calculations. He has been doing so since early 90s and today are a world reference.

Milanovic defines three types or concepts of inequality: 1) inequality between countries without weighting by population size, 2)the inequality between countries  weighting by population, and 3) the global inequality between citizens.

By his own words "Inequality 3 is  the  global inequality, which is the most important concept for  those interested in the world as composed  of individuals, not nations. Unlike the first two concepts, this one is individual-based: each person, regardless of her country, enters in the calculation with her 
actual income"

The evolution of the three Inequality concepts are shown in the graph below:

Contrary to what many people states, world inequality has been declining in the last 20 years, at least by Concept 1 and 2. For Inequality type 3 the evolution has been flat for the last 30 years but declining in the last 10 years.

Milanovic states that "the period might have witnessed the first decline in global inequality between world citizens since the Industrial Revolution."


"The decline however can be sustained only if countries' mean incomes continue to converge (as they have been doing during the past ten years) and if internal (within-country) inequalities, which are already high, are kept in check. Mean-income convergence would also reduce the huge "citizenship premium" that is enjoyed today by the citizens of rich countries."

So, the main driver of the lower inequality recent trend is that countries' GDP per capita are now much more similar than before.

The western world is not aware of this, and their perception is that inequality has risen. This has been, in fact, the case for citizens in Western contries:

Sunday, November 11, 2012


For those who don’t know yet about let me introduce this website. is what we could call the stock exchange of political issues. Well, in fact they include not only political issues but also related to weather, current events, foreign affaires,… They define it as:
is a prediction market. What is a prediction market? It's a market that allows you to make predictions on the outcome of hundreds of real-world events. Stock exchanges find the price of stocks, and futures markets find the price of commodities. Prediction markets find the probability of something happening - a predefined, uncertain future event.
The idea is just brilliant. Let’s just hope that only real event affect share prices and not the other way around. It is not hard to imagine that one day profits from shares could affect political decisions.

Monday, November 5, 2012

Government and the inequality policies efficiency

 Let´s imagine that the only function of a Government were to redistribute income to make societies more equal. An easy way to measure the efficiency of each Government would be then to calculate the difference between the Gini index before taxes and subsidies and after.

It is fair to mention that not all Governments are of equal size, some are bigger than others and therefore more capable of redistribute income. To measure Government size a “% Government expenditure over GDP” variable might be used.

The following graph shows the relation between “% Government expenditure over GDP” (horizontal axis) and the reduction of the Gini variable (before and after taxes and subsidies) (vertical axis).

The residuals of the fitted values might be understood as the efficiency given the size of Government.

If all the assumptions of this piece are correct Germany’s Government would be the most efficient and the UK’s the least. 

Sunday, October 28, 2012

Top marginal tax rates

Recently some rich people in France and US have asked the government to increase their own taxes. Some comparisons are awkward like the amount paid in taxes by Buffet or Romney which is around 15% (several percentage points below a middle class American).
The following is a nice graph that shows the evolution of the top marginal tax rates since 1916.

It can be found at:

Sunday, October 21, 2012

Ranking of economic blogs

There are many blogs about economics out there. Some are more academic, others are addressed to the general public and therefore more popular and some are generally ignored like this one.

There are also some websites that provide economic blog rankings. But none, as far as I’m concerned, has put together the two dimensions above together. In any case, the real reason of this post is that I wanted to create my own ranking based on these very dimensions: quality and popularity.

The method I used is pretty simple. First, I took the 75 best blogs in economics according to econacademics. This website ranks blogs by the number of academic papers linked in their posts. For example, the first one is: Economic logic, which has linked so far more than 900 academic papers. I took the econacademic ranking as a proxy for quality.

The second step was to check their Google PageRank value as a measure of the popularity dimension. In short, the higher the value at Google PageRank, the more likely to be in the front page of any search at Google.

The result of both dimensions is plotted in the following chart:

Apparently, there is a negative correlation between popularity and number of academic papers. So, if you are a blogger who wants more clicks remember not to talk about academic papers!

The next step was to rank them all by a single method. What I did is basically sum the two rank values for each blog.

And the winner is:

#blogrank qualityrank popularitysum of ranks
1Stumbling and Mumbling21315
2Economist's View15520
3Environmental and Urban Economics51520
4Economic Logic12324
5Organizations and Markets131427
6Marginal Revolution26228
7Environmental Economics22830
8Club Troppo92130
9NEP-DGE blog42630
10RePEc blog201131
11Grasping Reality with the Invisible Hand30333
12NEP-HIS blog112435
13NEP-LTV blog72835
14The Irish Economy191736
15Nada Es Gratis103040
16The Reality-Based Community35944
17Worthwhile Canadian Initiative291645
18The Big Picture43447
19Simoleon Sense143347
20Overcoming Bias41748

Monday, October 15, 2012

Banking concentration and financial crisis

This paper is an old one (2005 is old?). It deals with the old debate of banking concentration, banking efficiency and systemic risk. In fact, in the second line of the introduction, authors states:
Indeed, economic theory provides conflicting predictions about the relationship between the concentration and the competitiveness
So, apparently there was nothing but conflict about this issue. But this paper was/is a milestone not only because Levine is one of the authors but also because is the first paper to use a goodly amount of data: 69 countries and 20 years
Using data on 69 countries over the period 1980–1997, this paper provides the first cross-country assessment of the impact of national bank concentration, bank regulations, and national institutions on the likelihood of a country suffering a systemic banking crisis
It is true, Reinhart and Rogoff 2008 book was even more of a milestone but I will talk about it in another post. What I like about this paper is that it was written before the Great Recession and they came up with the following conclusion that contradicts today’s main pro-regulatory arguments:
crises are less likely in economies with more concentrated banking systems even after controlling for differences in commercial bank regulatory policies, national institutions affecting competition, macroeconomic conditions, and shocks to the economy. Furthermore, the data indicate that regulatory policies and institutions that thwart competition are associated with greater banking system fragility […] our analyses suggest that the relationship between concentration and crises is not driven by reverse causality.
Results are pretty clear whatever the control variables are:
Including economic indicators:
Including regulatory variables:
Including cultural variables:

Sunday, October 7, 2012

The curious case of GDP and the public sector

As you probably know already GDP is measured as net output or in other words excluding inputs. A simple example, let’s say a country A only produce pencils, then it’s GDP would be:

GDP= (number of pencils produced x price of pencil) – (price of imported wood and lead)

This method is applied to all product and service produced inside a country except for public services and products. Because public output can’t be measured by market means (there are no prices for public health or public primary education) economists came to the conclusion that the best way to quantified them is measuring them by their inputs.

The problem is that when using this method, inefficiency is not taken into account and GDP becomes erroneous. An example: let’s say that the public sector of country A is much more efficient that in country B, but both spend the same amount of $ (same input) on it. In such a case the GDP published by both countries would be the same although country B would be producing less public output than country A.

So, the essence of GDP which is the value added of an economy is then dodgy. FrancescoGrigoli and Eduardo Ley tried to correct this problem by measuring public inefficiency and then adjusting national GDP. 
“Our results suggest that the magnitude of the correction could be significant. When
correcting for inefficiencies in the health and education sectors, the average loss for a set of 24 EU member states and emerging economies amounts to 4.1 percentage points of GDP.”
The following chart shows the relation between GDP loss and GDP per capita

 According to their explanations, there is no relation because poorer countries have smaller public sectors than richer ones and therefore their higher inefficiency is compensated.

Monday, October 1, 2012

Demand for sovereignty

A new threat seems to haunt the European Union, nationalism. It is spreading all through the continent, from UK to Finland and from Netherlands to Greece. These movements claim to be against the political unification of Europe but nationalisms has also spread to the existing countries itself. Some regions have raised for independence as never before. Catalonia pro-independence movement has grown hugely in the last years, as it is the case in Scotland.

It is pretty obvious that anti-EU nationalism and the regional pro-independence movements have the same root, the European economic crisis. Sovereignty conflicts have been always very linked to the situation of the economy.

Since late XX century academic research has analysed regionalism and nationalism movements from the economic perspective. The last paper I know of comes from Nicholas Sambanis and Branko Milanovic.  Branko Milanovic is well-known economist from the World Bank and an expert on inequality issues. In “Explaining the Demand for Sovereignty” both authors analyse the roots of sovereignty demand and reach an interesting conclusion: wealth is the most important factor behind sovereignty demands and not ethnicity.

In their own words:  
“richer regions are more likely to want more autonomy and conflict arises due to a disparity between desired and actual levels of sovereignty."

According to a previous paper from Buchanan and Faith (1987) the success of a regional independence movement depends in part on that region’s wealth.

There are, however, other factors: 
 “positive association between, on the one hand, relative regional income, regional population share, natural resource endowment, and regional inter-personal inequality and, on the other hand, observed sovereignty levels. Ethnically distinct regions have lower sovereignty, but this association is only conditional on controlling for the interactive effects between ethnic distinctiveness and regional inter-personal inequality."
 The regression results and variables used:

Monday, September 24, 2012

Tools and useful links

I want to show you some Databases and tools to gather, analyse and present data available on the Internet.

Best databases (for free) 
Best tools (free and not free)
Instead of repeating the job of others, I prefer to link here the list of best tools of data analysis and visualizations made by Flowingdata

Courses on statistics and data analysis (for Free!)

Saturday, September 15, 2012

Ngram and beyond

The more I play with Ngram visualizer, the more I enjoy it. There are many charts on the Internet comparing things like supply vs demand, comparisons of most cited scientists , comparisons of most cited economists or stocks and bonds. And finally a really nice TedTalk about Google Ngram.

Some people came up with a name, instead of "playing with ngram" they call this culturonomics

Monday, September 10, 2012

Who gives more support to disable people?

Now that the Paraolympics are over I wonder how Paraolympics medals tally is compared to Olympic medals one per country. I know this is not a proper way of measuring support to disable people but I though it could be interesting. The result is pretty shocking. The graph below shows only the top 43 countries in the olympic medals' ranking. Clearly, China shouldn't be that high given their poor care to disable. It is also strange to see Denmark so low in the ranking.

Olympic vs paraolympics

Saturday, September 1, 2012

One thousand Ngram charts

Google Books state that they have digitalised the 4% of all books ever published, more than 5 million books (and journals) since 1500AD. With that amount of data they quickly came up with the idea of a visualization tool. Google Ngram is the visualization tool of Google Books and is a easy and fast way of visualizing information and tendencies in the use of words and group of words through history. Informationisbeautiful took some nice comparisons between different words:

Plato (blue) vs Aristotle (red)since 1800AD
Religion (blue) vs Science (red)since 1750AD What (blue) vs When (red) vs Why (green) vs How (yellow)since 1800AD
1900 (blue) vs 1910 (red) vs 1920 (green) vs 1930 (yellow)...since 1900AD

Saturday, August 25, 2012

African interactive atlas

Harvard University published some time ago this interactive atlas of Africa where you can compare many issues, for example, the huge ethno-diversity of the continent. Central Africa is amazingly diverse, no wonder why are there so many problems. 

Sunday, August 19, 2012

History of the world using Wikipedia

Another nice visualization, this time it is a mix of history and Wikipedia posts. Made by Gareth Lloyd and using geotagged entries on Wikipedia. This video shows history as it appears in Wikipedia. Most of the action happens in Europe and US, obviously it doesn't mean that nothing happened in other parts of the world rather that in Wikipedia, Europe and US, are more relevant than other places. Each spark has its own color which represents different fields.

He also provides his original data in Google Docs

Tuesday, August 14, 2012

European colonization was the root to present economic development

Easterly and Levine wrote a new paper about development. This time is about European settlements and its effect on economic growth. Many researchers theorise that Europeans have been a source of development and have spread economic growth worldwide (see Acemoglu, Johnson, and Robinson 2001 paper). European colonizers made other regions rich trough institutional, technological, cultural, and economical channels. Although, there seems to be an important consensus on this, no one had carried a proper empirical analysis due to lack of proper data. Easterly and Levine, “construct a new database on the European share of the population during the early stages of colonization and examine its impact on the level of economic development today.” Their results agree with the consensus: “We find a remarkably strong impact of colonial European settlement on development” They specifically argue for European effect and not only British or Protestantism. These arguments may sound Euro centrist but data is clear about it: “According to one illustrative exercise, 47 percent of average global development levels today are attributable to Europeans”. “The regressions suggest that Europeans brought factors of production that boosted long-run economic development, especially among colonies with a only a few Europeans.[…] A marginal increase in European settlement in a geographic area during colonization had an especially positive effect on the level of economic development today within that geographic region.”

I feel there is something missed in all these studies. They always use present times as point of reference. However, Europe hasn’t been always the apex of the world power. During Middle Ages the Arab world was the most powerful and technological advanced society. China was the world superpower during centuries. Ancient Egypt (Africa) was also the centre of the world before Christ. Is it true, however, that the economic expansion that Europe brought to the world is by far larger than this other civilizations, but is also true that Europe wasn’t born in the vacuum, it owes everything to China, Egypt, Babylonia, Mesopotamia,….

Sunday, August 5, 2012

Olympics and GDP

The Olympics are under way in London and everyone is expecting great results for their country. There are also many newspapers publishing charts about the medals tally and its relation to each country’s population (see The Economist, for example). Although Olympic winners seems pretty random and difficult to predict, there are people who have been able generate interesting models to estimate country’s total medals. The best analysis I could find out was made by Xun Bian a student of Illinois University in 2005. Results are shown in the following table.

Population effect is positive and significant as it is GDPpc and a Dummy for the host country. What is not so evident is the effect of civil and political liberties. Two reasons may explain that. First, clearly civil and political variables are affecting GDPpc so part of their explanatory power is inside GDPpc variable. Secondly, is interesting that the fact that communist countries like USSR (back in the 80’s) or Cuba had more medals than freer countries. This is due to the fact that communist countries had a huge central Government capable of good sports achievements and willing to take political and ideological profit from their results. However, most Not-free countries were too poor to maintain any competitive sport infrastructure. Graphically, the relation between medals and GDP is not evident as it is for GDP and number of competitors. Below I show this second relation only for Beijing’08.

Wednesday, August 1, 2012

t-student or ANOVA

I just want to remember myself that t-student compares two independent samples, so if we want to probe that averages from several samples are all equal, t-student must be carried out several times and that would change the critical value and the alpha value.

Say there are 4 (i =1,2,3 and 4) samples and their averages are µi. Our null hypothesis would be:

H0: µ1 = µ2 = µ3 = µ4

H1: averages are not all equal

t-student here would imply 6 comparisons (µ1 = µ2, µ1 = µ3, µ1 = µ4, µ2 = µ3,…) bringing a final alpha of 0.26 instead of the common 0.05

ANOVA analysis can do this. Three requirements are needed though:

Independence: k sample are independent,
Normality: all samples are distributed N(µi , σ2 i)
Homocedasticidad: all variance equal to σ2

If the F-value is less than the critical value (associated to alpha=0.05) and therefore P-value less than 0.05, then we reject the H0 (or better: we can not accept the H0).

Tuesday, July 24, 2012

PhDs in gloomy times

If you are nowadays a PhD student in Economics you will be glad to know that according to this paper from Michael Boehm and Martin Watzinger, you are probably going to be a more productive researcher (in terms of academic publications) than if you were graduating in a glorious economic period:

“Economists starting or graduating from their PhD in a recession are significantly more productive over the long term than economists starting or graduating in a boom.”


“It is well documented that graduates enter different occupations in recessions than in booms.” In recessions they move to more stable industries like academics. Therefore, “the quality of talent in a relatively more stable industry [like academics] increases in recession”.

So, this increase on PhD’s productivity is coming from a shift on talented people career decision, from business sectors to academic sectors. Thus, this is a positive consequence of economic recessions, when “talented individuals choose to work in entrepreneurship or research instead of rent-seeking sectors, this may have some social benefits that subtract from the immense adverse effects of downturns”

The data analysis

In the first column, the outcome variable qi,t is the average publication output of a cohort of graduates from university i in year t. In the second column, it is the average propensity to decide in favor of an academic career after the PhD, and in the third column, qi,t is the average productivity of those who stayed in academia after the PhD. Application and Graduation rows takes into account the date of the measurement. Application means that the measure was made when the students applied for the PhD and Graduation when graduated.

Unemployment change, both at time of application and at graduation, has a significantly positive effect on research productivity at the five and one percent level, respectively.

There's something unclear about it. If people graduated in gloomy times are more produtive than those from normal times why are their salaries lower in the long-term? As Oyer said

Sunday, July 15, 2012

More about trade

Hal Varian Chief economist at Google and ex-Berkeley explained easily why everyone wins with trade using the following example:
Imagine a world where American workers could subcontract production to foreign workers on their own. Paul could send an e-mail message with his programming assignments to Avinash every morning and receive the completed work back in the afternoon. In exchange, Paul would buy a money order for one-tenth of his salary each month and send it to Avinash. Paul could take on another job, earning more money, or he could just take it easy. Sound like a good deal for Paul? Of course it is: he would jump at the chance to subcontract on those terms. Even though Paul would hire Avinash to do his job if he could capture the wage difference himself, Paul would still be understandably upset if his employer laid him off and outsourced his job to Avinash. This thought experiment illustrates that the debates about trade are not about whether we should accept those good deals offered to us by cheap foreign labor - of course we should. The debate is all about who will capture the benefits from those deals and who will bear the costs. Ideally, those who benefit the most from trade would compensate those who lose. In practice, virtually everyone benefits to some degree from cheaper goods and services, so compensation for those who lose from trade should come from general revenues.

Sunday, July 8, 2012

Perceptions in Europe

According to a recent Pew Research Center survey, Europe countries have different perceptions of their neighbours and themselves. For example, Greeks consider themselves as the most hard-working country in Europe while the rest consider Germany as the perfect society to live in.

Sunday, July 1, 2012

World Bank data

You may already know this, but the World Bank is an infinite source of data. World Bank Data website offers millions of data. 7,000 indicators for almost every single country in the world. Micro and Macrodata. On social, environmental, economics, governance, policy,.... issues. They offer a data visualizer application and also the application to map all this data including the micro one. These applications are easy-going and fast.

Saturday, June 23, 2012

High Unemployment

Europe has a huge mess with unemployment. Well, to be fair, some European countries have a huge mess with unemployment. Yet still, Europe in general has experienced some common trends not seen in US and in average a higher rate of unemployment. Yet not always was it this way. Previous to the 80’s European unemployment had always been lower than in US. It was in the 70’s and early 80’s when things turn around and since then Europe unemployment has been always significantly higher.
The best theoretical explanation of these events was made by Blanchard and Summers 1986 paper, “Hysteresis and the European Unemployment Problem”. Blanchard and Summers explained that the reasons for that change of pattern were the industrial changes of the 70’s and the raise of long-term unemployment. In short, the 1970’s welfare organization in Europe provided a net for those falling in unemployment. But in a period of industrial change, unemployed people relied too much in welfare and did not realized that the rules of the game had changed forever. They were not going to find the same jobs anymore, because those industries were not there anymore. So, long-term unemployed became chronic in Europe. Inside Europe no other country illustrates unemployment theories better than Spain. Spain’s case has an interesting extremist unemployment market. The roots of which can be found at Franco’s dictatorship that for 35 years had been created a paternalistic, hierarchical and rigid society where changes were hard to make. When in late 70’s Spain got rid of the dictator the global economic changes of the 70’s hit Spain really hard (in fact, any global change would have stroke that rigid society). So, just exactly when Spain was defining itself as a democracy and creating new set of laws, a huge economic crisis stroke and so the Spanish society became paralysed of fear and a military coup d’état. Many necessary changes were indefinitely postponed. Thus, old-fashioned laws let long-term unemployment in Spain become a common situation, much more common than in Europe. Unemployment rates never dwindled below 8% levels, but reached 20% during the 80’s and 90’s crises. In order to decrease long-term unemployment the Government created new temporary contracts that were in many cases applied to some of those long-term unemployed. However, the consequence was that two labour classes were pull apart. One class was for those unemployed or in temporary contracts and the other was for those with permanent contracts or civil-servant positions. This is how Spain became the perfect example of what has been called Dual Economy or Insider-Outsider theory. According to it, Spain’s Insiders are those with permanent jobs and civil-servants and Outsiders are those who are in temporary jobs or unemployed. The first ones are over-protected by labour laws and collective bargaining (another Franco inheritance). Wages and working conditions for workers under permanent contracts are covered by these collective bargaining agreements that protect them. The salary bargains in Spain are made at province and industry level by trade unions and employers’ organizations. Collective agreements have the status of a law, affecting all workers and firms in the relevant area. In consequence, firms can not adjust wages to their own productivity and sacked them or changing their status is very difficult (even more difficult for civil-servants). By contrast, Outsiders have to bear most of the precarious jobs and unemployment periods. Out of the 1.6 million employees to have lost their jobs since mid-2007 till early 2012, 1.4 million had temporary contracts. Today’s unemployment in Spain is outrageous. The latest figure showed at staggering 24.4% unemployment rate, (50% of youth unemployment) by far the highest rate of the developed world. The cause is still the same as in 80’s and 90’s, the Insider-Outsider division. The best way to prove it is by using this chart (modified from NeG):
This chart contradicts the basics of economics and the basics of demand and supply theory. Real average salaries increases in Spain were, since 2007, always above inflation. Even when unemployment reached 24%, salaries increases were above 1%. The only possible explanation of this is the Insider-Outsider theory. How could this situation not be changed? The answer is because Insiders have a lot of political power. Young people and Outsiders in general have been always a minority in Spain (although a big minority). Labour rules were only changed, marginally, three times since 1980 and they all happened when Outsiders were a majority, in 1994, 1997 and 2012. You may ask yourself that if Outsiders’ minority is the problem, Why Netherlands, Germany or Sweden outsiders are not suffering the same or even worse burden? The key point here is, when and how were the rules of the game established. For Spain it was the worst possible moment and that determined the labour market equilibrium of today.

Friday, June 15, 2012

GDP and SP500

I already knew the stable growth path of GDP per capita in US when logarithm is applied in the last century. It has always been around 2% annual increase and the only big exception was the Great Depression. What I never saw before was the evolution of SP500 for those 100 year. It seems according to the chart that, although less stable, the average growth has been 1.9%. This chart was published by and they collected the data from David Shiller and They also note that the 0.1% difference may well be due to the fact that the stock price series were adjusted for inflation using CPI-U while the GDP per Capita was adjusted with the GDP Deflator.

Thursday, June 7, 2012

Real time Easter Expenditures in Spain

The MIT SENSEable City Lab and the BBVA bank, have created this visualization where we can see spending in Spain during Easter of 2011. The movie shows commercial activities of 1.4 million people and 375,000 businesses. In sum, over 4 million transactions in real time.

Friday, June 1, 2012

Creativity and GDP

I am delighted about World Values Survey data. It's just brilliant. They asked 1000 people per country questions related to their social, ethical, moral and economic life. Results are very interesting and give a lot of insight. I tried to find a relation between those questions and GDPpc PPP. I assumed that one of the following questions should have a relation to GDP:

1- It is important to this person living in secure surroundings?
2- It is important to this person adventure and taking risks?
3- It is important to this person to think up new ideas and be creative?
4- How important is work in your life?

We all would thought that the last question should be correlated to GDPpc. But look at this Correlation coef. for 15 developed countries:

question1(inverted) question2 question3 question4
GDPpc PPP 0.32006 0.06363 0.42821 -0.34265
ln GDPpc PPP 0.31429 0.03711 0.47647 -0.37323

'Importance of work' and GDPpc correlation is negative! instead 'Creativity' is the one with a higher coefficient. Isn't it nice? I know this is far from an academic paper but is interesting anyway.

Saturday, May 26, 2012

Economists and the General Public bias

Who is the most important economist nowadays? Logically depends on who you ask. Davis, Bob Figgins, David Hedengren and Daniel B. Klein asked 300 academic economists who is their favourite economist nowadays under 60 years old and below. Not surprisingly, results for nowadays economist under 60 years old showed the following list:
The top-16 list for economists older than 60 years old:
Davis et. al. paper also asked surveyed economists to quantified liberalism for some famous economist in a 1-4 scale. Results are shown in the last columns above. Then I wondered how close this list would be to the general public or general newspapers mentions. I couldn’t find a public survey on this so I took Google News tool and Google search tool results as a proxy. (I excluded Bernanke as he is more a political or public figure than economist) Using the liberalism variable and the differences of mentions between economists and general public I created the following chart to see if there is any bias of the general public in comparison to the economists. I measured the difference between economists and general public as the logarithm of GoogleNews mentions divided by Economists mentions but other measures like a direct substraction also showed the same results (though less significant).
To be honest I was expecting to see a u-form relation, I was expecting to see the general public mentioning more extremist economists (left side and right side of the political spectrum). Surprisingly, it seems that the general news corporations and the general public are more prone to mention left wing economists (low liberal score) than right wing economists. No idea why. Comments accepted.

Sunday, May 20, 2012

Leaders' age 2

Long ago I wrote about the age of countries' leaders. I hoped to see a little increase in recent years but I only had data for 15 years and 4 countries. I found out the data myself which was a bit of a nightmare. Today, I want to show you a fascinating database: Archigos from Rochester University
"it contains information on the date and manner of entry and exit of over 3,000 leaders 1875 - 2004 as well as their gender, birth- and death-date, previous times in office and their post-exit fate"
and it is free! Is astonishing and it's in STATA format. So, I graphed again the evolution of world's leaders median age since 1875 till 2004 and the result is:

Sunday, May 13, 2012

Blogging impact on authors

In March I wrote about blogging impact on academic papers. This the second part of it. Again I refer to an old post from World Bank Development Impact blog. This time Mckenzie and Ozler look at what impact blogs have on authors' relevance. Apparently blogs shouldn't have any influence on academic world. But surprisingly they do influence economists views:
Davis et al. (2011) conducted a survey of academic economists in the U.S., with 299 (15%) responding. The survey asked these academics to list up to three living economists over the age of 60 and up to three under the age of 60 who they “regard with great respect, admiration, or reverence”. Gary Becker, Ken Arrow and Robert Solow were the top choices among the over 60s, and Paul Krugman, Gregory Mankiw and Daron Acemoglu the top choices among the under 60s. The under 60s list of 23 names contains a number of regular bloggers – in addition to Krugman and Mankiw are Steven Levitt, William Easterly, Nancy Folbre, Dani Rodrik, and Tyler Cowen. We merge this list with a list of the top 500 economists according to the RePEc rankings (based on paper downloads, citations) and also code each of the RePEc top 500 according to whether they blog or not. This data is then used to estimate a probit model to see whether, conditional on RePEc ranking, individuals who blog are more likely to appear on the above list of favorite or admired economists. Table 2 shows the results, for the pooled sample in column 1, and separately for under 60 and over 60 economists in columns 2 and 3 respectively.

In all three columns we see that, conditional on their RePEc rank, regular blogging is strongly and significantly associated with being more likely to be viewed as a favorite economist. Blogging has the same size impact as being in the top 50 of RePEc rankings for the under 60 economists, and a larger impact for the over 60 economists. This evidence is thus consistent with the view that blogging helps build prestige and recognition in the profession, with bloggers being more likely to be admired or respected than other academics of similar (or in many cases better) publication records.

Sunday, May 6, 2012

Dynamic economics

Some amazing visualizations showing why studying clusters and city or regional economics is a difficult task. People's links are larger the more we zoom in and that is why is easier to analyse countries' GDP than to analyse cities' GDP. The economy is a dynamic concept while geography or location are a static concept.

Deluge from even westvang on Vimeo.

Taxi! from Juan Francisco Saldarriaga on Vimeo.

Sunday, April 29, 2012

Economic Research per country and US state

Some posts ago I showed a world map of Economic Departments that I made using online software. Today I want to show the next map that occurred to me. (The following map was made using the same software and data source). Here, I split up USA into states and research was worked out using aggregated academic papers' impact. It can be seen that many US state by themselves are ahead of the economic research worldwide.

Countries map US-World Economics

It would be great to know what variables can explain states/countries amount of research. I guess that GDP may be a basic explanatory variable. So, if we rank all countries by GDP PPP and Economic variables and we plot it, we get the following chart.

Economic Research vs GDP

Where dots on the black line are countries that are ranked in the same position for GDP and 'Economic Research'. Dots above the black line are doing more economic research than we would expect given their GDP. And the opposite is for dots below the black line. District of Columbia is arguably a special case, but Israel, Switzerland, Connecticut, Missouri, Massachusetts,... are examples of overachievements in economic research giving their income. Japan and Texas are on the underachievement zone.

To be honest, I think this is misleading because countries like China and India which have a huge GDP are basically very poor and therefore we shouldn't expected high economic research from them. Using GDP per capita wouldn't solve the problem because Luxembourg is rich but too small.

So, the following chart only includes the richest countries/states (excluding small states/countries like Distr. of Columbia) and its regression line. Note that axis are no ranks anymore, simply the Ln(GDP ppp) and Economic Research value (the lower the more they research):

enlargement 2 of GDP vs Eco.Res.

Sunday, April 22, 2012

One thing you should never predict is the future

The following piece is my first post at New Economic Centre a blog friend:

Sala-i-Martin a Columbia University professor wrote not long ago that if you want to know how the economy is going to perform in the next years you should not ask an economist but a fortune-teller.

The truth is that usually economists are mistaken for fortune-tellers. Economists’ main duty should not be long-term forecasts but to analyse policies effectiveness. Like weathermen, some economists do short-term forecasts, but those are basically based on the ‘what goes ahead must be similar to what’s left behind’ principle. That is, they use statistical models that predict the future based on the past. That is like driving a car looking at the rear-view mirror. In short, economists are ignorant of future events as anyone.

Yet there are exceptions to any rule. In particular, I found two exceptions worth mentioning. One is 1996 Paul Krugman masterly article in the New York Times and the other is Alan Blinder 2005 academic paper. Both forecasted the same future events, but to do so they didn’t use a crystal ball but basic economic principles. Here I just want to focus on their prediction about the end of higher-education. This prediction, they suggest, is going to happen as a result of two economic events or factors.

First event is about the information age and its importance. Krugman disagreed with all those prophets that argued information to be a key sector: “In general, when the economy becomes extremely good at doing something, that activity becomes less, rather than more, important. […] When something becomes abundant, it also becomes cheap. A world awash in information is one in which information has very little market value.” Today’s world is supremely efficient at growing food; that is why it has hardly any farmers. The future world, and to some extent the present one, is supremely efficient at processing routine information; that is why traditional white-collar workers are going to virtually disappear. Many of the jobs that once required a college degree or postgraduate degree will be eliminated. College provides knowledge and information to its students but as it’s been said information is going to lose its value, computers which are proficient analysing and processing information will replace white-collar professionals.

The second event is about the possibility that human analysts play a –small- part in the information sector. If such future happens, white-collar workers of Europe or America won’t have an opportunity either. In this future, information will be transmitted easily to poor countries and analyzed there for a fraction of the cost in Boston or London. This is what has been called, downsizing and outsourcing. Downsizing and Outsourcing are already affecting for the first time the college, white-collar graduates and will affect them even more in the future. Alan Blinder give us a clue why this is happening “…because technology is constantly improving, and because transportation seems to grow easier and cheaper over time, the boundary between what is tradable and what is not tradable is constantly shifting-- Over time, more and more items will become tradable. Many services are now tradable and many more will surely become so”.

Consequently, wages trends are clear, educated jobs will diminish. In relative terms, personal, face-to face jobs, (that is, jobs that cannot be delivered electronically) will see an increase of their wages. Face-to-face jobs like paranursing, waiters, firemen, policemen, carpentry, household maintenance and so on, “[will] pay nearly as much as if not more than a job that requires a master's degree, and pay more than one requiring a Ph.D.”

This should be rather obvious already; Steve Jobs and Bill Gates were college dropouts, Krugman argued. He finished saying that white-collar, college-educated workers will be fired in large numbers, even while skilled machinists and other blue-collar workers will be in demand. This will signal that the days of ever-rising wage premiums for people with higher education are over. Without investment returns for students, higher-education will lose their clients and without clients universities will disappear or in the best-case scenario become what they were back in the 19th century, a club for the children of the rich, a social institution “to refine their social graces and befriend others of their class.”

So, in conclusion “education, full stop, cannot be the answer anymore.” Blinder says. Don’t get too scared, Dr. Blinder also offers a solution “Want to get ahead today? Forget what your parents told you. Instead, do something foreigners can’t do cheaper. Something computers can’t do faster.” For example, playing live a piece of beautiful music can not be done faster or abroad.

Sunday, April 15, 2012

Rats and Easterly

I must confess, William Easterly is probably my favourite economist. He's an expert in development economics with a scientific approach. There are others but prof. Easterly combines deep theoretical and empirical knowledge of development economics with a gift for turning difficult concepts into easy ones. An old article that I found in my own library and available here, is a good example. Below there's a summary of his article. "Laboratory experiments show that rats outperform humans in interpreting data" he goes. The experiment appears in an amazing book by Leonard Mlodinow.
The experiment consists of drawing green and red balls at random, with the probabilities rigged so that greens occur 75 percent of the time. The subject is asked to watch for a while and then predict whether the next ball will be green or red. The rats followed the optimal strategy of always predicting green (I am a little unclear how the rats communicated, but never mind). But the human subjects did not always predict green, they usually want to do better and predict when red will come up too, engaging in reasoning like “after three straight greens, we are due for a red.” As Mlodinow says, “humans usually try to guess the pattern, and in the process we allow ourselves to be outperformed by a rat."
Unfortunately, spurious patterns show up in some important real world settings, like research on the effect of foreign aid on growth.research looks for an association between economic growth and some measure of foreign aid, controlling for other likely determinants of economic growth. Of course, since there is some random variation in both growth and aid, there is always the possibility that an association appears by pure chance. The usual statistical procedures are designed to keep this possibility small. The convention is that we believe a result if there is only a 1 in 20 chance that the result arose at random. So if a researcher does a study that finds a positive effect of aid on growth and it passes this “1 in 20” test (referred to as a “statistically significant” result), we are fine, right? Alas, not so fast. A researcher is very eager to find a result, and such eagerness usually involves running many statistical exercises (known as “regressions”). But the 1 in 20 safeguard only applies if you only did ONE regression. What if you did 20 regressions? Even if there is no relationship between growth and aid whatsoever, on average you will get one “significant result” out of 20 by design. Suppose you only report the one significant result and don’t mention the other 19 unsuccessful attempts. You can do twenty different regressions by varying the definition of aid, the time periods, and the control variables.
This practice is known as “data mining.” It is NOT acceptable practice, but this is very hard to enforce since nobody is watching when a researcher runs multiple regressions. It is seldom intentional dishonesty by the researcher. Because of our non-rat-like propensity to see patterns everywhere, it is easy for researchers to convince themselves that the failed exercises were just done incorrectly, and that they finally found the “real result” when they get the “significant” one. Even more insidious, the 20 regressions could be spread across 20 different researchers. Each of these obediently does only one pre-specified regression, 19 of whom do not publish a paper since they had no significant results, but the 20th one does publish their spuriously “significant” finding (this is known as “publication bias.”)
So, there would be 20 researchers multiplied per 20 regressions each. That's 400 regression, of which only 1 was statistically significant and 399 were not. So then we have a published paper stating a significant relation and 399 unfairly unpublished.
But don’t give up on all damned lies and statistics, there ARE ways to catch data mining. A “significant result” that is really spurious will only hold in the original data sample, with the original time periods, with the original specification. If new data becomes available as time passes you can test the result with the new data, where it will vanish if it was spurious “data mining”. You can also try different time periods, or slightly different but equally plausible definitions of aid and the control variables.
Unfortunately, journals are not keen to publish reviewing papers.

Tuesday, April 10, 2012

World map Wikipedia

This is probably one of the most amazing maps I have ever seen. Made by TraceMedia in collaboration with the Oxford Internet Institute. It is an interactive map of the 7 million articles of the world's encyclopedia, Wikipedia. You can select a language and hit search to see the world distribution of articles. You can click on each dot, too. Just brilliant.

Sunday, April 1, 2012

Would I lie to you?

Do I lie to you? According to a recent paper from Raúl López-Pérez and Eli Spiegelman I do. These authors carried out experiments to find out what personality traits and other variables may explain why some people are more keen to lie than others. Results are surprising. For instance, gender* and religiosity have no predictive value against what other previous studies said. The most significant variable is the major of study. Apparently, those who studied Economics or Business (E&B) tend to lie significantly more than other people.

Another covariate that correlates very well with ones honesty is the expectation of others honesty:
expectations are highly predictive of behavior: an increase in reported expectations of other people’s dishonesty decreases the probability of an honest choice, roughly one-for-one
However, even if we take into account expectations, E&B keeps increasing dishonesty:
This is true even after controlling for subjects’ beliefs about the overall rate of deception, which predict behavior very well: Although B&E subjects expect most others to lie in our decision problem, the effect of major remains.
In other words, according to previous studies we know that people lie as much as he or she thinks others lie, but if your major is E&B then you add a bit more of lies than expected.

This is already embarrassing, but there is more. You could argue that there is an endogenous problem there, because maybe those that are more prone to lie are exactly those who end up studying E&B. Unfortunately, not. López-Pérez and Spiegelman used an Instrumental Variable (political position) to get rid of this effect. Results show that, indeed, E&B major has a significant effect increasing the amount of lies.

[FYI, an Instrumental Variable is a method applied in attempting to estimate the causal effect of some variable x on another y. An instrument is a third variable z which affects y only through its effect on x.]

Finally, it may be worth noting that Raúl López-Pérez and Eli Spiegelman and myself are economists.

* there is a tricky aspect about gender. Lopez-Perez and Spiegelman found that gender is not significant once majors are considered. However, E&B are usually more liked by men than women.

Thursday, March 15, 2012

Language and savings

I’ve just read a new paper from a Yale researcher called M. Keith Chen which is extraordinary. This paper states that there is a statistical significant relation between languages and saving rates, health quality and retirement assets. In his own words:
"In this paper I test the hypothesis that languages which do not grammatically distinguish between present and future events (what linguists call weak-FTR languages) lead their speakers to take more future-oriented actions".
In other words, if your native language distinguishes between future and present, as it is in English, Spanish or French…, you are more likely to separate present actions from future consequences. That is a problem because:
"speakers of weak-FTR languages save more, hold more retirement wealth, smoke less, are less likely to be obese, and enjoy better long-run health. This is true in every major region of the world and holds even when comparing only demographically similar individuals born and living in the same country".
"my findings are largely consistent with the hypothesis that languages with obligatory future-time reference lead their speakers to engage in less future-oriented behavior"
This is astonishing, and even more astonishing is the fact that these effects are only caused by language itself and not culture:
"while both language and cultural values appear to drive savings behavior, these measured effects do not appear to interact with each other in a way you would expect if they were both markers of some common causal factor…". "…the effect of language that I measure occurs through a channel that is independent of either cultural or cognitive differences between linguistic groups".
It seems that due to language differences only, people behave differently, but Mr. Chen himself do not rule-out other possibilities.
"Nevertheless, the possibility that language acts only as a powerful marker of some deeper driver of intertemporal preferences cannot be completely ruled out. This possibility is intriguing in itself, as the variation across languages in FTR which identify my regressions is very old".
The author pay special attention to the relation between savings and language which appear to be pretty consistent:
"On savings, the evidence is consistent on multiple levels: at an individual’s propensity to save, to long-run effects on retirement wealth, and in the aggregate with national savings rates".
A bunch of regressions are applied using international surveys and national accounts data to link both variables and get rid of other possible indirect relations. As it can be seen FTR is always a significant covariate: