New Economist

Globalisation index sees Singapore no 1.

The fifth annual A.T. Kearney/Foreign Policy Globalization Index has just been published. There's a new winner, an old loser, and a higher spot for the United States in the ranking of 62 countries' political, economic, personal, and technological ties:

The luck of the Irish finally ran out, as last year’s runner-up, Singapore, took the top spot in this year’s ranking, ending Ireland’s three-year streak. One key to Singapore’s rise was its increased political engagement. The island nation built bridges in 2003 - increasing its financial contribution to U.N. peacekeeping missions by 41 percent. ...Singapore solidified its first-place ranking in foreign trade by signing a bilateral free trade agreement with the United States in May 2003, the first such agreement the United States had signed with an Asian nation. Meanwhile, Ireland’s strong economy slumped, with GDP growth sliding from a robust 6.9 percent in 2002 to a tepid 1.8 percent in 2003.

Note: Countries ranking in the top 10 in each category are shaded orange, and those in the bottom 10 are shaded blue.

UK election: Winners and losers

Which UK households are likely to win, and which stand to lose, after the general election? Yesterday Stuart Adam and Mike Brewer from the Institute for Fiscal Studies published an election briefing note which addressed that question, Proposed Tax and Benefit Changes: Winners and losers in the next term (PDF). It looked at legislated tax and benefit changes due in coming years, coupled with those changes proposed in the major party's election manifesto's. The authors concluded that more households would gain under Conservative and Liberal Democrat tax and benefit plans than under Labour:

On average, the highest-income three decile groups would gain most under the Conservatives, while the remaining seven decile groups would gain most under the Liberal Democrats.

The highest-income two decile groups as a whole would fare worst under the Liberal Democrats, while the remaining eight decile groups would fare worst under Labour. All decile groups gain on average under the Conservatives, the bottom seven do under the Liberal Democrats and the bottom three do under Labour.

Both the Conservatives and the Liberal Democrats are proposing more progressive packages than they did in the 2001 election. This is despite Labour introducing a more progressive package of reforms in its second parliament than in its first.

Got that? If not, Scheherazade Daneshkhu at the Financial Times summarised it well:

Under the Lib Dems, the bottom 70 per cent of earners would fare best; under Labour, the bottom 20 per cent would gain the most; and under the Tories, the top 30 per cent would gain most.

But today's newspaper headlines show most 'cut-and-paste' journalists took the IFS findings at face value. For example:

Take a bow, Daron Acemoglu

The American Economic Association has awarded the John Bates Clark Award for the most promising economist under 40 to Daron Acemoglu from MIT:

Acemoglu is an extremely broad and productive economist. He has made valuable contributions to several distinct fields, starting with labor economics, and successively moving to macroeconomics, institutional economics, and political economy. His most recent work on the role of institutions in development and in political economy is especially innovative, and has already had a large impact on research in these areas. Although Acemoglu is primarily a theorist, his work is always motivated by real-world questions that arise when facts are difficult to reconcile with existing theory.

From what I know of his work, it is well deserved. I was lucky enough to attend his three-part Lionel Robbins Memorial Lectures on Understanding institutions at the London School of Economics last year. It was an impressive performance, as Daron took the audience with great facility through a tightly packed 141 page PowerPoint presentation (available here). As Antonio Saravia notes:

Acemoglu is a very prolific writer. It is a challenge to follow his work at the same pace at which he writes it. But his speed at writing falls short of his speed at talking. I once attended one of his presentations at a conference. I can guarantee you that he also deserves the award for the fastest speaker in the profession.

Hat tip to Tyler Cowen at Marginal revolution, Craig Depken at Division of labor, and Lynne Kiesling at Knowledge problem. For further commentary, also see the interesting piece by David Warsh at Economic principals:

In fact, it was a series of investigations in the history of the European colonization of much of the rest of the world, beginning in the 15th century, that made Acemoglu's reputation, demonstrating that institutions of various sorts were more important to development than economists previously had thought.  The "rules of the game" - the structure of property rights, the presence of markets, and their various frictions, the form that governments take - are key determinants of what happens next, Acemoglu showed, in some unusually inventive and convincing ways.

Also keep an eye out for his forthcoming book, written with James A Robinson, Economic Origins of Dictatorship and Democracy (CUP).

Eleven of the 29 economists who have received the John Bates Clark have gone on to win the Nobel Prize in Economics. I wouldn't be surprised if Acemoglu does too.

Meet Ed Balls, Labour candidate for Normanton

Today's Guardian has an illuminating profile of Ed Balls, Chancellor's brown's former chief economic advisor, by Laura Barton: Can I count on your vote? Aside from the local campaign anecdotes, it tells us what most already suspect: Balls is very smart, confident, and well connected:

Though eminently charming on the Normanton campaign trail, Balls has succeeded in earning himself a reputation elsewhere for being both arrogant and a bit of a bully. Asked what his major achievements were as president of his college undergraduate common room, he cites successfully negotiating a rent rise.

A Keble contemporary, back when Balls was still "Eddie", remembers it slightly differently: "He clearly thought he'd got a good deal, but he got a vote of no confidence - it was so close that they had to go to a ballot of all the college students, which he won comfortably. But he was one of those people who thinks they're so clever that they can't see that they're wrong. And it used to wind people up a lot."

"He was one of the FT's super-bright young people," recalls Peston, who worked on the paper at the same time. "Never a news journalist, always a commentator. We got on because I was also young and loudmouthed and incredibly sure of myself. But when you are as bright and self-confident as Ed is, you put people's backs up a bit. You know what institutions are like, people who've been there for years are asking, 'What is this twentysomething doing writing and talking as if he knows it all?'"

It was a similar story, Peston says, at the Treasury. "Initially some people found it quite difficult. But over time this became less of an issue as Brown and Balls reshaped the personnel."

Brad and Nouriel's China trip report

Nouriel Roubini of the Stern School of Business and Brad Setser from University College, Oxford have just posted a 23-page China trip report (PDF) on their RGE (Roubini Global Economics) website. I doubt many informed readers will entirely agree with their opinions, but its a fascinating view from the coalface:

We spent almost two weeks in China in mid-March. Nothing quite substitutes for on-the-ground impressions, but at the same time, nothing provides an impetus to read widely like a trip. Our perceptions were shaped by our priors, by the reading we did in anticipation of the trip, and by the set of people who we spoke to. Unlike luminaries like Stephen Roach, we did not talk to the top echelon of China’s leadership. Rather, we conversed with policy makers a couple of steps below the leadership, academics close to policy circles and financial market practitioners.

We learned a lot, but we did not find the Rosetta stone of renminbi revaluation either. We did hear many echo the themes that Guo Shuqing, the outgoing head of China's State Administration of Foreign Exchange, laid out in a March speech. Large trade surpluses, rapid export growth, large FDI inflows and large reserve increases are not always signs of economic health. China’s economic expansion is increasingly unbalanced, with too much investment in already prosperous coastal regions and too little in the interior. The next stage of China’s economic miracle will need to focus on developing domestic consumption, not just exports and investment.

This report tries to synthesize our impressions. Among other things, it touches on:
• The impact of the renminbi peg on monetary policy
• The management of China’s reserve portfolio
• The internal tensions associated with a policy that over-emphasizes foreign direct investment and exports
• The possibility of a revaluation, and the debate over the appropriate size of the initial revaluation
• The health of the banking system
• Internal distortions created by controlled prices for credit, fuel and the Communist party’s de facto monopoly on land use
• The possibility that China’s policy toward FDI might change, with less emphasis placed on attracting FDI and more emphasis on using surplus Chinese savings to expand the overseas presence of Chinese firms.

Ben Bernanke: The next Fed chairman

Yesterday's Wall Street Journal (subscription required - or go to Mahalanaobis) compares the three main candidates to replace Alan Greenspan as Fed chairman when he retires early next year: Martin Feldstein, Glenn Hubbard, and Ben Bernanke. On Bernanke it comments:

Mr. Bernanke conducted research on monetary policy at Princeton University before joining the Fed in 2002. Since then, his plain-speaking style, numerous speeches and copious research have made him second in prominence at the Fed only to Mr. Greenspan. He recently said the hardest part of moving to the Fed was having to wear a suit: "My proposal that Fed governors should signal their commitment to public service by wearing Hawaiian shirts and Bermuda shorts has so far gone unheeded."

He may need to pay more political dues before getting a shot at the chairmanship. Though a libertarian Republican, he displays few partisan leanings. In 2000, as chairman of Princeton's economics department, he hired star economist Paul Krugman, now a vociferous Bush critic, from Massachusetts Institute of Technology. Mr. Bush will get a better feel for Mr. Bernanke's views during his stint at the Council of Economic Advisers, though people close to the process say the post isn't an audition for the Fed job.

I too had doubted that his recent appointment as chairman of the Council of Economic Advisers (CEA) was an 'audition'. Indeed, when I posted on Ben Bernanke's appointment to the CEA a month ago, I pondered whether the White House might instead be sidelining him:

Greenspan's post finishes in January 2006, only nine month's time. Would it make sense to move Bernanke back to the Federal Reserve after such a short period - and then have to fill the CEA post again? Probably not. I suspect it could be clearing the field for White House favourite Martin Feldstein.

Reader, I was wrong. Bernanke has the inside running to be next Fed chairman, and  I expect him to replace Greenspan next year. Nor am I alone in this view. According to a 10 April Reuters report:

A recent Lehman Brothers poll put him at the front of the pack, even before he was named to the top job at the Council of Economic Advisers.

There are two main reasons for my change of mind. The first is that Bernanke has been determinedly 'on message' since his appointment. No more dark mutterings about disinflation, for example.

More importantly, according to my sources he has strong support within the Federal Reserve system and is viewed as the favourite (for once the Fed and markets are in agreement). Though all will deny it, the CEA post is likely to be an audition - enabling the White House to guage Bernanke's potential reliability and suitability for the Fed chairman post.

If Bernanke is appointed it will be the first time that someone has moved across from chairman of the CEA to chairman of the Federal Reserve. But I guess there's a first time for everything.

Bernanke is a top economist who would bring intellectual mettle to the job. I expect he would also display few partisan leanings; something which could not be said of the current chairman.

Of course, even though he is now the favoured candidate, it's not yet a done deal. For one thing, he could mess up. (Though I expect him to be upbeat and judicious in his remarks about the economy, avoiding off-the-wall musings or economically sound - but politically naive - observations). It's also possible Greenspan might meddle, or the White House decide it doesn't want inflation targeting (which Bernanke keenly supports), or may opt for another neocon. But somewhow, I think he'll make it.

UPDATE: Adam Kritzer at Forex Blog cites a 26 May Business Week column by Michael Wallace, Who Will Fill Greenspan's Shoes? Wallace argues that Feldstein is still in front. I disagree.

UPDATE 2: President Bush announced on Monday 24 October 2005 that Ben Bernanke would be the next Fed Chairman:

Today I'm honored to announce that I'm nominating Ben Bernanke to be the next Chairman of the Federal Reserve. Over the course of a career marked by great accomplishment, Ben has done path-breaking work in the field of monetary policy, taught advanced economics at some of our top universities, and served with distinction on the Fed's Board of Governors. He's earned a reputation for intellectual rigor and integrity. He commands deep respect in the global financial community. And he'll be an outstanding Chairman of the Federal Reserve.

...Ben Bernanke is the right man to build on the record Alan Greenspan has established. Ben graduated from Harvard with top honors, earned a doctorate in economics from Massachusetts Institute of Technology. He's built a record of excellence as both an academic and policymaker. He is the author of several scholarly books and is one of the most cited economists in the world. As Fed governor, Ben advocated greater transparency in communication with the public and markets. His speeches were widely admired for their keen insight and clear, simple language.

...Ben is also a kind and decent man who is held in high regard by all those who have worked with him.  ...Ben, thanks for serving.

For more commentary and analysis see my three October posts Ben Bernanke to replace Greenspan as Fed Governor, Mark Thoma on Ben Bernanke and Bernanke round-up.

UK election: Labour's business manifesto

This morning the Labour Party launched its 28-page business manifesto (copies here). It promised companies it would "maintain a competitive tax environment for businesses", and offered new promises to curb regulation - though stopped short of ruling out tax increases. Secretary of State for Trade and Industry Patricia Hewitt said:

Labour has now replaced the Tories as the party of enterprise and the party of business. Their flimsy business manifesto was an insult to British companies.

Labour also promised to boost investment in science, technology and the creative industries and to make the UK a "leading advocate'' of free trade. The document pledged to use its EU presidency in the second half of this year to press for regulatory reform and more work to open the European market in services. It also chided progress on economic reform in Europe:

Progress on economic reform in Europe has, to date, been disappointing. ...We need full delivery of the Commission commitment in its better regulation action plan. This will include policies to regularly review regulators and regulation to ensure that they are necessary, effective and consistent with achievement of the Lisbon agenda.

Business reaction has been mixed. According to a new MORI poll of 200 financial directors of UK companies, many more (49%) thought the Conservatives had the best policies for business than did Labour (23%). But 58% thought that Labour's Gordon Brown would make the best Chancellor, compared with only 29% favouring the Tory's Oliver Letwin.

Does self-employment reduce unemployment?

There are several key drivers of self-employment. Higher rates of self-employment may indicate increased entrepreneurial activity, for example. But start-up activity of the self-employed may also be due to high unemployment (job ‘refugees’). A recent Max Planck Institute discussion paper by David Audretsch and colleagues, Does self-employment reduce unemployment? (PDF) tackles this issue.

It investigates the “dynamic interrelationship” between self-employment and unemployment rates. The authors note that the entrepreneurial and refugee effects "have resulted in considerable ambiguities about the interrelationship between unemployment and entrepreneurial activity." But overall, entrepreneurial effects win out:

This paper introduces a two-equation vector autoregression model capable of reconciling these ambiguities and tests it for data of 23 OECD countries over the period 1974-2002. The empirical results confirm the two distinct relationships between unemployment and self-employment, i.e. ‘refugee’ and ‘entrepreneurial’ effects. We also find that the ‘entrepreneurial’ effects are considerably stronger than the ‘refugee’ effects.

British migrants 'contribute more taxes'

Britain's migrant population is more than paying its way and contributes relatively more to the public purse than everybody else, according to Paying their way: The fiscal contribution of immigrants in the UK, published today by the Institute for Public Policy Research. It is available as a free download.

The calculations, using Treasury data and the Labour Force Survey, show that although the migrant workforce makes up 8.7% of the population, it contributes 10.2% of all the income tax collected. The study reports that this proportion is likely to grow in the future. The study also estimates that:

• total revenue from immigrants grew in real terms from £33.8 billion in 1999-00 to £41.2 billion in 2003-04 (this 22% increase compares to a 6 per cent increase for the UK-born);
• immigrants earn about 15% more in average weekly income than UK-born;
• each immigrant generated £7,203 in government revenue on average in 2003-04, compared to £6,861 per non-immigrant;
• similarly each immigrant accounted for £7,277 of government expenditure on average, compared to £7,753 per non-immigrant.

The BBC quotes Danny Sriskandarajah, senior research fellow at the IPPR, who said the report showed that migrants were contributing more per head than they were before:

When the budget is in the black, migrant workers put in more than UK-born workers. When the budget is in the red, they take out less than UK-born workers. Our analysis suggests that the contribution of immigrants to public finances is growing, and is likely to continue to grow in the near future.

These observations have some important implications for policy and research. Most importantly, they confirm that far from being a drain on the public purse, immigrants actually contribute more than their share fiscally.

If you could teach the world just one thing about science...

2005 is Einstein Year, marking the centenary of the publication of Albert Einstein's equation E = mc2. To mark this occasion, forum spiked online conducted a survey of over 250 renowned scientists, science communicators, and educators, including 11 Nobel laureates. Each was asked: what would you teach the world about science and why, if you could pick just one thing? Among the replies were Richard Dawkins and Paul Davies. It's well worth a look.