Wednesday, 30 June 2010

end of term...

This year, I taught in the doctoral program at UPF (research seminar in economic history) and in the ITFD/GPEM (financial crises). While I don't have to teach, thanks to an ICREA research chair, I find that saying no is really hard - it is good fun, and it gets one to interact with great grad students.

At the end of term, I decided to chill out a bit with an old friend from high school days at the Costa Brava, two hours North of Barcelona. There is actually some spectacular diving at the Islas Medas. It's a maritime nature reserve, meaning no fishing and, as a result, some XXL-sized saddled breams and giltheads. Here you can see your sincerely hunting at 22m depth for a worthwhile shot.

Our first student from Afghanistan

Afghanistan is never far from the newspaper headlines these days... first Gen. McChrystal got himself fired as head of the US combat mission there, then there is a major attack on NATO airfields. No good news from the Hindukush? Not quite. We just got confirmation that the first student from Afghanistan is going to join the ITFD program this fall. Ms Palwasha Mirbacha did her undergraduate degree in the US, and then worked for the UN Assistance Mission to Afghanistan as well as the Office of the Chief Economic Advisor to the President. She received a full scholarship, sponsored by La Caixa.

Sunday, 27 June 2010

Latest + Greatest News: CREI Lectures in Macro

Francesco Caselli delivered the 2010 CREI Lectures in Macro the other day. He was surveying "Differences in Technology across Time and Space". One of the most interesting things I learned (out of many) was that, with the right type of correction for the hetereogeneity of human capital, we can actually explain a lot of the cross-sectional differences in output per head. The standard result in this literature used to be (after a classic paper by Hall and Jones in 1998) that most of the difference in income between, say, the US and Zaire is not down to capital or human capital, but must be "social capacity", TFP, or some measure of institutions -- in other words, something we just don't understand all that well.

The endowment view - so crucial for development agencies, etc. - instead has received scant empirical support. Francesco painstakingly goes through the evidence once more, adds a few refinements from other people (notably David Weil's work on the effects of health), and then puts in one additional variable that really makes a lot of sense -- separate effects for high- and low-human capital. Since this is correlated with physical capital, it turns out to be a pretty important thing -- suddenly, endowment differences that previously could account for maybe a third of income differences can get to about 60% or so. This is incredibly important, me thinks -- and while we of course want as much exposure for the PUP book that comes out of the lectures, I very much hope that Francesco turns this into a separate article (the QJE will surely be keen).

A few years back, when we first talked to PUP about the idea for a new series, we wondered what there was left to do - there are many lecture series. We proposed to go for young and already distinguished speakers, who deliver a synthesis of recent work. I think this installment in the series really validates the view that this was exactly the right direction in which to take things...

Friday, 18 June 2010

McCarthy is alive...

and well, and currently grilling BP. A whole string of papers in international macro and finance argues that the US is uniquely good at translating corporate cash flows into paper that someone wants to hold. This superior "security production technology" is all about respect for the law and property rights. I always thought that Enron should have put paid to much of that literature, but it is doing well. Now we have the enormously awkward spectacle of the Obama administration first putting almost unlimited liabilities on a company, with the idea of oil workers who can now no longer work on drilling rigs being compensated; then the 20 bn$ escrow account, outside the control of BP; and the grilling of Tony Hayward, CEO of BP, in front of a Congress committee that reminds me of Stalinist show trials and the worst excesses of McCarthy and friends. I am not saying that the environmental damage isn't real, or that BP should be let off lightly. But limited liability is there for a reason, as are rules on the maximum that, say, an airline can be made to pay for a crash. There is no reason to put all of the costs of a disaster on a private company, because - ex ante - this may discourage many good projects. As long as penalties are severe, firms will be careful anyway, and I don't see anything in the current share price of BP to suggest that private investors got a free lunch... So my sense is that, while the company should be made to pay a lot, the US is shooting itself in the foot, by trampling on due process and the law, and conducting its liability determination process in a way that one would have expected from Hugo Chavez.