Hartar Blog

In a recent post Paul Krugman looks at the dismal performance of US labor markets over the last decade. To make his point, he compares the employment to population ratio for all individuals aged 25-54 for the US and France. The punch line: even the French work harder than the Americans! And this is indeed a new phenomenon, it was not like that 13 years ago [Just to be clear, there are other dimensions where the French are not working as hard: they retire earlier, they take longer vacations,... but the behavior of the 25-54 year old population is indeed a strong indicator of how a society engages its citizens in the labor market. ] So are the French the exception? Not quite. Among OECD economies, the US stands towards the bottom of the table when it comes to employment to population ratio for this cohort (#24 out of 34 countries). What is interesting is that most of the countries of the top of the list are countries with a large welfare state and very high taxes (including on labor). S...

For the last months the press conferences of Mario Draghi at the ECB have felt very repetitive. The argument has always been the same: inflation is below target and this might be a risk. But there is uncertainty and there are other risks so let's wait for more data. But when more data arrives, confirming that inflation is below the target, there is no action being triggered and we simply start a new period of waiting for yet more data. Here is my quick search for this pattern in the speeches and Q&A from the last eight months press conferences. October 2013: ... and are ready to consider all available instruments. November 2013 ... but there are a whole range of instruments that we can activate, if needed. December 2013 ... and are ready to consider all available instruments. January 2014 ... and to take further decisive action if required. February 2014 ... and to take further decisive action if required. March 2014 ... and to take further decisive action if required. April 20...

A quick chart-of-the-day post motivated by some articles I was reading today about differences in country performances during the global financial crisis. Which economic policies worked best? How bad (or good) membership in the Euro area was to fight back the crisis? These are important questions to understand the effectiveness of different economic policies (monetary, fiscal, exchange rate). When comparing performance across countries it is quite common to use a variety of indicators: GDP growth, unemployment, productivity,... They all tend to move together but they can sometimes provide a quite different view of the economic performance during a number of years. I decided to look at GDP growth but adjusting is by changes in demographics: GDP divided by working-age population (between 15 and 64 years old, as it is measured by the OECD). What I do is to compare the 2013 number with the 2007 number (which I use as the beginning of the crisis). [Click on the chart for a larger image] Wha...

Increases in stock prices over the last years combined with bond prices that remain high (yields are low) have raised the possibility of mispricing in assets, potential bubbles and future crashes. Are all assets too expensive? Some think so and refer to the current situation as a " gigantic financial asset bubble " where all assets (bonds, stocks, commodities,...) are priced too high. Others see trouble just in stock markets where valuations seem to be growing much faster than the real economy. But there are also those who think the stock market still offers a good return . Here are two perspectives that can hopefully help understand such diverging views on asset prices: 1. How can it be that all asset prices are overvalued? When all asset prices look too high, we are making a statement about the disappointing returns these assets offer. The key question is whether we are really taking about mispricing or simply about surprisingly low (equilibrium) returns that saving is off...

Via Mark Thoma I read an interesting article about how the mainstream economics curriculum needs to be revamped  ( Wren-Lewis also has some nice thoughts on this issue). I am sympathetic to some of the arguments made in those posts and the need for some serious rethinking of the way economics is taught but I would put the emphasis on slightly different arguments. First, I  am not sure the recent global crisis should be the main reason to change the economics curriculum. Yes, economists failed to predict many aspects of the crisis but my view is that it was not because of the lack of tools or understanding. We have enough models in economics that explain most of the phenomena that caused and propagated the global financial crisis. There are plenty of models where individuals are not rational, where financial markets are driven by bubbles, with multiple equilbria,... that one can use to understand the last decade. We do have all these tools but as economics teachers (and resea...

The International Comparison Program (hosted at the World Bank) just released its new estimates of Purchasing Power Parity that are used to compare GDP across countries. These estimates are released about every 5 years and they serve as the basis for the PPP-adjusted statistics used by most international organizations or statistical sources. These estimates get updated on an annual basis using inflation rates but it is the 5 year survey that produces the complete data that allows us to compare purchasing power across countries. The release was picked up by all news outlets by emphasizing the fact that China looks bigger than what we thought before and it is likely to become the number one economy by the end of 2014 (e.g. Financial Times ). The news on China makes for great headlines but the reality is that many countries saw significant changes in their PPP estimates, let's look at some magnitudes. Before looking at magnitudes, a clarification on methodology: PPP estimates are done...