In their study, Cengiz et al. (2019) investigate whether changes in the US minimum wage from 1979 to 2016 affected the domestic employment rate. Their findings suggest that employment levels were not impacted, while worker earnings increased through higher payments and wage spillover effects. How do minimum wage raises affect employment? Minimum wage raises may increase unemployment, due to decreased competitiveness and labor substitution. This unemployment effect only impacts workers close to the minimum wage line, which is why Cengiz et al. (2019) focus on this worker subgroup for their study. The authors use a dataset of 138 US state-level minimum wage increases over the 1979 to 2016 period. Then, they compare the number of excess jobs paying at or slightly above the new minimum wage to the missing jobs paying below it. This enables the identification of the actual employment effects caused by an increase in the minimum wage. This approach allows for the analysis of the following: the direct employment effect on the policy target population, the policy impact on total wage earnings. Minimum wage increases have not historically reduced employment The paper found that minimum wage raises do not cause significant changes in overall low–wage employment. In fact, the authors calculate the missing jobs just between $4 below the new minimum wage and the new minimum wage and the excess jobs at or slightly above it, namely up to $5 dollars above. The difference between them is statistically insignificant, even four years after the policy was introduced. Figure 1: Historically, minimum wage increases created around as many jobs as they destroyed Source: Cengiz et al. (2019) Moreover, the authors examine the employment effect across different sectors. Interestingly, employment levels remained unchanged for the retail sector and restaurants, which are highly affected by minimum wage policies. Additionally, it is estimated that the state’s entire wage distribution reacts to minimum wage increases. The authors point out that an increase in the minimum wage, apart from a direct increase in earnings for the ones paid below the minimum, also increases earnings for the workers paid up to $5 in excess of the new minimum wage. This effect is called a wage spillover, and it relates to how a higher minimum wage may lead companies to also increase the payment of unaffected employees. Cengiz et al (2019) estimated that in the US over the 1979 to 2016 period a rise in minimum wages increased total earnings by 6.8%. Of this, 60% benefits directly the workers paid at or below the minimum wage, whereas the rest is the ripple effect for higher earners. Conclusion The study supports that minimum wage raises have not had a negative impact on US employment. However, one needs to be careful about overgeneralizing these findings into other settings. At the same time, the paper highlights that fears surrounding the impact of higher wages on unemployment may be exaggerated.

The Treisman (2016) paper analyses the profile of Russia’s billionaires over the past 30 years, who are found to have diversified across sectors. It also investigates whether Russia has an uncharacteristically high amount of billionaires given the economy’s size, access to foreign markets, interest rate, marginal tax rate, reliance on natural resources, and private property institutions. Russia is found to have the largest number of ‘unexplained’ billionaires out of all countries analysed, with the drivers of this remaining unclear. The origins of Russia’s billionaires Treisman (2016) highlights two monumental events in the creation of Russia’s billionaires: the post-Soviet privatisations of the 1990s and the 1998 financial crisis. In fact, out of the 88 billionaires present in Russia in 2015, the author identifies 34 (39%) whose wealth can be traced in the former period. As for the 1998 financial crisis, it saw the immense value depreciation of domestic companies, which were subsequently cheaply acquired by individuals who already had amassed cash in trade and banking. These events were found to be key enablers of fortune building for a number of contemporary Russian billionaires. Russia’s billionaires have become more diversified The paper uses Forbes billionaire data to identify the sectors in which Russia’s billionaires have been active over time. Despite its imperfections, this data allows us to observe a variety of trends. As it is shown in Table 1 below, while Russia’s billionaires were primarily active in the oil, gas, coal, and metals markets in 2005, by 2015 they had diversified to other sectors such as fertilizers, real estate, and food production. Moreover, their number more than doubled over the same period, going from 27 to 88. However, Treisman (2016) highlights that the 226% increase in the number of billionaires from 2005 to 2015 is in line with the global trend. Table 1: Share of Russia’s billionaires active in each sector in 2005 and 2015, % DATA: Treisman (2016). Illustration by Bonsai Economics. Note: the percentages do not add to 100% as some billionaires operate in multiple sectors. Market forces alone cannot explain the number of billionaires Treisman (2016) also investigates whether the number of Russian billionaires in 2008 can be explained simply by the market’s total size, access to foreign markets, real interest rate, top marginal tax rate, natural resource dependence, and property rights. To do this, the author tried to predict the number of billionaires in a number of countries, using the following control variables: GDP per capita was used as a proxy of the size of the domestic market. If billionaires are created by disproportionate returns to “super-stars” a larger market size would lead to more billionaires. Duration of membership in the GATT and WTO was used as an indicator of access to foreign markets, which increases potential business returns, leading possibly to more billionaires. The domestic real interest rate captured the extent to which the rich got richer simply through lending and compounding interest. Top marginal tax rate, as the higher it is the harder it is for people to accumulate wealth. Natural Resource rents as a share of GDP, as natural resources revenues are typically collected by a small pool of individuals, and therefore the higher they are the more billionaires a country may produce. The World Bank’s rule of law index, which captures the security of property rights. A higher index value would strengthen incentives to accumulate wealth. The author uses the above controls to estimate the number of billionaires which can be explained by market forces alone in 2008. These were then compared with the real billionaire count, to estimate the number of ‘unexplained’ billionaires. As it is shown in Figure 1 below, from the countries analysed, Russia had the largest number of billionaires which could not be explained by market forces alone. The reason Russia has the largest number of ‘unexplained’ billionaires is, as Treisman (2016) admits, partially a mystery. For example, while the 1990s privatisations in Russia can explain part of this surplus, even after controlling for it Russia remains the country with the largest surplus, as it drops to 33. Moreover, while corruption could explain why Russia has more ‘unexplained’ billionaires than Germany, it fails to explain why Germany has more ‘unexplained’ billionaires than India. Consequently, it is possible there is some other distinct characteristic of the Russian political economy which drives up the billionaire count. Figure 1: Russia has the most ‘unexplained’ billionaires out of all countries analysed DATA: Treisman (2016). Illustration by Bonsai Economics. 'Unexplained' billionaires = Real bn count - Estimated bn count due to market characteristics Conclusion Overall, the paper is helpful in highlighting some key events which led to the creation of Russia’s billionaire wealth. At the same time, it fails to explain why Russia has such a large number of billionaires compared to its domestic economic characteristics. Corruption is not found to be a sufficient explanation for this discrepancy.

Baudrillard (1998), in the eighth chapter of his book ‘The Consumer Society’ explores the way in which body fetishism, particularly of women, has been used to promote consumerist culture. The author also highlights that while sexual emancipation brought with it more freedoms for women, its cultural representation also mirrors and reinforces their subjugation to men. The ultimate consumer object: the body The chapter begins by discussing how an age of puritanism was displaced by a ‘rediscovery’ of the body, in terms of sexual liberation, and a culture of dieting and body care. This ‘new ethics of the relation to the body’, manifested as phryneism in women, and athleticism in men, with the former being the culturally most prominent. Women became cultural icons of beauty and eroticism, with beauty narrowly defined in physical terms. Moral qualities, the author argues, were displaced by one’s face and figure, as can be seen in numerous passages of the Elle magazine, which emphasize how self-care is body-care. Moreover, a cultural obsession with the body was key to unlocking society’s consumerist potential both directly (e.g., female beauty products and clothes) and indirectly (e.g., female models being used to advertise cars and razors). It is in this way, that the body as a cultural object became a driver of economic expansion. Figure 1: Consumerism is intricately linked with body fetishism SOURCE: Baudrillard (1998). Illustration by Bonsai Economics Body ‘emancipation’ as a force of female subjugation The author highlights how the cultural obsession with women as sexual objects reinforces their continued subjugation to men, while still liberating them partially from previous puritan ethics. This is because sexualisation is intricately linked with their historical oppression: it is the powerful ones that sexualise the weak ones. For example, black people have also often been sexualised in western culture, due to their comparative social weakness. This link has also been supported by numerous other papers, such as Xiao et al (2019), who found social power to increase one’s tendency towards ‘useful targets’, which can be expressed in sexualisation. Consequently, one needs to be careful in their analysis of the cultural ‘emancipation’ of the body: while it does provide more freedoms, it can also mirror, and, as a result, reinforce social repression. Rediscovering the body and the obsession with slimness Another key dimension of the ‘rediscovery’ of the body has been a cultural obsession with the slim female body, which is the most evident in the world of fashion. This is a good example of how ‘body-care’ can be meant in terms of increasing one’s social capital, instead of improving one’s health, with slenderness often not being physically beneficial. The cultural goals of beauty and elegance have translated into alibis for daily, obsessive disciplinary exercises on the body for ‘aesthetic’ ends. In fact, as the author argues, the ‘figure’s’ cultural significance is self-violence, as it is the literal manifestation of the sacrifice of one’s body. Moreover, its cultural dominance is alarming, with Baudrillard (1998) citing an American study showing 300 out of 446 adolescent girls to be on some sort of diet. Can economic growth be sustained without consumerism? A re-focus on the body and its associated fetishism have been instrumental enablers of the consumerist boom in the US and elsewhere. Body obsession and economic expansion have been intricately linked, reinforcing each other. This raises concerns over the shallow culture, which consumerism promotes that encourages narcissism at the expense of social goals such as economic inclusivity.

In their article, Nordhaus et al. (2017) investigate the economic impact of global warming. They estimate that a 3⁰C and 6 ⁰C increase in temperature would decrease world GDP by 2% and 8.1% respectively. However, other researchers have challenged these estimates on the premise that once a specific temperature threshold is exceeded it may lead to considerably higher economic costs. How do the authors approach the economic impact of global warming? For the examination of the economic impact of global warming, the authors estimate the damage caused by global warming on GDP. More specifically, they focus on its impact on consumption and the capital stock, and they also incorporate climate change mitigation and adaptation costs. They run their model across countries, for different temperature scenarios, and subsequently aggregate the impact of climate change on the global economy. As a robustness check to their model, they also compare their findings to other research investigating the impact of climate change on GDP, attributing a larger weight on the studies that focused on the global level and less on more local ones. At the same time, the authors acknowledge the challenge to quantify some parameters that contribute to climate change and they attribute a 25% error around their estimates. This withstanding, their final estimate is that a 3⁰C temperature rise would reduce global GDP by 2% and a 6⁰C rise would decrease it by 8.1% Is there a tipping point for climate change's economic downturn? The authors proceed to examine the possibility of a tipping point, after which a further temperature increase there would lead to a disproportionately large amount of economic damage. They examined this hypothesis using the 2⁰C global warming scenario for which they find no evidence that it would cause a considerably higher economic hit. Instead, they concluded that the damages follow a smooth and predictable pattern across temperature increases. Their results are presented in Figure 1 below. Figure 1: Global Economic Impact Caused by Temperature Increase Source: Nordhaus et al. (2017). Note: The bubbles represent different studies used as data points by the authors. Their size corresponds to their respective weight for the study. The red line corresponds to the model of Nordaus et al.(2017). Not everyone seems to embrace these findings… Nordhaus et al’s estimates were challenged by Keen (2020), who argue that the paper likely underestimates the real impact. This was because it was based on research that relied on historic data from the 1960 to 2010 period. Given the uniquely high amount of greenhouse gases that will accumulate in the future, Keen (2020) argues that there is no strong basis to assume that past data points can predict climate change’s future impact. For instance, historical data do not account for the impact of a faster melting of the Arctic summer sea-ice and the associated ecosystem changes it would cause. Finally, using findings from natural scientists, Keen rejects the possibility of a smooth and predictable pattern of economic damage due to climate change. Instead, he claims that climate change should be perceived as an inherently discontinuous process, and tipping points in temperature increases cannot be rejected. Who’s right then? There is not an easy answer to this question. There are still many uncertainties related to the consequences of climate change on the economy and an interdisciplinary approach will be needed to fully grasp its implications. For this reason, chances are that the debate of its impact on the world economy will not end any time soon.

Our lifestyle has a direct impact on the way we perceive the world, and it is therefore unsurprising if it also affects our voting behavior. The question is particularly interesting considering the ongoing changes with respect to women’s place in the labor force and the ways in which it affects their world view and voting patterns. Georgios Efthyvoulou, Pantelis Kammas and Vassilis Sarantides published a paper with some interesting insights on this topic, analyzing data from Greece’s 1953-1954 by-elections. The paper was based on two key observations: In the 1953-1954 by-elections (first Greek elections with women participation), women in rural communities voted in a pattern similar to men, whereas women in urban communities were more likely than men to vote conservative. Women in rural communities were more likely to participate in the paid labor force than women in urban communities. This observation is linked to the high social stigma of manual female labor outside the family (in rural societies women would work within the family business). Adding these two observations together, the paper argues that, within the Greek 1950’s context, women that did not have a paid job were more likely than men to vote for conservative parties. In order to support this argument, the paper draws on two competing theories of female voting patterns: the ‘family vote hypothesis’ and the ‘traditional gender voting gap’. These theories are outlined below: Family vote hypothesis: Women and men belong to the same family and therefore have identical interests. As a result, there will be no significant difference between their voting behavior. Traditional gender voting gap: Women that do not participate in the paid labor force develop more traditional and family-orientated values, which makes them more likely to vote for a conservative party. According to the paper, the ‘family vote hypothesis’ holds in agrarian societies, where men and women work together in their family business, developing similar voting interests. The ‘traditional gender voting gap’ holds in early-industrial societies, where women are more likely to stay at home and, as a result, develop more family-orientated values. As a further note, the paper highlights the importance of the ‘modern gender voting gap’, which was observed in Europe and the US during the 1980s. The ‘modern gender voting gap’ relates to women’s higher likelihood to vote for left-leaning parties, as a result of the left’s stronger support for childcare and elderly benefits. It was also a period of booming female labor participation, as more service jobs became available, which were not affected by the ‘manual labor’ stigma. Adding all this together, a simplistic overview of the discussed framework is observed in the table below: Table 1: Theoretical framework of economic change impact on male-female vote differences Data: Bonsai Economics, Efthyvoulou et al (2020) Naturally, the discussed framework is not near-exhaustive of the factors influencing female-male voting differences. However, it does provide a simple framework to think about possible links between economic change and female-male voting patterns. It also provides a great reminder of the extent to which our political views are intricately linked to our mode of life, constantly leaving us exposed to all sorts of bias.

Exploiting primogeniture and the degrees of inbreeding as natural experiments, the Ottinger and Voigtländer (2020) paper revisits with unprecedented rigor the question of whether the abilities of leaders matter in the grand scheme of history. The answer is a resounding ‘yes’ for unconstrained rulers. Can we isolate a leader’s impact? The Ottinger and Voigtländer (2020) paper joins a large body of literature that investigates whether leaders matter for a country’s performance. This has frequently been a difficult question to answer, as it is often hard to isolate the leader’s impact from other ongoing forces. However, Ottinger and Voigtländer (2020) shrewdly note that a wealth of data lies just around the corner if exploited appropriately. Medieval and early modern Europe was filled with competing states vying for supremacy, ruled by a small number of clans that frequently intermarried. Next-of-kin marriages caused a considerable degree of inbreeding, leading to grotesques such as Carlos II of Spain. Figure 1: The inbred Carlos II of Spain, reportedly unable to close his mouth and had one testicle Source: Wikimedia Commons In addition, primogeniture, whereby the first-born son is always the dynastic heir, ensures that ruler selection is quasi-random and independent of expected abilities. This opens the door to a successful instrumental variable strategy, a setting creating a natural experiment for econometric estimation. However, measuring ruler abilities and state performance are two different matters entirely. For those two variables, the authors turned to the meticulous records compiled by the MIT biologist-turned historian Frederick Adams Woods, who scored the ruler abilities on a ten-point scale, and state performance under their reign on a three-point scale, based on meta-analyses of historians’ assessments. To add more robustness, the authors included another measure of state outcome by considering the number of territories gained or lost during a ruler’s reign, using data from historian Abramson (2017). Thus, Ottinger and Voigtländer (2020) created a dataset of 331 reigns spanning from 990 to 1800 CE. Findings Firstly, the paper finds empirical support to the first-stage hypothesis. The degree of inbreeding is negatively correlated with ruler abilities, even when excluding outliers of extreme inbredness such as Carlos II. Secondly, ruler abilities are found to be strongly correlated with state performance. A one-point rise in ruler abilities is associated with an 11% increase in territories or a whopping 17%, depending on the choice of econometric method used. Measurements using historians’ assessments are even more significant. Figure 2: Association of Monarch Ability and Country Performance by Country, in coefficient of correlation Source: Ottinger and Voigtländer (2020) Notably, it is also found that the relevance of rulers varies from polity to polity depending on the constraints on the rulers. England before and after 1600, for example, shows two rather different pictures of the degree to which ruler abilities matter. The authors use the frequency of parliamentary meetings as a proxy for the degree of constraints, with data compiled by Van Zanden et al (2012). Interacting the degree of constraints with ruler abilities, the authors found rulers’ personal abilities matter much less when constrained by parliaments. Implications The implications of the paper are far-reaching. Though drawing data from medieval and early modern Europe, the paper lends its weight in contemporary debates in political science and public discourse over the selection of national leaders, as the historical context is but a tool to identify the underlying causal mechanism. Even when constrained by parliaments, a more competent leader is still beneficial for the fortunes of the state, though a stronger parliament can help to contain the damages of an incompetent head of state. Countries plagued by incapable populist leaders should pay heed. At the same time, autocracies can reap benefits from an enlightened despot, but also suffer dearly from an incapable one. Fukuyama (2011) famously said that a ‘Bad Emperor’ will be autocratic China’s downfall. Now we can, in principle, make such predictions with statistical precision.

Exploiting differences in mortality rates in the European colonies, Acemoglu et al. (2001) create an innovative instrument to estimate institutional differences and their impact on economic performance. When faced with higher mortality rates, Europeans were unable to settle and thus implemented more “extractive” institutions, aimed solely at extracting the surpluses of the local population. Subsequent analysis strengthens the claim that past institutions are relevant for today’s institutions and thus for contemporary income per capita. Source: The Boar In Institutions we trust Two natural historical experiments of the 20th century underscore the importance of Institutions: The South and North Korean, as well as the Eastern and Western German states followed different institutional paths, with one part of the (previously whole) countries stagnating under central planning while the other prospered with private property. In other words, in both cases, the world witnessed a unique institutional divergence with significant ramifications. Countries boasting a better institutional structure tend to support more secure property rights and increased investments in physical and human capital, which they subsequently employ more efficiently, achieving greater income. But how exactly did this come to be and how can we safely exclude the possibility that other, obscure factors, function through institutions and are the ones that matter in achieving prosperity? To isolate the effect of institutions on economic performance, the authors innovate in using the reported settler mortality European settlers faced in the colonization process as an indicator of the institutional landscape that prevailed in the early settlements. The quality of these past institutions is a strong indicator, due to path dependence (i.e past institutions tend to, at least partly, shape current and future ones), of the contemporary institutional quality. Finally, as argued above, today’s institutions are vital for today’s economic outcomes. The whole mechanism is depicted in Figure 1 below. Figure 1: Settler mortality as a determinant of future institutions Source: Bonsai Economics, Acemoglu et al. (2001) The Ghosts of Institutions Past The numbers are there: the authors managed to present a cogent case for their theory. But the validity of their claims rested on three premises: 1) There were different types of colonization policies enacted by the settlers, which resulted in different sets of institutions. Indeed, in places like Congo or Brazil, European powers set up “extractive” institutions which did not adequately protect property rights nor provide checks and balances against government expropriation. On the other hand, in places like the US or New Zealand, the European migrants created “Neo-Europes”, with a strong emphasis on private property and checks against central authority. 2) The colonization strategy employed was influenced by the feasibility of settlements. In fact, when attempting to colonize places presenting high mortality rates, the Europeans were less likely to settle. The cards stacked against the creation of “Neo-Europes”, the only remaining way for the Europeans to become rich out of their colonies was heavy extraction of resources out of the indigenous population, hence the term extractive institutions. 3) The states that emerged and their institutions persisted after their independence. Although described as “new states”, the now independent polities were actually successors to the colonial regime “inheriting its structures, its quotidian routines and practices, and its more hidden normative theories of governance”. Colonists living under inclusive institutions would not give them up easily. On the contrary, the extractive elites would fight to retain their privileges while placing restrictions on their power, and enforcing property rights was costly. This is why their institutional clusters persisted after these states’ independence. Implications The authors have presented us with a strong case for the role of institutions in economic outcomes and how this role came to be through history. Convincing though they may be, these arguments should not be perceived in a deterministic way. Institutions can indeed be improved in different ways: take for example the Meiji Restoration in Japan or South Korea in the '60s. However, institutions and the paths that lead to good ones are a good place to start when looking to improve economic performance, as was highlighted by the discussed paper.

Countries increase sovereign debt in order to finance their growth, and the cost of this debt is not universal and can vary dramatically. The cost of borrowing is commonly measured as a yield spread, which is partially linked to the risk that the borrower will default on his obligations. The default risk can be further broken into three risk types: Country’s credit risk – its creditworthiness depending on the state of the economy Liquidity risk – state of the country’s bond market International risk aversion – if lenders have a higher degree of risk aversion this may ultimately lead to higher borrowing costs for risky countries Crifo et al (2017) argued that environment, social and governance (ESG) factors could also impact a country’s yield spread. While there were no studies before that would look at all ESG elements in conjunction, some papers did investigate the impact of separate financial factors, such as the influence of corruption, environmental policies, and political risk. The paper’s main methodology framework is outlined below: Alternative hypothesis: higher ESG ratings are associated with lower borrowing costs. Data: panel data for 23 OECD countries from 2007 to 2012. Main independent variable: the countries’ ‘Vigeo sustainability’ rating. This rating is calculated as the equally-weighted average of three annual ratings: the Environmental Responsibility Rating, the Social Responsibility and Solidarity Rating, and the Institutional Responsibility Rating. Dependent variable: sovereign borrowing costs are calculated as the difference between the cost of US dollar-denominated debt minus the US Treasury bond rate of comparable maturity (two years). Control variables: GDP growth, inflation rate, gross debt to GDP ratio, fiscal balance to GDP ratio, reserves to imports ratio, trade openness, and sovereign credit ratings. All these factors could be linked to a country’s creditworthiness and are therefore important controls when trying to capture the link between ESG ratings and sovereign borrowing costs. Results: The study indicated that countries with higher ESG ratings are “rewarded” with lower borrowing costs. However, the impact is limited, with borrowing costs being about three times more affected by S&P credit ratings than by ESG ratings. At the same time, it is important to keep in mind the paper’s dataset, which looked at OECD countries over the 2007-2012 period. The conclusions of the paper are economically relevant – if higher ESG rating results in lower borrowing costs, it means both investors and policymakers can use ESG factors as a tool in risk assessment. These tools could also identify more precisely where exactly in the financial system these risks are located.

Bonizzi's et al (2019) paper addresses and criticizes how Modern Monetary Theory (MMT) scholars set forth their assumptions and policy guidelines regarding developing and emerging countries (DECs). The common ground between MMT advocates is the understanding that a state which issues its own currency and imposes tax liabilities; whose currency is fully floating and non-convertible; and whose country does not hold foreign-denominated debt liabilities—that is, a monetary sovereign state—can always run budget deficits to be financed through the issuance of public debt. Therefore, it can never run into insolvency. Although the MMT core literature is focused on developed economies (especially the USA), scholars within such tradition have argued that its framework is also valid for DECs. However, DECs are much more vulnerable to external constraints (BP crises, sudden stops, currency depreciation, etc.) than advanced economies. This raises doubts on the extent to which they can act as monetary sovereign states as proposed by MMT authors. Part of the MMT literature argues that there is no inherent economic constraint linked to trade and current account deficits (CAD) for monetary sovereign states. CADs would arise solely from foreigners’ desire to hold domestic currency-denominated assets and would not prevent a country from running budget deficits if it decided to do so. Other authors have a more nuanced view and believe there is a ‘spectrum’ of monetary sovereignty. A country is lower in this spectrum the higher its foreign-denominated debt is and the more limited its resources are, i.e. the more it lacks domestic production of foodstuff, energy, and manufactured goods. The low availability of resources pushes the country away from monetary sovereignty as foreign-debt and/or pegged exchange rate regimes are required to acquire such goods from other countries. Less sovereign states would not be able to benefit from MMT proposals, at least not as much as peers higher up in the monetary sovereignty spectrum. The latter understanding opens up space for the pursuit of development policies focused on fostering the domestic productive structure in DECs. The authors are sympathetic to this, but argue that MMT scholars fall short from answering how these policies are to be funded as, at least in the short- and medium-run, they will require higher imports (technologies, capital goods, etc.) and, therefore, access to ‘hard currencies’. There are three alternatives to achieve such a goal. Those are listed below alongside their challenges and shortcomings according to the authors: Increase exports in a neo-mercantilist fashion. The problem with this strategy is that the necessary currency depreciation may be politically blocked as it requires wage compression and can raise risks of high cost-pushed inflation. It is also not a suitable alternative for every country as all countries cannot become net exporters at the same time. Attract capital inflows. This can be highly problematic as FDI and portfolio investments in DECs tend to be quite sensitive to exchange rate expectations leading to currency volatility, fear of floating, and lower domestic control over macroeconomic variables. Higher foreign liabilities are also linked to future investment income outflows, deteriorating the current account result. Rely on domestic financing through low-interest rates and development banks. The authors are sympathetic to this idea but highlight some shortcomings: the shallowness of domestic financial markets and the possible unwillingness of domestic agents to hold domestic currency-denominated assets (linked to capital flights). Overall, the authors criticize the MMT theoretical framework for adding little to the long-debated need for development and industrial policies in DECs and for lacking the depth and complexity of other research traditions in this regard (e.g. in the Structuralist and Post-Keynesian literature). Likewise, they argue MMT lacks a structural understanding of international monetary and financial hierarchies which underpin the extent to which (especially DEC) countries are exposed to external constraints. I believe this is a much welcome criticism of first world-centered literature. It comes with good timing. With Covid-19 and the post-pandemic recovery as the trending topic of the moment, the attention to DECs’ specific challenges is urgent and should take center stage for scholars and politicians alike.

Electoral maps in the United States are re-drawn at a state level every ten years, based on a set of ambiguously defined criteria that include compactness of districts, competitiveness, geographical contiguity, and compliance with the Voting Rights Act (VRA). The partisan nature of many of the committees responsible for redistricting leads to decision making that often favors one party above the other; a practice that is called “gerrymandering”. As part of ongoing literature that aims to quantify and assess the fairness and level of gerrymandering present in state electoral maps, Gregory Herschlag et al's (2020) paper applies a Markov Chain Monte Carlo (MCMC) sampler[1] to build an ensemble of redistricting plans; current maps are tested against this ensemble to assess partisan gerrymandering. In simple terms, this paper aims to solve the following problem: we want to have an ideal, “fair” districting plan to which we can compare the current maps drawn by partisans. However, no such plan exists! Building an “ensemble” of plans means figuring out a process by which one can repeatedly draw maps that are created with the purpose of being “fair” under specific criteria. While the math is complex, the idea that Herschlag et al employ is quite intuitive: define a penalty function that can quantify which redistricting plans come closer to being “fair”, then apply the function alongside a mechanism that sequentially proposes new maps. This process is repeated until an ensemble is formed. The benefit of having an ensemble is that it can be used to apply distribution level tests that compare the real district plans to those that are simulated by the MCMC process. In this paper, the authors compare three different US House maps from North Carolina (NC) to an ensemble built using a penalty function tuned to the requirements of the state constitution and the VRA. They conclude that, across a variety of metrics, the two maps drawn by the NC legislature are extreme outliers. The punchline is that it is highly unlikely the maps have been drawn with the goal of fairness in mind. While the conclusions drawn about NC congressional maps are both interesting to the lay reader and present potential for use in one of the many redistricting court cases that are currently being fought, the method is the core of the paper. Assuming that no flaws exist in the process, this tool simulates the perfect legislator, who redistricts with exclusively constitutional criteria. However, this turns out to be a relatively large ask. While the authors perform a long laundry list of tests to ensure the validity of the method, others have later pointed out flaws that may exist in the sampler; this is not a closed field of research, and other algorithms are constantly being developed. Notes: More about redistricting can be found on Professor Justin Levitt’s webpage, and a very accessible introduction to Gerrymandering is available from FiveThirtyEight's Gerrymandering Project [1] A Markov Chain is a sequence of events that only depend on their exact previous state. Given an unknown distribution of outcomes to sample from, MCMC methods focus on defining a sequence (or “chain”) that approximately samples from that distribution, given it is run for enough timesteps.

Central Idea: Institutions (formal rules and informal constraints), Technology and Ideology together shape economic performance, by determining the costs and benefits (so incentives) of transacting and producing. Their main function is to reduce uncertainty and frame human interaction. In Douglas C. North's 1992 essay 'Institutions, Ideology, and Economic performance', he presents economic performance as a function of the following three factors: Formal Institutions: The rules of the game within society. A polity can affect them with relative ease. Informal Institutions: Customs, Culture, Traditions. Resistance to change. Ideology: What is considered fair and desirable and what is not. What the world is and how it ought to be. Subsequently, these factors translate into economic prosperity via their impact on market efficiency and the costliness of transactions. These are outlined below: Market efficiency: low-cost measurement and contract enforcement, complementary informal constraints, effective enforcement, and adaptive efficiency (provides incentives for the acquisition of knowledge, innovation, encourages risk-taking and creativity). The efficiency of the markets ensures effectiveness as well as adaptability in the face of changing (due to socioeconomic and technological alterations) organizational structure. Especially important with the ever-changing world of the 21st century that challenges all existing organizational forms. The costliness of transactions: The smaller the cost, the more likely an economy is to prosper. Pivotal for the globalized economy of our time, where prosperity depends on transactions between organizations and agents on an unprecedented scale. Furthermore, the costliness of transactions is affected by: 1) Accurately measuring the value of goods, services, and agent performance. 2) Market size. Large market size is addressed by impersonal exchange (contracts) while small market size by personal exchange (kinship ties, friendship, personal loyalty). 3) Enforcement. How justice is implemented. 4) Ideology. What people and organizations tend to think about the rules of the game. Conclusion In this note, North provides a more holistic approach to explain how and why economies and states rise and fall. Socioeconomic reality cannot be explained in merely economic terms. To adequately address its complexity, North structures his analysis in 3 main parts: formal and informal institutions and ideology. These factors act in a complementary way. For example, the adoption of the US constitution and market laws from South American countries has yielded suboptimal results. The way these crucial factors interact determines the costs and incentives of producing and exchanging goods and services, as well as the quality of the societal organizational structure and the efficiency of markets. In other words, the institutional along with the social-subconscious-historical layers of a society determine what makes people create, trade, and coexist efficiently or poorly.

Inspired by their 2019 book Good Economics for Hard Times, I decided to cover here one of the academic papers that Abhijit Banerjee and Esther Duflo referred to when delving in the subject of immigration. While the question of how immigration impacts labour market outcomes is very popular among policymakers, answering it is not a straightforward endeavour: by just looking at the correlation between the proportion of immigrants and the wage rate on a given location, we are certainly not viewing the whole story. There are a number of considerations that makes it challenging to study the causal relationship between immigration and labour market outcomes: Workers typically choose to migrate to locations where they anticipate better economic opportunities. This behaviour would indicate that immigration is correlated to higher wages. Immigration policy tends to become more strict when a country is experiencing an economic downturn. This pattern might lead to the interpretation that less immigration is correlated with a poor economic environment. Firms might decide to move to cities where they expect an influx of immigrants in the near future. In this case market expectations play a dynamic role that is not factored in when only looking at the correlation between wages and immigration. In order to address the concerns above, we would need to observe a sharp change in the supply of immigrants that is not directly related to the wages or unemployment levels in that particular location. Also, workers and firms from other locations should not be able to anticipate and respond to this change. The Case Study On the 20th of April in 1980, Fidel Castro proclaimed that Cubans who wanted to leave the country were able to do so from the port of Mariel. This political announcement led to the arrival of 125,000 Cubans, also referred to as the ‘Mariels’, between April and October on the same year of the announcement. The historical event is known as the Mariel Boatlift and it led to a 7% increase on the Miami labour force, predominantly in ‘low-skilled’ professions. If we assume that the ‘Mariels’ chose to migrate to Miami because of geographic proximity rather than the city’s specific employment circumstances relative to other places in the United States, the Mariel Boatlift offers a suitable natural experiment to evaluate the causal relationship between immigration and wage rates. In his paper, David Card studies the effects of immigration on wages and unemployment rates of Miami’s labour market. Card compares the trend of wages and unemployment rate of non-Cuban residents in Miami before and after the arrival of the ‘Mariels’ to the trend in Atlanta, Los Angeles, Houston and Tampa. Since these four cities followed a similar economic growth pattern to Miami before the Mariel Boatlift, they provide an appropriate counterfactual state of what Miami’s wages and unemployment rate would have been if the Mariel Boatlift had not happened. Results The author found out that that the influx of Mariel immigrants had no effect on the wage rate or the unemployment levels of ‘low-skilled’ non-Cuban workers. The data also reveals that the Mariel boatlift had essentially no impact on the wage rate of Cuban workers that resided in Miami before the boatlift. These results suggest that there was a rapid absorption of the Mariel immigrants into Miami's labour force. The paper also explores two potential explanations as to why an increase in labour supply didn’t lead to adverse effects on labour market outcomes as we would suspect if the market would operate under the traditional demand and supply economic framework. One of them is that ‘Mariels’ displaced other immigrants who would have moved to Miami in the early 1980s had the Boatlift not happened. The data seems to support this hypothesis to some extent as net migration of natives and non-Mariel immigrants slowed down after the Boatlift. Another explanation comes from the industry distribution in Miami and how it was suitable to welcome in a large number of ‘low-skilled’ immigrants. Evidence suggests that industries such as Apparel and Textile, which demand relatively ‘low-skilled’ labour, were predominant in Miami in the late 1970s. Finally, the effect of immigration on labour market opportunities has been widely studied and the results of Card’s paper challenges the traditional economic view. Evidently, the claim that immigration always leaves unaffected labour market outcomes cannot be made by just looking at one single case study, and further research is required to understand the channels through which immigration affects the economy and if there are any distributional effects that exist within a wider context. However, experiences as the one portrayed by the Mariel boatlift encourage us to keep our minds open and not always assume that the theory we were taught will always hold in real labour markets.