New books read recently

Ranked from * (boring) to *** (smashing):

1. The Quest: Energy, Security, and the Remaking of the Modern World by Daniel Yergin **
2. Confidence Men: Wall Street, Washington, and the Education of a President by Ron Suskind ***
3. God is not Great by Christopher Hitchens***
4. Brandwashed: Tricks Companies Use to Manipulate Our Minds and Persuade Us to Buy by Martin Lindstrom ***

TIGER seminar on Doing Business in Poland

On December 14, 2011, I delivered a presentation on "Doing Business in Poland" within the TIGER Seminar Series.

Conference "The World and Europe in 2030"

I gave a speech on "The Inexorable Rise of Chimerica and its Implications for the Global Economic Order" as part of a conference organized by TIGER on December 8, 2011 within an EU-funded project AUGUR.

The background paper is available here. An updated paper will be available online soon.

Misleading information in the media on EU tax harmonization (in Polish)

I have just read an article in the Polish Gazeta Wyborcza on "Takie same stawki podatków w Unii? Zbyteczne" (The same tax rates in the EU? Not needed), which provides a sweet example of media misinformation.

First, the title of the article is not congruent with its content: one of the surveyed economists (in fact, Dr Ozog is not an economist, but a tax lawyer) is in favor of harmonizing tax bases within the EU and introducing a range of tax rates for CIT, ie a minimum and a maximum tax rate allowed. This is as close to tax harmonization as it can possibly get, short of having the same CIT rate for everyone.

Second, the way the article is written makes it really hard to understand Ozog's views: it first says that she is against one CIT rate for everyone, but then at the end adds that "it could be useful to think about introducing ranges", which goes against the main message coming from the text. Readers are left believing that there is something wrong with harmonizing taxes.

Third and finally, the article only asks for opinion two selected economists, without trying to talk to someone, who has strong arguments in favor of tax harmonization. Biased selection biases the results.

On the whole, the title of the article should have read something like "Tax Harmonization in Europe? A qualified yes for harmonizing bases and minimum tax rates", which would have fit the content much better. Otherwise, it is a great article!:-)

A remarkable speech by the Polish MFA Radek Sikorski in Berlin

Radek Sikorski's speech in Berlin is a bombshell - I have hardly read anything more powerful ever before coming from a Polish Minister of Foreign Affairs or a Polish policy maker. This is a true tour de force, which is likely to earn its place in the Polish and European history.

I agree with Sikorski's whole message, except on taxes, which I believe--like in most other areas--should also be harmonized within the EU.

"2021: The New Europe" by Niall Ferguson

Niall Ferguson, my favorite historican, peers into the future of Europe, now in its critical moment.

The bottom line: the euro is still circulating, the euro zone is replaced by the United States of Europe, UK is no longer in the EU, unlike Poland, which stayed and adopted the euro (and is led by Prime Minister Radek Sikorski), with the accession of the six remaining former Yugoslav states—Bosnia, Croatia, Kosovo, Macedonia, Montenegro and Serbia—total membership in the U.S.E. rose to 28 (29 with the separation of Flanders and Wallonia); in 2021 the euro is being used by more countries than before the crisis.

Euro Area Is Coming to an End?

Peter Boone and Simon Johnson, a former IMF Chief Economist, have just published an op-ed on Bloomberg, which predicts that the "euro area is coming to an end" (although, unlike the title of the article, no doubt imposed by the editors, the authors merely say that the euro zone is likely to change its membership, not collapse as a whole. Talking about misleading information..).

I agree with the risks, but still believe that a concerted action by the ECB/EC/IMF can save the euro zone. It is becoming increasingly difficult, but is still possible.

Why China will dominate the world sooner than we expect

Arvind Subramanian wrote an excellent book on "Eclipse. Living in the Shadow of China’s Economic Dominance", which is available in electronic form for free, where he argues that, contrary to common belief, China's economic dominance is much closer to become a reality than we expect. That includes the renminbi's takeover of the dollar as the world's reserve currency in the next decade or so. He discusses what impact these changes would have on the global economy.

A good review of the book is here.

Workshop in Seville on "Investigating Industrial and Innovation policies for Growth"

On November 2-3, 2011, I participated in an international workshop on "Investigating Industrial and Innovation policies for Growth: Contrasting experts views" organized by the European Commision's IPTS in Seville, Spain.

I spoke on "The 10 billion euro question': how to most effectively support innovation in Poland". The slides are here

Belka in Financial Times on two-speed Europe

Marek Belka, Governor of the Polish central bank, published a very interesting op-ed in Financial Times (November 17) on "Europe cannot endure a rift between ins and outs". He argues for further European integration and reforms, both of which I strongly support.


His bottom line is the following:


"Now that the eurozone has approved greater financial firepower, it should effect debt restructuring for Greece and take measures to prevent spillover to other countries. Fiscal and financial supervision needs to be exercised as much as possible at the European level. It cannot be left as an almost exclusively national competence. Tough macroeconomic policies are crucial. Improving competitiveness may prove extremely difficult with rigid employment procedures, high costs of production and onerous taxation. Europe has to boost the quality of its export products and services compared with what Asia can offer. Non-eurozone countries have shown exemplary policies in all these fields. In the interests of EU cohesion, but also as regards their own economic objectives, euro members would be foolish to allow new barriers to grow between the eurozone and those outside. Eurozone strategies for higher growth and stability are welcome. They are far more likely to succeed if they embrace the whole EU"

U.S.-Central Europe Strategy Forum in Prague

On October 26-27, I spoke on a panel on "The EU After Greece: Toward a Two-Tiered Europe?" during a conference organized by the DC-based Center for European Policy Analysis (CEPA), where I published my two recent papers on New Europe's Golden Age and on the Warsaw Consensus, the new growth model for New Europe.


More info from CEPA's website:


"CEPA convened the third meeting of The U.S.-Central Europe Strategy Forum in Prague, Czech Republic. The Forum brought together a wide range of policy experts from both sides of the Atlantic, along with numerous mid-level policy professionals and leading authorities on U.S.-Central European relations, for a sustained dialogue on the state of America’s relations with its allies in the region."

Doing Business 2012 launch in Warsaw and Riga

On November 20 and 21, 2011, I presented the new World Bank's "Doing Business 2012" report in Poland and Latvia.

The Latvian Doing Business launch was particularly memorable, given that Latvia was included in this year's Top 10, global's ten best performing countries in regulatory reforms, and that at the press conference I was flanked by the Prime Minister Dombrovskis, minister of finance and minister of economy.

Pictures from the Warsaw and Riga presentations are here and here. There is also a video from the press conference in Riga.

New books read in the last month

As always, ranking starts from * to ***.

1. Adapt: Why Success Always Starts with Failure by Tim Harford (May 10, 2011)***

2. Civilization: The West and the Rest by Niall Ferguson (2011)***

3. „Trans” by Manuela Gretkowska*

4. „Koźmiński Reaktywacja”, group authorship***

5. “Zgred” by Rafal Ziemkiewicz**

6. “Swiat do przerobki. Spekulanci, bankruci, giganci i ich rywale” by Witold M. Orlowski***

Stiglitz on the state of the global economy and possible solutions

Here is a link to Stiglitz's interesting presentation (video recording) held last week at the World Bank.

This is what he said (quoted at lenght from the World Bank's page):

"Stiglitz made no bones about the sobering message he came to deliver: government efforts to fix US and European banks are urgently needed, but won’t be enough to rekindle growth. Rising inequality, high oil prices, globalization and excessive savings in certain countries hint at structural problems that run much deeper.


But most importantly, the US and global economy are undergoing a massive transformation from manufacturing to services, said Stiglitz, and so long as Americans don’t have the skills needed in the new services-driven world, unemployment will persist.

Stiglitz pointed out that productivity gains in manufacturing have outpaced overall demand for labor in the sector, which means jobs will need to be shed and workers are facing long-term joblessness. The US no longer has a comparative advantage in manufacturing, said Stiglitz, so manufacturing jobs will certainly move to other countries.

“A similar thing happened during the Great Depression in the US,” said Stiglitz. “In the late 19th century, agricultural productivity increased, and so, a smaller percent of the population was needed to feed the rest of the country.” As a result by the 1930s, many agriculture workers were “trapped” in a declining sector. This triggered an economic downturn, and a massive banking and financial crisis soon followed.

More than the New Deal, the demand-inducing role of the US government during the Second World War ultimately pulled America out of the depression. During this period, the government stimulated the economy by spending massive amounts in numerous priority areas, including training workers and preparing service men and women for the workforce of the future through incentives like the GI Bill.

Since this stimulus was huge, and designed to tackle underlying structural problems, the impact on the economy was positive for the long-run.

Stiglitz believes a similar intervention by the government is needed now. Put simply, government needs to increase demand by tackling underlying structural issues. This includes raising taxes on the very rich (those who make over $1 million a year) and encouraging a shift within the labor force from manufacturing to services by increasing support for the health and education sectors.

Well-designed tax and expenditure programs that keep the US budget balanced could also drive economic growth, said Stiglitz. By encouraging, or “crowding in” private investment, public sector projects can provide an urgently needed boost at a time of sagging demand and the threat of recession.

This is particularly the case now, with the Federal Reserve committed to keeping interest rates at close to zero and US unemployment remaining persistently high. Today, one in six Americans can’t get a full time job.

Stiglitz laid out other proposals for designing an effective government-led stimulus plan:

Finish fixing the financial system by bringing it back to its core mission – lending rather than dealing with complex derivatives in secondary markets.

Promote investment in public sector projects.

Channel savings from East Asian and other “surplus” countries to those countries that need to undertake investment projects.

Pursue a green-growth strategy.

Despite this list of options, Stiglitz remained dubious about the likelihood of any of them being implemented.

“These are a few things I would do if I was running the government without a Congress, but what I am suggesting is what I think we could do, not something that is politically likely.”

Confession of a trader - all that matters is making money, even if the markets crash

Check out this video on youtube with Alessio Rastani, an independent trader, who dreams of another recession and argues that Goldman Sachs not governments rules the world.

Caveat: the guy is not too credible, but what he says is.

Rodrik on the future of economic convergence

Dani Rodrik from Harvard has just published a really interesting paper on "The Future of Economic Convergence", where he argues--against very optimistic expectations of other pundits--that emerging markets are not likely to grow as fast as expected and--fully in line with what I have been arguing before--that predictions of high future growth rates for emerging markets "are largely extrapolations from the recent past and they overlook serious structural constraints"

Some useful quotes from the paper (a long list):

“Yet I find much of the optimism regarding the prospects for rapid convergence misplaced. In practice most of the convergence potential is likely to go to waste – just as it has since the world economy first got divided into a rich North and a poor South. As the empirical literature on growth has documented, convergence is anything but automatic. It is conditional on specific policies and institutional arrangements that have proved hard to identify and implement. Indeed, the recipes seem to vary from context to context. The experience of highly successful Asian countries is difficult to transplant in other settings”.


“It is true that the policy and institutional setting has improved across the developing world – at least as judged by conventional criteria. Developing countries have opened up to the world economy, place greater emphasis on macroeconomic stability, and are for the most part better governed. These changes have led many observers to think ―this time will be different.‖ My reading of the evidence is that these are improvements that serve mainly to enhance these economies‘ resilience to shocks and help avert crises, which often interrupted economic progress in the past. They do not necessarily stimulate ongoing economic dynamism and growth.”

“So generalized, rapid convergence is possible in principle, but unlikely in practice. Our baseline scenario has to be one in which high growth remains episodic. Sustained convergence is likely to remain restricted to a relatively small number of countries.”

“Easterly‘s bottom line is that empirical evidence gives little reason to have confidence that moderate changes in policies will yield systematic or sizable growth effects. Another way of putting the same result is to repeat the point made above: avoiding truly awful policies can prevent a country from turning into an economic basket case, but ―good‖ policies of the conventional type do not reliably generate high growth”

“In other words, the economy may be a mixture of activities that are already on the escalator up and activities that are going nowhere. Economies that grow rapidly are those that are able to push their resources into the escalator sectors. And those that grow in a sustained fashion are those that can accomplish this on an ongoing basis.”

“In other words, once a country begins to export something, it travels up the value chain in that product regardless of domestic policies or institutions.

“So convergence can be easy if an economy is able to push its resources (labor in particular) into the ―convergence sectors‖ – the industries on the automatic escalator up.”

“Why then do the conventional policies of macroeconomic stability, liberalization and openness not do the trick? After all, their objective is precisely to ensure that markets can work better and generate the requisite incentives. As a practical matter, however, creating well-functioning market economies requires considerably more than tinkering with specific policy instruments. It is a process that involves deeper institutional transformation measured in decades rather than years. Laws and regulations can be rewritten quickly, but that is not by and large where a nation‘s institutions reside. The rules of the game that we call ―institutions‖ are cognitive constructs that shape expectations about how other people behave (North 1990, Pistor 2000). These expectations are difficult to modify and replace, short of wars, occupation, revolutions, or other cataclysmic events. Furthermore, as long as the beneficiaries of the established order remain politically strong, they can easily circumvent reforms that undercut their privileges. As Daron Acemoglu and James Robinson have emphasized in their various writings, sustainable economic growth ultimately requires political change (Acemoglu and Robinson, forthcoming).”

“Consequently, structural change can remain too slow even when markets are liberalized, opened up, and made to work ―better‖ in the conventional manner. Growth requires remedies targeted at these ―special‖ sectors rather than general policies.”

“Of all methods of subsidizing modern tradables, perhaps the most effective is currency undervaluation. Growth-promoting structural change is greatly assisted by a highly competitive real exchange rate. In Rodrik (2008b) I show that there is a systematic and robust association between undervaluation and economic growth, a relationship that seems to work through undervaluation‘s positive effects on industrialization.”

“In fact, it is rather difficult to identify instances of nontraditional export successes in Latin America and Asia that did not involve government support at some stage”

“Currency undervaluation is often preferred for its non-selective nature, but that is actually a big problem in this context: undervaluation ends up subsidizing a lot of activities – traditional commodity exports, in particular -- that do not need to be subsidized while also unnecessarily taxing imports across the board.”

Here is also Rodrik's op-ed in FT on the same subject.

Krugman on the euro zone: "can it be saved?"

Check this out this article by Paul Krugman on "Can Europe Be Saved?", where he discussed the chances for the euro zone to survive the current crisis. The verdict? Not likely, really, unless the euro zone builds a true fiscal transfer union.

I agree. In the meantime, this is not going to look pretty.

Warren Buffett: "Stop Coddling the Super-Rich"

Check out this op-ed in the New York Times by Warren WE. Buffett, the eponymous investor, who argues that taxing the rich in the US more would not discourage investment.

Some useful quotes below:

"OUR leaders have asked for “shared sacrifice.” But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched."


"Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent."


"I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation."

What do you mean by "the government is too big"?

I have just read this interesting text by James Kwak in The Atlantic on the fallacy of measuring the government's spending to decide whether "it is too big". It all depends, as James documents.

Interview on innovation and Poland's growth prospects

Here is my interview on "Europa 2020 a wzrost PKB" (in Polish) published by Portal Innowacji, an online publication of the Polish Agency For Entreprise Development (PARP).

OECD's paper on structural reforms to raise growth

I have just come across a new and interesting paper by the OECD on "Raising Potential Growth
After the Crisis. A Quantitative Assessment of the Potential Gains from Various Structural Reforms in the OECD Area and Beyond", which projects how much OECD countries could benefit in terms of higher GDP levels after introducing product and labor market reforms.

The conclusion is that "The overall potential GDP gain for the average OECD country from undertaking the full range of reforms considered here might come close to 10% at a 10-year horizon, indicating the presence of ample room for structural reforms to offset the permanent GDP losses from the recent crisis".

This is a useful exercise, although results for Poland are quite doubtful: it is projected to benefit from product and labor market reforms to the tune of almost 18 percent of GDP within the next ten years largely through reforming the supposedly very rigid product market regulations.

But when you look closer, Poland's low position in the product market regulation (in fact, the last one in the ranking) is largely due to to a slightly larger share of state ownership in the economy than elsewhere. The underlying assumption is that state ownership by definition has to always be worse/less efficient than private ownership and by simply privatizing these companies Poland would develop much faster. I am not so sure: private ownership in the long run is indeed more efficient than state ownership, but in a short run and under additional assumptions, partial state ownership (as is the case in Poland for most state-owned firms) may be equally efficient.

OECD's projections for the impact of PMR reforms on Poland's GDP are therefore overestimated. The PMR index on its own has also be taken with a grain of salt, as most international rankings for that matter.

IMF's annual assessment of the Polish economy

The IMF has just published its annual report on the Polish economy (the so-called Article IV). It is a useful read, replete with the usual high-quality analysis, but somewhat marred by an arcane language, which makes it hard to read for anyone outside the narrow economists’ circles.

(A digression: as IMF desk economist for Moldova, I was writing staff reports myself – I needed to quickly learn how to use the same undecipherable language to relay the right message without disturbing the audience and the markets. To my great surprise, chiseling the text was taking more time for everyone than the underlying economic analysis!).

There are plenty of things I would broadly agree with:

- maintaining fiscal discipline (in my view Poland should aim for a balanced central budget by 2016, reduce publid debt to closer to 40 percent of GDP and establish a Fiscal Council to increase credibility and transparency of public finances),
- increasing labor participation (more than 1.5 million Poles more should be working when compared with Western Europe, there is another million working in low-productivity farming, which should be moved to industry and services, there is a substantial scope for increasing immigration, especially the high-skilled type)
- streamlining bureaucracy (there is nevery enough of it)
- stimulating further business climate reforms (some of it is happening and Poland is likely to improve its position in this year's Doing Business rankings)
- and continuing privatization (although it is somewhat irritating to read the banalities about the permanent advantage of private vs. public ownership. This is simply not always true; vide the fact that many Polish partially state-owned firms, PKO BP, KGHM, Orlen, Lotos etc, have recently performed better/equally well as their private sector competitors and—above purely private returns—have also provided substantial social returns by maintaining operations and profits in Poland and—as in the case of PKO BP—increasing lending were needed. The usefulness of maintaining some sort of public control over the most important enterprises is even higher during uncertain times: for instance, in a scenario of further worsening of the euro zone crisis, we might need to use PKO BP again to support lending and/or buy out foreign banks, if needed) The key is not ownership per se, but the existence of competitive pressures and commercial orientation).

However, I disagree with IMF’s view that foreign exchange reserves are too low and that they should be increased. This is for three reasons:

- First, FX reserves may be lower than the total value of short-term debt, but a large part of this debt is short-term only by name, as it includes inter-company financing from foreign banks and companies for their Polish subsidiaries. This type of funding has proven to be extremely stable in the past. Even during 2008-2009, at the bottom of the first wave of the global crisis, foreign banks, for instance, have actually increased, not decreased their financing for Polish subsidiaries. This is likely to be the case in the future too, implying that the FX reserves do not have to inordinately high.

- Second, Poland maintains access to the $30 billion Flexible Credit Line from the IMF (for which it is paying about $50 million dollars a year in commitment fees), which could be used at any time to bolster reserves. Maintaining the same $30 billion on NBP’s balance sheet would cost us $1.2 billion a year in opportunity costs (see below). So, it is better to further increase the FCL than to build up reserves.

- Third, and above all, FX reserves are one of the most inefficient ways of investing public money: while NBP invests $100 billion worth of dollars and Euros in US and euro bonds yielding 1-2% a year, at the same tiem the Ministry of Finance borrows the same dollars and Euros from the global financial markets at 6% a year. As a result, the poor Poles are subsidizing rich Americans and Western Europeans to the tune of some $4 billion a year! Does that make any sense?

In an ideal world, NBP should not have to accumulate any FX reserves and rely instead on the ECB and/or IMF-like insurance policies guaranteeing payment in case of a crisis. The accumulated reserves should be used to pay back the burgeoning public debt (reducing the total outstanding public debt by one third). Poland will come close to this ideal situation when it enters the euro zone around 2020: as part of the euro zone, there will be no need any more to maintain FX reserves (except for our contribution to ECB and small reserves for technical reasons). One more reason to enter the euro zone at some opportune moment and at a competitive exchange rate.

"Europe needs the solidarity of self-interest"

I like today's comment in the FT by Poland's Minister of Finance Jacek Rostowski on "Europe needs the solidarity of self-interest".

He argues for (i) lower interest rates on the EU support facilities for Greece, Portugal and Ireland to ensure that they have a fighting chance of growing out of the crisis (although less so for Greece), (ii) voluntary debt restructuring and Brady bonds (for Greece) and (iii) structural reforms.

All quite sensible and a nice article overall (am wondering however why it has not been published on the main op-ed page rather than as a comment: isn't a text by the EU Presidency's minister of finance on the euro zone problems more important than, for instance, a large text on the US defense spending on the op-ed page? I seriously question FT's priorities here).

As to structural reforms, these are crucial in the long-term: aside from every more stringent austerity packages, struggling euro zone countries need to convince investors that they can start growing again. This requires far-reaching educational reforms, liquidition of domestic product and service market monopolies, higher supply of labor etc. Some reforms will take time, some others--like raising the retirement age or opening domestic markets to competition--could be implemented quite quickly.

One thing is for sure: Time is not on our side and we need to move quickly.

The UK is almost as socialist as Sweden is!

A chart above taken from the Economist's recent article on the Swedish economy, fittingly entitled "The North Star", shows that the size of the UK's public sector as measured by the share of public spending in GDP is virtually indistinguishable from that in Sweden and much higher than in Poland (not on chart - in 2010, public spending represented only about 45% of GDP).

The message? First, there has been an unbelievable convergence of economic models in the past 10 years: liberal countries became more socialist, while socialist countries became more liberal. Second, a larger role of the state in the economy has not prevented the world's economy (both developed and developing countries) from growing faster than in previous decades, the global crisis notwithstanding. Finally, it seems that modern societies, which live not only on GDP, but increasingly care about well-being and standards of living going beyond GDP, need relatively significant public intervention to fulfill the new social needs. Large public sector (which doesn't mean that it necessarily needs to be inefficient) is likely to stay.

Reverse migration - the beginning of the story

The new York Times has this wonderful article on "A Polish Lifeline for an Ailing German Town" discussing how Poles are settling in Eastern Germany, largely because of cheaper real estate (sic!), and giving these lands a new lease of life.

Isn't this shocking? Who would have predicted it 20, 10, or even 5 years ago?


And this is only the beginning: Poland and other EU-10 countries will soon experience, for the first time in many centuries, a halt of outbound emigration (settling in German borderland notwithstanding) and growing inflow of immigrants from abroad.

Yet, like with the Polish-German story from the NYT, hardly anyone is predicting it, hardly anyone is thinking about it, hardly anyone is getting prepared. Will we be shocked in 2020 again?

Workshop in Rio on Development Impact Evaluation

On June 6-10, 2011, I participated in a World Bank seminar in Rio de Janeiro on "Development Impact Evaluation in Finance and Private Sector", where I gave a presentation on "Public Support for Entreprise Innovation Policy" based on the innovation project that the World Bank is working on together with the Polish Ministry of Economy.

The workshop itself was surprisingly productive too, not only because it was held in Rio: it presented the state-of-the art methods for evaluating impact of policies using randomization and control group framework.

The take away from the workshop is that countries do not do enough of proper impact evaluations, which are needed to establish the true effect of policy interventions as well as the direction of causality. Without the new impact evaluations methods, policy interventions are likely to be much less informed/less efficient/and even plainly harmful.

For Poland, rigorous impact evaluations, subject to the availability of data, would be desperately needed to properly assess the efficiency of hundreds of public and EU-supported spending programs, worth billions of euros a year, whose efficiency is likely to leave much to be desired (to put it mildly)

Books read in 2010

Here is a list of (most) books I read in 2010, together with the assessment of their quality ranging from "*" - don't bother to "***" - you can't miss it!

1. The Beijing Consensus: How China's Authoritarian Model Will Dominate the Twenty-First Century - Stefan Halper*
2. The War of the World by Niall Ferguson***
3. I'm a Stranger Here Myself: Notes on Returning to America After 20 Years Away by Bill Bryson***
4. Paris 1919: Six Months That Changed the World by Margaret MacMillan***
5. Mismeasuring Our Lives: Why GDP Doesn't Add Up by Joseph E. Stiglitz, Amartya Sen and Jean-Paul Fitoussi***
6. The Long Walk: The True Story of a Trek to Freedom by Slavomir Rawicz**
7. Freefall: America, Free Markets, and the Sinking of the World Economy by Joseph E. Stiglitz**
8. Wrong: Why experts* keep failing us--and how to know when not to trust them *Scientists, finance wizards, doctors, relationship gurus, celebrity CEOs, ... consultants, health officials and more by David H. Freedman***
9. Fault Lines: How Hidden Fractures Still Threaten the World Economy by Raghuram Rajan***
10. The Spirit Level: Why Greater Equality Makes Societies Stronger by Kate Pickett and Richard Wilkinson***
11. Prosperity without Growth: Economics for a Finite Planet by Tim Jackson **
12. The Plundered Planet: Why We Must--and How We Can--Manage Nature for Global Prosperity by Paul Collier**
13. The Big Short: Inside the Doomsday Machine by Michael Lewis***
14. Truth, Errors, and Lies: Politics and Economics in a Volatile World by Grzegorz W. Kolodko***
15. Bloodlands: Europe Between Hitler and Stalin by Timothy Snyder***
16. Ill Fares the Land by Tony Judt**
17. When Markets Collide: Investment Strategies for the Age of Global Economic Change by Mohamed A. El-Erian**
18. By Force of Thought: Irregular Memoirs of an Intellectual Journey by János Kornai**
19. W Pogoni za Straconym Czasem Wzrost Gospodarczy w Europie Środkowo-Wschodniej by Orłowski Witold M.***
20. Stulecie Chaosu. Alternatywne Dzieje XX Wieku by Orłowski Witold M.**
21. Czas Wrzeszczących Staruszków by Ziemkiewicz Rafał A.**
22. Świat na Wyciągnięcie Myśli by Kołodko Grzegorz***
23. Globalizacja, Kryzys – i co Dalej? by Kołodko Grzegorz (eds)***
24. 20 Lat Transformacji. Osiągnięcia Problemy Perspektywy by Kołodko Grzegorz and Jacek Tomkiewicz (eds)***
25. On Economic Transformation in East-Central Europe: a Historical and International Perspective by Andres Solimano*
26. Cień Wiatru by Zafon Carlos Luis**
27. Koniec świata menadżerów? By Koźmiński Andrzej K.***
28. Trzecia Strona Medalu By Baliszewski Dariusz*
29. Transformacja Nieoczywista. Polska jako kraj imigracji by Agaty Gorny and others*
30. W Pogoni za Europą by Tazbir Janusz***
31. Protokóły Mędrców Syjonu by Tazbir Janusz*

Panel in Wroclaw on "Social Europe and the Economic Crisis", May 14

Last Saturday, May 14, I spoke on a panel during a conference on "Social Europe and the Economic Crisis" organized by the Ferdinand Lasalle Center of Social Thought in Wroclaw. More info here

FX interventions can work

IMF admits that FX intervention can be effective (a significant change in Fund's views - heretofore FX interventions were anathema), as argued in an interesting paper and an accompanying article on the efficiency of FX interventions in Latin America published on the IMF's blog.

The article's conclusions are that while "results do not detect an immediate impact of interventions on the rate of appreciation, but do find statistically significant effects on the pace of appreciation: on average, increasing interventions by 0.1 percent of GDP will produce—in one week and in comparison to a country that does not intervene—a 0.3 percent slowdown in the pace of appreciation."

In addition, authors find that FX "effectiveness is not dependent on the use of rules or discretionary frameworks, or on the degree of transparency. However, greater financial integration may significantly reduce the effectiveness of interventions. In fact, intervention is more effective in Asia than in Latin America, which is consistent with the differences in financial integration across the two regions" and that "interventions are most effective when there are signs of the currency being overvalued compared to its recent history. This is especially noticeable in Latin America and highlights the importance of intervening “when the time is right,” and never “too early”."

Something for our policymakers to ponder?

IMF sees bright economic spots in New Europe

The IMF has just published its Regional Economic Outlook for Europe. It emphasizes the resilience of New Europe (EU-10) and its strengthening economic recovery. It summarizes the message in a text on the blog.

I could not agree more - this is what I have been saying all along (see my recent CEPA paper), ie that the global crisis has hardly weakened the sound long-term growth fundamentals of New Europe and that it will continue fast convergence with Western Europe, heralding the arrival of New Europe's Golden Age.

On happiness and GDP

Samuel Brittan, a columnist at the Financial Times, has an interesting take on the issue of happiness and the role of economic growth. Worth reading. Conclusions below:

What then is the alternative? It might come as an anti-climax; but I still think it is the choice utilitarian one of maximising the range of opportunities open to each individual. And I see the task of policy largely in negative terms; to remove obstacles to the exercise of individual choice rather than lots of fussy interventions on our behalf. But I must be frank and say that even such negative policies involve in my view a degree of income transfer towards the poor and less fortunate, which not everyone in this audience might welcome.

For about three quarters of the world's population a measure of success will still be real GDP per head, corrected for the worst absurdities, and supplemented by a few simple social indicators. But for the more affluent populations of North America and western Europe, economic growth in this sense is no longer a sensible objective of policy. It is much better that the growth rate should emerge from peoples own choices. So it would not be a disaster if after the recent traumatic events Americans adopted a quieter lifestyle with more emphasis on leisure and reflection, and working to live rather than living to work.

We should not throw out the baby with the bath water. GDP statistics will still remain useful for economic management and for looking at the way the national product is divided between different activities and different groups. Information on these matters should not take us along the road to serfdom. Indeed I have heard American friends observe that the social scientists who have been least tempted by collectivism are those who have the most detailed knowledge of the relevant facts and figures.

My conclusion is that the pursuit of happiness is and should remain a personal matter; and the people most likely to achieve this are not those who keep on asking themselves whether they are happy or unhappy, but who find worthwhile purposes and activities and concentrate on them. By all means make use of attitude surveys and similar devices; but let us do so first and foremost to satisfy our curiosity and not imagine that we have found the magic lodestar which has eluded thinkers of the past.

"Europe and the World in 2030" workshop in Rome

This is to note that I presented a paper on "The Inexorable Rise of Chimerica: The Long Term Scenario" during a workshop in Rome on May 3-5, 2011, organized within an EU-funded multi-institutional AUGUR project on "Europe and the World in 2030".

Presentation in Brussels on May 11

On May 11, 10am, at the European Policy Center in Brussels, I am presenting a focus note on "Fueling Growth and Competitiveness through Employment, Skills, and Innovation", a note which I have co-authored, as part of the launch of the new World Bank's "EU10 Regular Economic Report", April 2011.

Here is a (somewhat misleading, since I did not mention the Soviet institutions in such a context) press article on the presentation.

More details below:

Wednesday, 11 May 2011 - 10.00 to 12.00
Policy Dialogue
The EU10 economic recovery and beyond - What scope for skills-driven growth?Speaker(s):
Kaspar Richter, Senior Economist, World Bank
Marcin Piatkowski, Senior Economist, World Bank
Grzegorz Radziejewski, Financial Counsellor, Head of the Budget and Finance Section, Permanent Representation of Poland to the EU

My quotes in The Economist

The Economist has just published three articles on Poland's politics and economic situation.

I am quoted in the economic section in: “Germany helped save Mitteleuropa” and "Mr Piatkowski speaks of a “New Golden Age”, with Poland converging on west European levels of well-being soon after 2020".

The full text of this insightful article is available online.

CSR - Corporate Social (Ir)responsibility?

I have recenttly come across a number of publications/conference/seminars enthusing over the idea of CSR.

Now, I am in favor of any corporate actions that improve social welfare. But I have doubts at the same time whether by focusing on CSR we are not actually losing track of something else.

Specifically, can companies be considered "socially responsible" when they "optimize" taxes, thus reducing tax revenue, undermining productive public spending (roads etc) and--ceteris paribus--increasing tax rates for consumers, who need to pay more because of lower CIT revenue? Just read this shocking NYT's story on General Electric, which despite having earned almost $15 billion dollars in profits in 2010 have not only paid nothing to the US Treasury, but even claimed a $3.2 billion refund! Given the nominal 35% CIT rate in the US, GE should have paid some $5 billion of taxes on its worldwide income. This compares with $160 million that GE spends on CSR per year, that is 3% of the amount that it should have paid in taxes. How socially responsible is this?

And what about companies that may be spending on a lot on CSR but focus their business on selling overpriced products that consumers do not need, often on the basis of misleading information? Let's take Danone, a French food company and one of the global CSR leaders. It produces Actimel and Activia, dairy products with added bacteria, which cost a multiple of a price of regular milk and yoghurt and--against the claims of the company--have no proven impact on health whatsoever? The company recently lost a case in the US and had to pay $21 million in damages (read this and that). How socially responsible is this?


I leave it to you to decide.

The New World Bank EU10 Economic Report

The World Bank has just published its useful and comprehensive "EU10 Regular Economic Report", April 2011, which covers the recent economic developments in the EU-10 area. Worth reading, not only because I have contributed to it, including on the EU 2020 focus note:-)

The new growth model - the Warsaw Consensus!

The DC-based Center for European Policy Analysis has just published my paper on the "Post-Crisis Prospects and a New Growth Model for the EU-10", where I analyze the growth prospects of the EU-10 countries (New Europe), argue that the global crisis has undermined the credibility of the current growth model, and offer a set of policy recommendations for a new growth agenda for the region - the Warsaw Consensus.

This is an important paper for me, particularly as I introduce the concept of the Warsaw Consensus as the strategic growth model for Central Europe.

All comments are warmly welcome!

Lecture at CEPA in Washington DC, April 6, 9am-10.30am

I will deliver a lecture on "Central Europe: New Growth Model Needed?" at the Center for European Policy Analysis (CEPA).

The lecture will be based on my 2009 paper "The Coming Golden Age of New Europe" and the 2011 paper on "Post-crisis Prospects and a New Growth Model for the EU-10" (both published by CEPA).

Books on being wrong

I have just read/am in the process of reading a couple of excellent books on why experts tend to be wrong (they are actually more often wrong than right), why we find so hard to know whenever we make errors, why our memory fails ("it fades over time and is distorted by our beliefs, desires and interests) and why "If being wrong is so natural, why are we all so bad at imagining that our beliefs could be mistaken – and why do we typically react to our errors with surprise, denial, defensiveness and shame?". And "what if I am wrong?"

In addition, you can read some truths about the way our minds really work: "first, we are subject to powerful illusions about how our minds work. Second, these illusions are difficult to shake, even when they are pointed out to us in books like this. Third, technology may hurt more than it helps, since new inventions often tax our mental capacities even further."

Read the helpful reviews below and the books themselves (now available on everyone's laptop, just download Kindle software)

http://www.nytimes.com/2010/07/25/books/review/Gilbert-t.html

http://www.nytimes.com/2010/06/11/books/11book.html?ref=review

http://www.nytimes.com/2010/06/06/books/review/Bloom-t.html

Supervision of SKOKs/credit unions in Poland

In February we launched a World Bank report on "Credit Unions in Poland: Diagnostic and Proposals on Regulation and Supervision", which I have co-authored.

The press release and the full report in English are here

"Doing Business" reforms in Poland

I forgot to write about it before, but in January we finally published the World Bank's "Doing Business Reform Memorandum", whose preparation I have coordinated. The report was completed already in June 2010, but it took some time to publish it.

The main message of the report is that there is scope for substantial improvement in the business climate in Poland by streamlining five key areas measured by the Doing Business Report: starting a business, obtaining construction permits, paying taxes, protecting investors and registering a property.

If the recommended reforms were to be implemented, I am convinced that Poland could become the Top 10 Reformer in the next edition of the Doing Business Report and advance to the first 50 in the global report from 70th place now.

World Bank report on "Fueling Growth and Competitiveness in Poland"

I have co-authored a new World Bank report on "Europe 2020 Poland: Fueling Growth and Competitiveness in Poland through Employment, Skills, and Innovation" launched last Monday.

The main message is this:

“Poland weathered the recent crisis very well, but there is uncertainty about whether it will be able to return to high growth rates, which exceeded 5 percent a year before the crisis, or, for that matter, to develop at a similar speed as a number of other high-achieving upper-middle-income countries such as Chile, the Republic of Korea, or Malaysia,” said Marcin Piątkowski, World Bank Senior Economist and one of the authors of the report. “Poland has already undertaken important reforms in many areas, but it needs to go further to sustain its impressive pre-crisis growth rates and meet the new targets on which Poland still lags behind.”


The press release and the report are here

Economic Policy Seminar in Budapest

I will deliver a lecture on "Growth Enhancing Structural Reforms" during the upcoming Hungarian Presidency High Level Economic Policy Seminar in Budapest on March 30 on "Economic Growth and Fiscal Consolidation". The program is here. My slides are here

IMF debate on the lessons from the crisis

Here is a link to a summary of a recent IMF conference on the lessons from the crisis featuring the luminaries of global economics, Blanchard, Stiglitz, Spence, Romer, Rodrik and others.

Here is the conference program, with video recordings.

Finally, here is Blanchard's, IMF Chief Economist, view on what we should learn from the global crisis going forward.

Panel on the future of the euro in Bratislava

Last Wednesday I spoke on a panel on "EURO: SHIFTING FROM SURVIVAL TO REVIVAL? "during a Globsec2011 conference in Bratislava. I was joined on the panel by H. E. IVAN MIKLOŠ - Deputy Prime Minister, Minister of Finance of the Slovak Republic, AMB. IVAN KORČOK - Permanent Representative of the Slovak Republic to the European Union, Brussels and SIMON TILFORD - Chief Economist, Centre for European Reform, London.

On the whole, it was quite an interesting panel, with a refreshing divergence of views, mainly thanks to Minister Miklos, who likes to be somewhat extreme in his perspective (including his support for Slovakia's recent decision to give a short shrif to European solidarity and not participate in the Greek bail-out).

I have prepared some notes on the euro (like the fact that the global crisis was a blessing for the euro zone and if we didn't have the crisis we would have to invent it) and hope to be able to publish it soon.

M. Gandhi - perceptions vs reality

A friend of mine suggested reviewing a riveting article by Sulman Rushdie on Mahatma Gandhi. What a joy to read for such a contrarian like me! You will know why when you read it, but just let me give you a couple of more saucy quotes below for you as a foretaste:

"He believed passionately in the unity of all the peoples of India, yet his failure to keep the Muslim leader Mohammed Ali Jinnah within the Indian National Congress's fold led to the partition of the country"

"His entire philosophy privileged the village way over that of the city, yet he was always financially dependent on the support of industrial billionaires like Birla. His hunger strikes could stop riots and massacres, but he also once went on a hunger strike to force one of his capitalist patrons' employees to break their strike against the harsh conditions of employment."


"The creator of the political philosophies of passive resistance and constructive nonviolence, he spent much of his life far from the political arena, refining his more eccentric theories of vegetarianism, bowel movements and the beneficial properties of human excrement."


"Forever scarred by the knowledge that, as a 16-year-old youth, he'd been making love to his wife Kasturba at the moment of his father's death, Gandhi later forswore sexual relations but went on into his old age with what he called his "brahmacharya experiments," during which naked young women would be asked to lie with him all night so that he could prove that he had mastered his physical urges. (He believed that total control over his "vital fluids" would enhance his spiritual powers.)"

"It is probable, in fact, that Gandhian techniques were not the key determinants of India's arrival at freedom. They gave independence its outward character and were its apparent cause, but darker and deeper historical forces produced the desired effect."

The BRICs success can't survive for too long

I am increasingly confident that we are witnessing another boom-and-bust cycle, this time involving BRICs.

There is so much group-think, herd behavior, "this time is different" thinking related to BRICs that it the whole story must at some point come crashing down. If you believed media, their hired experts and international banks, for whom promoting the BRIC story is just good business that is nothing wrong that could happen to BRICs until 2050, despite their centuries-old history of political upheaval and economic instability.

Glaring weaknesses are papered over, redolent of many crises before - Japan in the 1980's, East Asia Tigers before the 1997 crisis, the New Economy before 2000, the global financial crisis.

Just take Brazil - it has the lowest TFP growth rates among comparable countries, its growth is largely based on agriculture and raw materials (since when do they represent modern sources of growth?), rule of law is weak, business environment is abysmal (127th place in the World Bank's Doing Business report), saving and investment rates are unprecedently low, education outcomes are poor (see latest OECD PISA results), innovation level is nothing to be proud of and--last but not least--social inequality, despite the recent improvements, is still sky-high, leading to waste of millions of talented youngsters in favelas. (And, BTW, it makes me smile when I hear liberals extol the virtues of Embraer, the plane manufacturer, which is an outgrowth of state-led industrial policy and decades-long state subsidies).

The long list could go on for Brazil and the three remaining BRICs (just don't start me on Russia...)

As in any boom, for a while BRICs will continue to develop fast, bringing in ever more speculative foreign capital (with the FED obligingly continuing to print money, ooops, sorry "engage in quantitative easing") and strenghtening the "this time is different" theory until it all crashes down under the weight of falling prices of raw materials ("what goes up, must go down"), Dutch disease of overvalued exchange rates, stretched supply of resources and human capital, ever stronger corruption, hubris, overconfidence and mismanagement.

In a parable to to the Minsky moment, where stability in financial markets inevitably leads to more risk taking leading eventually to a bust (vide the recent global financial crisis after 20 years of "Great Moderation"), success of the BRICs will lead to more risk taking and oversized expectations which in turn will lead to a crisis when the expectations are not met and risks turn out to be outsized (call this the "Piatkowski moment":-)

I don't wish the BRICs any ill - don't get me wrong, their growth will benefit everyone--but I truly think that it would better for them not to get carried away by the golden PR and overconfidence, which can eventually hurt them.

Nationality of banks matters; the IMF's psychodrama

Vox.eu has published two interesting articles.

The first one argues that nationiality of foreign banks matters, something which only now after the crisis is closer to mainstream thinking.


The second one provides a nice overview of the recent report by the Independent Evaluation Office on why the IMF failed to anticipate the crisis. Fascinating read. As former IMF staff member, I couldn't agree more.

PWC's "The World in 2050"

Following HSBC, PWC published its own economic predictions in the report on "The World in 2050"

All my objections to the HSBC report equally apply to the PWC report (see the previous post).

I am getting tired of this baseline and standard thinking, which is condemned to be wrong.

"Financial Crisis Was Avoidable" - a new US report

The NYT carries a story on the conclusions of the yet-to-be-released US inquiry into the causes of the crisis. This promises to be a fascinating read.

Below some interesting excerpts from the NYT article:

The majority report finds fault with two Fed chairmen: Alan Greenspan, who led the central bank as the housing bubble expanded, and his successor, Ben S. Bernanke, who did not foresee the crisis but played a crucial role in the response. It criticizes Mr. Greenspan for advocating deregulation and cites a “pivotal failure to stem the flow of toxic mortgages” under his leadership as a “prime example” of negligence.

It also criticizes the Bush administration’s “inconsistent response” to the crisis — allowing Lehman Brothers to collapse in September 2008 after earlier bailing out another bank, Bear Stearns, with Fed help — as having “added to the uncertainty and panic in the financial markets.”

Democrats also come under fire. The decision in 2000 to shield the exotic financial instruments known as over-the-counter derivatives from regulation, made during the last year of President Bill Clinton’s term, is called “a key turning point in the march toward the financial crisis.”
 
The report could reignite debate over the influence of Wall Street; it says regulators "lacked the political will" to scrutinize and hold accountable the institutions they were supposed to oversee. The financial industry spent $2.7 billion on lobbying from 1999 to 2008, while individuals and committees affiliated with it made more than $1 billion in campaign contributions"."The commission that investigated the crisis casts a wide net of blame, faulting two administrations, the Federal Reserve and other regulators for permitting a calamitous concoction: shoddy mortgage lending, the excessive packaging and sale of loans to investors and risky bets on securities backed by the loans.

P.S. Here is the by now released report

Open world's databases to everyone!

The World Bank has just opened its vast database to the public, creating an ultimate global public good (youtube movie).

All countries in the world should do the same. There is no reason to hide anything. In Poland, the infamous GUS, the national statistical office, should take the lead.

Are long-term economic projections all rubbish?

My post on HSBC's forecast for 2050 received an interesting comment from Andreas Foster, who basically said the report was all  nonsense and rubbish.

In response to Andreas:

I agree with his point that indeed "the unexpected and unpredictable shapes the world". That said, there is still value in projecting into the future, to the extent that you can shape future events and/or change the probabilities of some events happening. For instance, to give an obvious example, countries like Poland could start doing something about demographics, introducing pro-family legislation and--above all--opening doors to/promoting immigration.

Also, projections on their own shape reality. Just take the BRICs, a PR idea developed by Goldman Sachs back in 2001, which then took a life of its own. The leaders of BRICs now meet for BRICs forums (sic!) and markets seemingly can't get enough of investing into BRICs. This may be silly, and it is, but it is nonetheless the reality. The tail wags the dog.

I myself talk about the weaknesses of long-term projections in my Golden Age paper, arguing a similar point that it would not make much sense to predict where the world was going in 1968 or--above all--in 1989. Or that Asia today looks very much like XIX century Europe, a huge powder keg ready to explode, spurred by the rising enmity between China, Japan, Korea, India, Taiwan and Pakistan. All economics will not matter if you have a war (to be fair, HSBC report mentions this). In addition, I think Europe may unexpectedly and paradoxically become the big winner of the XXI century, despite the current consensus arguing the opposite. This is because the axis of future global conflicts will permanently move away from Europe, where for the last 500 years it has led to innumerable conflicts, including two largest global wars, to the Pacific Ocean, mainly between China and the US. Europe will clearly benefit from it. Others will lose, perhaps even big time. As the Polish proverb says: "when the two fight, the third benefits".
 
See more in my forthcoming Chimerica paper (will put it on the blog)

HSBC's forecast for "The World in 2050"

Jealous of Goldman Sachs, HSBC has just published its own sweeping report on "The World in 2050"

The report is quite good, well written and argumented and based on a broadly correct model.

Alas, the report, like many others, is wrong about Poland and New Europe.

It projects that in 2050 Poland's economy will be ranked only in the 24th place globally in terms of its size, no change relative to today, behind Egypt, Argentina, Malaysia, Thailand and even the Netherlands.

The projections are based on a Barro-inspired macro model, which takes into account the starting level of GDP per capita (since it is easier for poorer countries to grow faster than it is for richer ones) and assumptions as to the demographic trends, the quality of human capital and economic governance.

Let me explain why these projections for Poland are wrong.

The main reason why Poland is projected not to do too well in the future is the expected demographic decline. The model assumes that the fertility rate in Poland will remain low at 1.3 and that there will be no immigration. Both assumptions are incorrect.

First, the fertility rate in Poland is already increasing, exceeding 1.4 in 2009, up from 1.3 in 2003. What is more important, pressed by the society and rising future pension costs, the Polish government will have no choice, but to enhance its pro-family policy (I admit though that some serious pushing will be needed). It is already happening, with, for instance, the new law on infant care, but much more is to come soon. As a result, fertility rates will increase, although I am convinced that for social reasons (the fact that the social role of women in Poland has permanently changed), the fertility rate will never exceed 2.0 again.

Second, Poland is set to become a big recipient of immigrants, reversing the 300 year old trend. This is because with rising income Poland will become more and more attractive. When Poland's GDP per capita rises above 70% of the EU average, similarly to Spain in the mid-1990s and the Czech Republic recently, it is likely to start receiving substantial immigration flows. I bet that by 2030 at least two million immigrants will have arrived to stay. More immigrants will come later, legal or illegal.

As a result, the projected demographic decline in Poland will not happen.

There are also other reasons why the projection for Poland is too pessimistic.

First and foremost, HSBC model understates the historically unprecedented increase in the quality if human capital in Poland and the permanent improvement in the quality of governance, owing to the EU accession.

As to the former, the model ignores increasing returns from the fact that already today almost 20% of population has a tertiary education degree, up from 7% in 1989, and that the ratio will steadily increase as Poland continues to churn out 2 million of graduates a year (maintaining 18-24 scholarization ratio above 50%). These millions of newly educated people only now enter the labor market; and they will be there for another 50 years to come, producing the Polish growth miracle and its real XXI century Golden Age. Separately, I also think that the used data on average years of male schooling taken from Barro and Lee database are off the mark (mostly outdated). It would be better to take the most recent PISA OECD data, measuring educational outcomes rather than inputs, which shows that functional literacy of Poland’s 15-year olds is higher than the OECD average, despite Poland’s GDP per capita and educational spending being at the very bottom of the group (you could say that we are producing pretty intelligent young people on the cheap).

As to the latter, the quality of economic governance (including rule of law etc), the soulless HSBC model does not take into account the much lower risk of policy reversals in Poland relative to other emerging markets, courtesy of the EU straitjacket (just see what happens to Orban’s Hungary...). The historical, structural and permanent break in governance scores is ignored, understating the projected growth rates for Poland and overstating these for other emerging markets. Finally, it is simply wrong for HSBC to crunch numbers based on the assumption that Poland’s rule of law is of the same quality as in Turkey and that it is weaker than in Saudi Arabia or China (really?). But this is a minor quibble relative to all other objections, which--granted--would apply to most/all long-term macroeconomic models (with the HSBC model likely being one of the best).

See more arguments in my Golden Age paper. I will also write more about it in the upcoming sequel soon.

Emoticon diplomacy in Europe

Edward Lucas, CEE correspondent for The Economist, has come up with a thrilling video on "Emoticon diplomacy in Europe". Funny, intriguing and insightful. A must watch!

Kolodko's forecast for 2011 and beyond

Prof. Grzegorz W. Kolodko, my boss at TIGER economic think-tank and Poland's former Deputy Premier and Minister of Finance (1994-97 and 2002-03) gave an interesting video interview to "Puls Biznesu", a Polish business daily. Recommended for the Polish readers of the blog.

He talks about the prospects for Poland's accession to the euro zone, the turbulence in Western Europe, growth prospects for Poland, Europe and the world, the inevitability of tax increases in Poland and the virtues of Wikileaks.