Tuesday, May 31, 2016

Social Mobility Across The Centuries

This has been one of the most widely read recent columns on VoxEU – over 65,000 hits in barely two weeks (excerpt):

What’s your (sur)name? Intergenerational mobility over six centuries
Guglielmo Barone, Sauro Mocetti

Societies characterised by a high transmission of socioeconomic status across generations are not only more likely to be perceived as ‘unfair’, they may also be less efficient as they waste the skills of those coming from disadvantaged backgrounds. Existing evidence suggests that the related earnings advantages disappear after several generations. This column challenges this view by comparing tax records for family dynasties (identified by surname) in Florence, Italy in 1427 and 2011. The top earners among the current taxpayers were found to have already been at the top of the socioeconomic ladder six centuries ago. This persistence is identified despite the huge political, demographic, and economic upheavals that occurred between the two dates.

I'm not as confident as the authors that one can generalise these results to other countries and cities, but they do emphasise the point that the social/wealth structure of societies left to themselves tend to ossify. Literature on more recent times (discussed in the article) suggest intergenerational advantages tend to dissipate after a number of generations, but this is in an environment of government intervention and redistribution (such as mass education). Nevertheless, the fact that income generation and wealth remains concentrated in the same families after close to 700 years is staggering.

Technical Notes

Link to original paper:

Barone, G and Mocetti, S (2016) “Intergenerational mobility in the very long run: Florence 1427-2011”, Bank of Italy working papers, 1060

Thursday, May 19, 2016

The REAL Origin of Money

WARNING: Gold bugs beware. Existential crisis ahead:

Wednesday, May 18, 2016

Close But No Cigar

You’re nearly there Tan Sri, just a little bit further (excerpt; emphasis mine):

The alchemy of money

When money was fully backed by gold, money was tied to real goods. But when paper currency was invented, money became a promisory note, first of the state – fiat money, supported by the power to impose taxes to repay that debt, and today, bank-created money, which is backed only by the assets and equity of the bank. The power to create “paper” money is truly alchemy – since promises by either the state or the banks can go on almost forever, until the trust runs out.

Tuesday, May 10, 2016

When Investment Isn’t Investment

From VoxEU (excerpt):

The ‘real’ explanation of the Feldstein-Horioka puzzle – and what it means
Nicholas Ford, Charles Yuji Horioka

…The nature of the Feldstein-Horioka puzzle concerns the mobility of the world’s supply of capital. There is a presumption amongst economists that financial markets can rapidly, and nearly without cost, divert ‘financial capital’ from one country to another. This being the case, it would be expected that savings should be diverted from wherever they occur to where the best investment opportunities are by agents seeking to maximise returns. There is no reason the best investment opportunities should be in a savers’ home country; as a consequence, according to this reasoning, the levels of investment and saving should not be correlated across countries. However, Feldstein and Horioka (1980) found that this is not the case and that most incremental saving is in fact invested in the country in which it occurs. The puzzle is to try to understand why this should be the case….

To GDP Or Not To GDP

Quick one, highlighting a few articles on whether GDP remains an appropriate measure for human welfare.

First from Sir Charles Bean (excerpt):

Measuring the Value of Free

...One particular challenge for economic measurement stems from the fact that an increasing share of consumption comprises digital products delivered at a zero price or funded through alternative means, such as advertising. While free virtual goods clearly have value to consumers, they are entirely excluded from GDP, in accordance with internationally accepted statistical standards. As a result, our measurements may not be capturing a growing share of economic activity....

Wednesday, May 4, 2016

Effective Exchange Rate Indexes: April 2016 Update

The NEER and REER page has been updated.


The bounce up from January lows continued in April, with the nominal broad index gaining 2.74 points to 90.77 (p) and the real broad index gaining 3.1 points to 93.33 (p) in April. The Ringgit advanced against the currencies of all of Malaysia’s major trading partners, but in particular the US Dollar bloc (USD, CNY, HKD, PHP and VND) by around 3.8%-4.2% during the month. Also of note is the gain against the GBP of around 3.8%, largely due to uncertainty over the June referendum.



  1. Indexes have been updated to April 2016, with revisions for January to March 2016
  2. CPI deflators have been updated for March/April 2016