Friday, June 18, 2010

Economics and World Soccer Cup

It is a global event every four years, because it gather 32 soccer teams which represent 84% of world GDP, to compete for the privilege of being the Champion. S. Campanario in his book “The Economics of the Unexpected”.(In Spanish La Economia de lo insólito 2009),analyzes the economic impact of such event . Given the fact that a lot of soccer fans leave aside some of their obligation while each game goes on, the first impact come from inside the firm, due to lower short run productivity, although its effect on GDP depends of the magnitude of such out of labour flow, on the fundamentals. As long as the favourite team move forward, the expectations goes higher and more fans join in for the extraordinary spectacle of sport at its best, making the productivity losses more significant at the aggregate level.
However, is it that these short run productivity losses, stay on for longer period of time?. It should not be so. The economics reasoning for fans goes as follows. The marginal benefit of watching each game ,is higher than its cost. Assuming that nobody will risk voluntarily their job because of these matches , the cost is basically the opportunity cost of those activity postponed because of world cup matches .Thus, although firms might get some short run losses, they can get them back , as long as fans goes back to work with higher motivation specially whether their team wins . Watching the game is like a complement to daily routine, which replace other activities such as read the newspaper , talking at the cafeteria, checking internet, and the like This is known as “soccernomics”, which analyze the whole variety of issues concerning soccer. For example, the correlation between team performance and fans attendances which it does not depend on the ticket price for each match. Those teams with higher performance expectations, have more income volatility, than those with more modest performance expectations. Therefore , there is an expectation – gap, which might turn out to be more critical for income purposes ,in those economically stronger teams.
The net economic impact at the aggregate level of world cup ,should be positive. Besides, each country which participates in the event , should also recover any short run productivity losses because of fans involvement .
How come?. These days ,internet make the difference .It allows the chance of being there , without depending exclusively of TV transmission. It also allow , to focus on the most important events of each matches ,all of which reduces the average time devoted to the games. The positive impact arising from it ,compensates the negative side of distraction from main task .In other words, let welcome this fantastic show of natural skills, and let us enjoy it at its best. Which teams goes to the final?: ¡Latin America have a very good chance of get it all! .-

Friday, June 04, 2010

The nature of adjustment economic policies

Sometime ago, Robert Gordon (Author of the book :Macroeconomics, 1983) asked whether recession was the only way to fight inflation or for this matter, the implementation of any stabilization program. The question itself might be an interesting issue of academic value, but it deals with the complicated problem of allocation of the cost of adjustment which economies must face, when expenditures are over expand above incomes, and a reduction is necessary. It deals with the way things happen , instead of the way it should happen.
Recently, another way to cope with this issue, has been the concept of socialization of losses, and privatization of benefits .It means that when it is the time to correct the excesses ,the average citizen get the burden of such cots, while the benefits was concentrated in just a few . Both Roubini and Krugman, have been quite assertive about it, during the 2008 financial and economic recession .-
On the other hand, it has been usual for economic stabilization policies, to stress the demand side of the equation, which emphasizes unemployment cost ,production losses and welfare reduction, which is the usual for stabilization program designed not to foster further up potential economic growth, but to adjust expenditures to the current level of economic growth. In other words, with growth capacities fixed in the short run, there are hardly any different options other than to focus on expenditures, which are supposedly more flexible to adapt. Besides, the safety social net based on unemployment subsidies, perversely reinforce this approach. Latin America stabilization programs in the eighties to cope with external debt ,were based on this premises .The result was massive unemployment , higher poverty and inequality levels than desirable.
Thus, the issue goes on not only as much as to reshape the nature of stabilization program, but to reshape the incentives influencing their implementation as well. Let get first with the later. This does not mean to eliminate unemployment subsidies, but to complement it with unemployment insurance financed with resources coming from both from the firm and the worker. This way of financing the unemployment, increase the net economic cost of recessions to the State because of decreasing tax revenues, but coupled with lower political benefits. After all, subsidies create a sense of either dependence or protection arising from the State, and it is the State´ s interest, to foster that sentiment to support its political expected gains.
What about the former?. The nature of stabilization program assumes that everything should stay the same way as before ,expect that the expenditures levels must decrease. A different approach should consider more actively the supply side , specially the small and medium size enterprises because of their flexibility and adaptation abilities to the new conditions , improving their access to financial assistance, and debt renegotiation opportunities. Besides, it should decrease the transaction cost of moving from those business areas with losses, to that ones with profit expectations. It follows, that adjustment policies, should be an opportunity to support reallocation of resources from inefficient to efficient uses, based not exclusively on expenditures reductions but also on improving the conditions for private sector to do better and more efficient business, without excluding better regulation whether it is relevant . Actually, it seems that most of the stabilization programs, are designed for the State purposes of keeping its role in the economy, higher than necessary. Thus, it should also be based on the reallocation of resources to be done mainly by the entrepreneurs -