Knowing and Making

I don't have time to write a detailed post today so let me do something slightly unfair by picking holes in somebody else's. Stephanie Flanders writes about (among other things) the risk to UK exports posed by the slowing eurozone economy. Germany seems to have had no growth at all, the Italian economy shrank by another 0.2%, and Spain by 0.1%. Between them, those three countries accounted for 15% of UK exports in 2008. Sounds terrible. But wait, there is a little bit of good news to partly make up for it: British exports to China were 53% higher last month than in January 2009. But they start from a very, very low base: just 2% of our exports went to China in 2008. In total, about 12% went to the Brics - with about 75% going to advanced economies, primarily the the US and the EU. Solid growth in Europe is a necessary condition for a healthy recovery in the UK. So the latest weak numbers from across the channel have given the MPC one more reason to keep the door to further...

This article at VoxEU implies that companies in Italy which are 'connected' with politicians make 5% more profit. Could be true. But an equally plausible story is that companies become less profitable around election time because they are spending 5% of their profits on subsidising politicians. On this interpretation, contributing to political campaigns is seen as a cost of doing business, and depresses profits immediately before an election. Note that in the graphs shown in the article, the firms' profits take a dip in the year before the politician's term ends. Far be it from me to impugn the Italians' proud record of rent-seeking and corruption - my Italian friends would claim they have a unique comparative advantage in this field, and lead the world in their craftsmanship (though there are some volume producers in Africa and Asia who compete for sheer scale of bribery). But I want to allow them the elegance of a convincing escape clause - which is, after all, ...