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The Source of the Panic of 2008: The Mortgage Credit Market Crisis in the United States
Mauricio Pérez Salazar [pdf] [html]

[Key words: mortgage market, financial crisis, United States; JEL: G01, G15]

This article analyzes the causes of U.S. mortgage backed securities crisis, a crucial market in the financial panic of 2008. It shows that irrational behavior of investors is not infrequent, as evidenced by Ponzi schemes and bubbles. A comparison is made between traditional and new models of mortgage financing, where the key difference is the new model that unlinks incentives for different agents in the value chain and the risks they assume. It concludes with some reflections on the lessons that the experience of the Colombian mortgage crisis of 1998-2000 may offer for the resolution of the current crisis in the U.S.

Time of Uncertainty. Causes and Consequences of the Global Crisis
César Ferrari [pdf] [html]

[Keywords: economic crisis, financial crisis, recession, economic policy, economic paradigms; JEL: E30, E50, E60, H11, L50]

In September 2007, a serious financial crisis became evident in the developed countries, due to serious mistakes in economic policy. Even against their own ideology, governments have not spared measures to reduce its effects, have failed to contain it, and it advances towards a global recession of uncertain depth and duration. The crisis has already changed the theoretical and practical paradigms that have dominated the academic and policy worlds in the last three decades. It will also cause serious effects in the fragile economic, social and political equilibriums of the developing countries, especially in Latin America because of its dependence on raw materials production, remittances and external capitals flows that are diminishing rapidly. The crisis will lead to a new state-market relation and to new paradigms with large Keynesian influence, and from this, will grow a new opportunity for Latin America, if it consolidates a new way of managing its economy.

Orlando Fals Borda, Commitment Sociologist
Gonzalo Cataño [pdf] [html]

[Keywords: scientific sociology, Orlando Fals Borda; JEL: Z13]

This essay presents the development of thinking of the Colombian sociologist and social critic Orlando Fals Borda in three major stages: the establishment of a scientific sociology, the assertion of a committed sociology and the use of knowledge for social transformation. A critical balance of the achievements and constraints of his political positions is also made.

What is Global Justice?
Thomas Pogge [pdf] [html]

[Keywords: global inequality, globalization, institutional order, international recognition, justice, poverty, sovereignty; JEL: F02, F55]

The increasingly widespread expression “global justice" marks an important shift in the structure of moral discourse. Traditionally, international relations were seen as sharply distinct from domestic justice. First, it focused on interactions among states, and later, evaluated the design of a national institutional order in light of its effects on citizens. Such institutional moral analysis is becoming applied to supranational institutional arrangements, nowadays more pervasive and important for the life prospects of individuals. The traditional lens suggested fair agreements among states. The new lens shows that the global institutional order is unfair because it enriches elites in both rich and poor countries and perpetuates the oppression and impoverishment of the majority.

Hurwicz and the Judge of the Last Instance
Jorge Iván González [pdf] [html]

[Keywords: social welfare function, human relations, suboptimal equilibrium; JEL: D03, D50, D60]

When receiving the Nobel Prize, Hurwicz took up the question “who is watching the guards?" and considered two approaches. One pessimistic, inspired by Juvenal, which leads to an infinite sequence of guards, and one idealistic, derived from the Platonic dialogues. The guard cannot get drunk, and if he does, he should resign. Although this closure of first instance does not happen in the real world, neither does Juvenal's pessimism make sense. Society always finds a reasonable closure instance, but this solution is suboptimal and is plagued with impurities and illegalities. The leading strategy may be part of a set of illegal alternatives. Implementation is successful if the equilibrium corresponds to the legislator's purposes. Every implementation can be improved and it is never entirely successful. Implementation mechanisms determine how the social welfare function is reached, which affects at the same time the private property prices and the consumption structure, so the market configuration depends on the kind of implementation and how the close of the last instance is made.

Evaluation of the Laws: Criminology Lessons
Mauricio Rubio [pdf] [html]

[Keywords: criminology, evaluation, legal reform, methodology, law and economics; JEL: K14]

This essay argues that the design and evaluation of legal reforms require an expert, empirical, local and multidisciplinary approach. From criminology, an auxiliary discipline of criminal law, several practical, theoretical and normative lessons can be drawn; for example, the way it addresses the issue of information gathering. It also refers to its theoretical insights for the conceptual debate on crime and suggests methodological guidelines for the evaluation the impact of legal reforms.

Computers and Economic Democracy
Allin Cottrell y Paul Cockshott [pdf] [html]

[Keywords: socialist planning, economic calculation, environmental constraints; JEL: P21, P27, P28]

The collapse of previously existing socialism was due to causes embedded in its economic mechanism, which are not inherent in all possible socialisms. The article argues that Marxist economic theory, in conjunction with information technology, provides the basis on which a viable socialist economic program can be advanced, and that the development of computer technology and the Internet makes economic planning possible. In addition, it argues that the socialist movement has never developed a correct constitutional program, and that modern technology opens up opportunities for democracy. Finally, it reviews the Austrian arguments against the possibility of socialist calculation in the light of modern computational capacity and the constraints of the Kyoto Protocol.

Economic Consequences of Independence in Colombia
Salomón Kalmanovitz [pdf] [html]

[Keywords: independence, economic growth, mining, public finance; JEL: N16, N36, N46]

Independence from Spain was a complex movement of civil confrontation and long and cruel wars of liberation. Human lives were lost, assets destroyed, capital fled, slavery abolished and public issues left to inexpert administrations, but at the same time there was an important reduction in the tax burden as well as a modernization of both the state and its financial regulations. The GDP per capita was reduced until 1830, and then recovered. The economies of Popayan and Cartagena contracted, the latter having been subsidized by the taxes of the “virreinato”, and Antioquia, with its mining, and Cundinamarca benefited.

The Colonial Origin of the Differences in Development between Countries: Neoinstitutionalism and Hispano-America
Álvaro Albán Moreno [pdf]

[Keywords: neoinstitutionalism, colony, development, history; JEL: N10, 043, 057]

This article presents and discusses the hypothesis and results of Acemoglu and his colleagues, regarding the colonial origin of development, and reviews the main historical facts of that period to show the scope and limitations of his theory regarding Spanish-America. When the correlation European settlements-initial institutions-present institutions-present performance is framed in the political, economic and cultural facts of the colonial context, it is shown that it is a simplistic, biased and ethnocentric view of development.

Colombia and Venezuela: Economic Performance, Exchange Rate and State-business Relations
Alberto Martínez C. [pdf] [html]

[Keywords: Colombia, Venezuela, economic development, State-government relations, institutions; JEL: E65, F10, F31, F43, O10]

In 1980, Venezuelan income per capita in dollars was 1.4 times higher than that of Colombia, but in 2007, this ratio was reversed and the Colombian income was 1.1 higher than that of Venezuela. This result deserves an explanation, as both countries made similar structural reforms to allow a free economy and to integrate with international markets. This paper aims to explain this result. The main conclusion is that the State-entrepreneur relationship and the real exchange rate management are crucial for the explanation of the difference in the economic performance of both countries.

Over-education in the Colombian Labor Market
Jhon James Mora [pdf] [html]

[Keywords: over-education, labor mobility, multinomial logit, measurement errors, heteroskedastic probit; JEL: I21, J24, J64]

This paper analyzes over-education in Colombia, using the data of individuals and companies, compiled by the National Apprenticeship Service ( SENA ) in 2006. It finds that there is a 14% likelihood of being over-educated and that this depends on the mobility between different areas of performance, experience, sex, company size, and educational degree. Overeducated workers earn 2% less than properly-educated workers, according to the international standard. Results also show that in the case of professionals, the likelihood of remaining in the same subject area increases with their experience, and that the higher the level of over-education, the lower likelihood of staying in that area, and workers who hold a graduate degree are less likely to stay in their subject area.

Quantitative Fiscal Rule to Consolidate and Shield the Colombian Public Finances
Ignacio Lozano, Hernán Rincón, Miguel Sarmiento y Jorge Ramos [pdf] [html]

[Keywords: fiscal rules, credibility, anti-cyclical fiscal policy, stability, structural primary balance; JEL: E61, E62, H60, H61, H62]

Fiscal rules enhance the credibility of economic policy, allow countercyclical and sustainable fiscal policies, and contribute to macroeconomic stability and economic growth. The Colombian government has used fiscal rules to limit the growth of expenditure and the indebtedness of sub-national governments, and to promote fiscal transparency and responsibility. However, their success has been partial. This paper presents and analyzes a quantitative fiscal rule of 1% of GDP in the structural primary surplus for the central government, in order to consolidate the country's adjustment of public finances and reduce their vulnerability in the future. If that rule were implemented this year, the government would attain savings of 0.7% of GDP between 2008 and 2011, which would reduce the public debt level by about 3 percentage points of GDP by the end of the period.


Revista de Economía Institucional
Universidad Externado de Colombia
Cra. 1 No. 12-68 Casa de las Mandolinas
Bogotá, Colombia
(571) 2826066 ext. 1307

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