July 2009 - Global Economic Watch

Romer Q and A on Health Care Reform and Small Business

07-31-2009 9:40 AM with no comments

As a follow-up to our earlier post about small business and health care reform, here's video of CEA Chair Christina Romer's online Q and A from earlier this week:

Small Business and Health Reform: Christina Romer Takes Your Questions from White House on Vimeo.

Posted by Graham Griffith

CEA Touts Health Care Reform Benefits for Small Businesses, NFIB Disagrees

07-31-2009 8:40 AM with no comments

As members of Congress head home for August recess, you can be sure they will be talking almost non-stop with constitutents about health care reform efforts.  And they are likely to run into some small business owners who are not fond of House Resolution 3200--or "America's Affordable Health Choices Act of 2009."  The National Federation of Independent Businesses--a powerful advocacy group that has not exactly been fond of the Obama Administration's economic policies thus far--is pushing back against the legislation, and lists these ten reasons it is bad for small businesses:

1.      An Employer Mandate 

2.      Payroll Tax Penalty 

3.      Pay-or-Play, Pay-and-Pay and Offer-and-Pay

4.      A Mandated Minimum Plan with a Big Price Tag 

5.      An Exchange that Limits Access to All Small Businesses 

6.      An All Powerful Insurance Czar

7.      The Government-Run Public Option

8.      The Surtax: A Tax on Job Creation

9.      Jeopardizes Options That Small Employers Have Today

10.    An Employer Tax Credit with Limited Value

Click here to read explanations for each item.

Still, the White House continues to stress that the bill is a new positive for small businesses.  the Council of Economic Advisers has released a study: The Economic Effects of Health Care Reform on Small Businesses and their Employees.  CEA Chair Christina Romer writes that under the current system, the small businesses that do offer health care do so at a much greater cost to the business and the employees:

Put simply, the current U.S. health care system imposes a heavy tax on small businesses and their employees. Those small firms that do offer coverage have to pay a higher cost than their larger competitors. To the degree that higher costs are passed on to workers, small firms pay lower take-home wages to their employees. Those small firms that do not offer coverage have employees who do not receive the substantial tax benefits of employer-provided health insurance that their counterparts at large firms enjoy. These employees are more likely to purchase policies in the individual market, where they pay much higher rates. In either case, small firms are likely to be at a competitive disadvantage in the market for hiring workers. Small firms are likely to have a more difficult time than larger firms recruiting potential employees who do not have health insurance from another source. Even if a small firm provides the best fit for a worker’s skills and interests, the individual may choose not to work there given the implicit tax.

Read the full report here.  

Posted by Graham Griffith

Geithner's Housing Problem

07-30-2009 1:18 PM with no comments

Treasury Secretary Timothy Geithner may be saying the housing crisis is nearing an end...except maybe not for Timothy Geithner.  Here's The Daily Show's take:

Posted by Graham Griffith

Peru Bucks the Recession Trend

07-30-2009 11:45 AM with no comments

Daniel Gross of Slate writes about the curious case of Peru, one country that has weathered the Global Economic Crisis storm rather well:

In the latter half of 2008, being a poor, export-dependent, commodity-producing country set you up for a vicious downturn. But Peru has weathered the storm, in large part because President Alan García, an old leftist turned center-leftist, and the Peruvian central bank have proved adept at a set of capabilities notably lacking in the United States in recent years: sound fiscal and financial management. Fearful of a return of hyperinflation amid rapid growth, Peru's central bank raised interest rates throughout 2008. Instead of spending the foreign currency that piled up on its books ($32 billion at the end of 2008), the government saved it. In 2008, Peru ran a $3.3 billion budget surplus.

And so, when troubles came, it was able to respond in textbook fashion. In December 2008, García announced a stimulus program, promising to boost government spending by $3.2 billion, and to take up to $10 billion in further measures. The total of $13 billion in promised stimulus doesn't sound like much, but that's equal to about 10 percent of Peru's GDP. (By contrast, the big stimulus package Congress passed in February was about 5 percent of U.S. GDP.) The central bank's 2008 vigilance against inflation left it with plenty of room to cut rates. So far this year, it has reduced the benchmark lending rate from 6.5 percent to 2 percent.

As a result of these actions, during the first half of the year, Peru's economy grew 0.9 percent. Martin Perez, Peru's minister of foreign trade and tourism, told Bloomberg he expects GDP to grow between 2.5 percent and 3 percent this year. "Exports have suffered around 15 percent but the stimulus package the government has passed is trying to bring forth internal demand," he said.

Read the full article here.  

Posted by Graham Griffith

To Cut Costs Without Cutting Services, Start in the Back Office

07-30-2009 7:38 AM with 1 comment(s)

Amanda Mesler, CEO of the IT oustourcing firm Logica North America, says that when it comes time to cut costs, managers need to look internally.  Mesler says to avoid cutting anything that has to do with the business's relationship with customers, and instead figure out how to reduce expenditures "back office first."  At her company, they went to employees and challenged them to help figure out how to cut costs without reducing services for customers.  Get employees to recognize that they benefit from the growth of the company, and then they will get involved in finding solutions.  Mesler explains in this BigThink video:

Posted by Graham Griffith

Guardian Readers Help The Queen Understand the Credit Crisis

07-29-2009 11:58 PM with no comments

In November, Queen Elizabeth asked London School of Economics professors why no one had predicted the credit crunch.  They had their shot at answering.  Now The Guardian is asking readers to answer, and they are coming up with a variety of answers.  Surprisingly enough, most commenters do provide nicely thought-out answers, right or wrong.  Like this one:

Interest rates, particularly longer term interest rates were too low due to the wall of money from Asia buying up government bonds and money from pension funds who were being forced by government legislation to match assets and liabilities which meant buying those same government bonds that Asian central banks were buying.

As a result there was a chase for yield, buying assets that yielded more than the equivalent government bond, corporate bonds, utilities, local government bonds and, yes Mortgage backed securities. And in that process risk was either ignored or swept under the carper by the rating agencies who gave very risky assets AAA ratings.

Due to this demand for mortgage backed securities the originators of mortgages loosened their lending standards in order to create more 'product' and lent to people who ere in no position to repay, when they started to default the bonds that were previously rated AAA were downgraded and plummeted in value.

There you have it, but I'm sure people would prefer something along the lines of, it was all the greedy bankers fault string em up. 

But the clever comments are worth a read as well.  For example: 

Well, ma'am, you know how nobody is allowed to ask you a direct question because you're too important? Same with the bankers.

Read them all here.  

Posted by Graham Griffith

Struggling County Calls on Small Business

07-29-2009 9:53 AM with no comments

Few places in the country have been hit as hard by the recession as Merced County, California.  Now, as Amy Choi writes in BusinessWeek, the town's leaders are looking to entrepreneurs to play the superhero role and save their economy:

Home prices in Merced dove 42.3% in 2008 and continue to fall. The collapse coincided with a drought, forcing farmers to leave fields fallow and lay off employees. The dairy industry, another major employer, faced its own contraction because of a fall in milk prices and a drop in exports. Merced County now has a 22% unemployment rate. And despite a statewide moratorium on foreclosures—due to expire in June—it holds the dubious honor of having the nation's third-highest foreclosure rate.

Local authorities such as the Merced County Economic Development Corp. (MCEDCO) and the Los Banos Redevelopment Agency, along with the local Small Business Administration outpost, are counting on entrepreneurs to help create jobs and restore the region's economic health. "It'd be nice to get a big employer, but we believe it may be more effective to provide small businesses the resources to grow," says Scott Galbraith, chief executive of MCEDCO.

"The vast majority of the 5,000 businesses in the county are small companies. If we can get just half of them to hire one person, that's 2,500 jobs right off the bat, rather than working for 10 years to get a large employer into the region."

It is an interesting test for small business owners.  Read the article here.  

Posted by Graham Griffith

The Good and the Bad in Housing Data

07-29-2009 8:31 AM with no comments

Yesterday's release of the Case-Shiller Price Index was cause for some small celebration for some market watchers.  The index showed housing prices stabilizing across the board, and even rising in some key cities, including San Francisco--which has seen the third biggest drop in housing prices during the recession (behind Phoenix and Las Vegas).  The Times quotes Mark Fleming, chief economist for First American CoreLogic, as saying “We’ve found the bottom, and Wells Fargo chief economist John E. Silvia writing in a letter to investors, “Recession is over, economy is recovering — let’s look forward and stop the backward-looking focus.  Here's the year over year Case-Shiller trend (source: Standard and Poor's, via The Big Picture):

Before anyone gets carried away with the recent spate of apparently positive housing news, Barry Ritholtz reminds us all that new home sales are at their lowest level for the last 27 years, and it is taking a long time for seller and builders to find buyers.  Read Worst June New Home Sales Since 1982 here.  

Posted by Graham Griffith

Bernanke Town Meeting

07-28-2009 2:15 PM with no comments

Federal Chair Ben Bernanke held a town meeting at the Kansas City Federal Reserve Bank on Sunday, and he explained the Fed's actions prior to the recession, and in reaction to the economic meltdown last year.  Jim Lehrer moderated, and The Newshour with Jim Lehrer has now made video of the meeting available.  Here's the first segment (of three) in which Bernanke defends the Fed's actions and answers questions from the audience:

You can view segments two and three by clicking here.  

Posted by Graham Griffith

Advice from and for Women Entrepreneurs

07-28-2009 9:43 AM with no comments

While the number of women running companies remains far behind that of men, more and more women are leading their own firms.  And more women are getting the startup bug.  History tells us that recessions can be a great time to start a business.  But tackling the challenges of building something from scratch in a time like this is not for everyone.  Sure, workers are easy to come by, but funding is not.  And whenever the recovery starts, all indications are it will be a slow one.  In the digital/new media age, there is plenty of advice available from people who have taken the leap into self-employment and the startup world.  Here's some advice from women entrepreneurs:

The Self Employment Blog offers up a list of personality traits that you need to possess in order to "be your own boss."  Those traits include some of the obvious--"self-disciplined," "tenacity"--and others that you might not immediately think about--"willingness to ask for help," "a sense of humor."  Read Karyn Greenstreet's full list here.

If you decide you do have what it takes, here are two lists of the top-five ways to find success:

From Jane Wesman at WomenEntrepreneur.com:   

1) Commit to one business 

2) Research that business

3) Create a business blueprint

4) Build a team

5) Surround yourself with positive people

Read Wesman's explanation here.

And from Ellen Parlapiano and Patricia Cobe--founders of MompreneursOnline.com--writing for The Women's Conference:

1) Cross-promote

2) Champion a cause

3) Co-host a Twitter party

4) Barter to save money

5) Start your own networking group

Read the full post here.  

Posted by Graham Griffith

Michael Sandel 'On Markets and Morals'

07-28-2009 7:42 AM with no comments

Michael Sandel teaches political philosophy at Harvard, and has become a respected public intellectual for his writings on morality and ethics.  Last week he spoke at the Chautauqua Institution, and he titled his speech "On Markets and Morals."  Sandel believes that "we are now at a moment when we can begin to rethink 'just what is the proper role of markets in achieving the common good?'"  (fast forward to 8:20 to skip the introductions)

Posted by Graham Griffith

Whole Foods Founder Mackey on 'Conscious Capitalism'

07-27-2009 2:56 PM with no comments

John Mackey founded Whole Foods Market, and has been CEO and Chairman of the Board for nearly 30 years.  He's a self-described libertarian and believer in free markets.  But, he says, "Capitalism is not loved."  And he suggests, with rising anti-corporate sentiment, that it is time for a "new business paradigm."  In this talk at Yale University, he describes a vision for capitalism moving forward--something he calls "conscious capitalism."  

Posted by Graham Griffith

GEC Timelines from the NY Fed

07-27-2009 10:00 AM with no comments

With Ben Bernanke's semi-annual testimony on Capitol Hill last week, and his town meeting in Kansas City yesterday (segments of the event will be aired this week, starting tonight, on Newshour with Jim Lehrer), the Fed Reserve chair is getting a lot of attention.  But it is good to remember that the Federal Reserve district banks have been making valuable, informational resources available to the public.  For example, the New York Fed has put together timelines of the global economoc crisis.  Here's a sample.

Click here to look at the timelines--a domestic timline dating back to June 2007, and an international timeline that follows G-7 responses to the crisis since September 2008.  

Posted by Graham Griffith

Warren Buffet Cartoon

07-27-2009 7:44 AM with no comments

(updated with better clip)

Maybe Warren Buffet is getting a little tired of trying to explain finance to adults...because now he's going to go straight to kids--or at least an animated Warren Buffet character is:

Posted by Graham Griffith

Paul Saffo on Who Holds the Power in the New Economy

07-24-2009 9:25 AM with no comments

Futurist/Technology Forecaster Paul Saffo says we are living in the early days of a new economy.  Sixty-five years ago, the Industrial Economy gave way to the Consumer Economy.  And, Saffo says, the Consumer Economy died last fall.  And our new economy will not be driven by producers or purchasers, and the old employer-employee relationships might just go away.  Instead, the power of the new economy will rest in the hands of the new economic driver--the consumer/creator. Saffo explains in this BigThink video:

Posted by Graham Griffith