September 2010 - Global Economic Watch


Global Economic Watch


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Planet Money Debate: To Profit or Not to Profit, on Microfinance Lending

09-30-2010 10:21 AM with no comments

Vikram Akula believes that the path to spreading microfinance lending requires getting buy-in from profit seeking investors.  He started SKS Microfinance, and soon will be taking the company public.  Muhammad Yunus, on the other hand, thinks that having to please investors who expect a return on their profits undermines the purpose of microfinance.  And he should know, right?  Yunus, as you'll remember, won the Nobel Peace Prize in 2006 for introducing the world to the potential of microfinance.  Adam Davidson spoke to Akula and Yunus at the Clinton Global Initiative annual meeting last week, and Planet Money edited the debate down into a podcast.  Take a listen:

The full panel discussion from last week is long, but compelling.  The discussion begins 10 minutes in:

Watch live streaming video from cgi_plenary at

Posted by Graham Griffith

A Call to Bring Depression Economics Into the Curriculum

09-30-2010 10:04 AM with no comments

We've just been through the worst recession since the Great Depression, so one thought is that these are rare events and and don't need a lot of attention in core classes.  But Mark Thoma argues that depression economics needs to become a standard part of macro courses:

Since large contractions of the type we’ve recently experienced are relatively rare, it’s easy to understand why research and teaching about this topic wanes over time. There are generally pressing contemporary issues that crowd out older questions.

But not fully understanding how these events occur, and not knowing what the best response is when they do happen, makes it difficult for us to prevent large downturns in the first place, and to respond to them effectively when they happen anyway despite our attempts to prevent them.

We need to have research and teaching about depression economics continue even as the recent downturn fades from our memory. This type of classroom instruction from Brad DeLong and others is a start, and there have been many academic papers recently trying to understand how economies work when they are far from full employment, interest rates are at zero, etc. The question is whether people like Brad will continue to teach this topic ten years from now — will we begin to see separate chapter in the textbooks on “depression economics”?  — and whether research into these questions will continue to find a place in the best journals.

Read Thoma's full CBS Money Watch column here.  

Posted by Graham Griffith

Mary Robinson Argues Rich Countries Can't Afford to Not Help Poor Countries, Even During Hard Times

09-29-2010 10:52 AM with no comments

Mary Robinson--former president of Ireland, and UN High Commissioner for Human Rights from 1997-2002--has proven effective at pushing nations to take on humanitarian causes based on moral arguments.  But she also makes a compelling case for aid based on economic arguments.  For example, Robinson argues that all countries benefit when action is taken to build strong middle classes in developing countries.  So even during this period of global recession and slow recovery, she is calling on wealthy nations to give to poor countries--and not just as a charitable responsibility:

Watch the full interview with Robinson at Big Think, here.  

Posted by Graham Griffith

US Census Report: Poverty Levels by State

09-29-2010 9:55 AM with no comments

Nine days ago, we highlighted the Census Bureau's most recent report on poverty levels in the US.  But Catherine Rampall's writing at the New York Times Economix blog steered us toward the Census's state-by-state data on poverty levels from 2008 to 2009, and there are some interesting highlights, (or rather, lowlights, as there aren't any states where we saw the poverty rate decline in a meaningful way from 2008 to 2009).  Report authors Alemayehu Bishaw and Suzanne Macartney write:

Poverty rates from the 2009 ACS for the 50 states and the District of Columbia ranged from a low of 8.5 percent in New Hampshire to a high of 21.9 percent in Mississippi.

Only five states had estimated poverty rates lower than 10 percent— Alaska, Connecticut, Maryland, New Hampshire, and New Jersey. On the other side of the distribution five states had estimated poverty rates at or above 17 percent in 2009— Alabama, Arkansas, Kentucky, Mississippi, and West Virginia.

Thirty-one states experienced increases in both the number and percentage of people in poverty between the 2008 ACS and the 2009 ACS. No state had a statistically significant decline in either the number in poverty or the poverty rate.

Seventeen states and the District of Columbia saw no statistically significant differences in either the number of people in poverty or the poverty rate from the 2008 ACS to the 2009 ACS—Alaska, Connecticut, Delaware, Iowa, Louisiana, Maine, Massachusetts, Mississippi, Montana, New Mexico, North Dakota, Oklahoma, Rhode Island, Vermont, Virginia, West Virginia, and Wyoming.

Here's a look at the poverty rates by state in a map from the report:

You can access the report here.  

Posted by Graham Griffith

Case-Shiller: Home Prices Rose in July, But at Slower Rate

09-29-2010 9:33 AM with no comments

Home prices seem to have stabilized somewhat, according to the latest figures released by the Standard and Poor's/Case-Shiller Home Price Indices.  The data shows prices rose in July 4.1% in the 10-City Composite Index and 3.2% in the 20 City Composite over July 2009 prices.  That's a slower growth rate than June.  Here's the long term trend picture:

From the S&P release:

“Home prices crept forward in July. Ten of the 20 cities saw year-over-year gains and only one – Las Vegas – made a new bottom, as the impact of the first time home buyer program continued to fade away,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “The year-over- year growth rates for 16 of the cities and both Composites weakened in July compared to June. While we could still see some residual support from the homebuyers’ tax credit, which covers purchases closing through September 30th, anyone looking for home price to return to the lofty 2005-2006 might be disappointed. Judging from the recent behavior of the housing market, stable prices seem more likely.

“In the monthly data, 12 of the 20 MSAs and the two Composites were up in July over June; but the monthly rates also seem to be weakening. The next few months may give us an idea of the true strength of the housing market, as the temporary economic stimuli will have ended. Housing starts, sales and inventory data reported for August do not show signs of a robust market, and foreclosures continue.”

For the full release, and to download the raw data, click here

Posted by Graham Griffith

Economist Saez Nets MacArthur 'Genius Award'

09-28-2010 9:41 PM with no comments

University of California-Berkeley economist Emmanuel Saez received a 2010 MacArthur Foundation Fellowship today.  Saez was selected for his work on the relationship between tax policy and wealth and income inequality.  Here is a short video in which Saez briefly explains his area of interest:

Posted by Graham Griffith

Connecting with Affluent Consumers Via Smartphone Apps

09-28-2010 10:18 AM with no comments

iPhone and other smartphone apps appear to be a good way to connect with affluent consumers, according to eMarketer's Tobi Elkin.  Elkin shares data from the Luxury Institute's Wealth Report 2010, and notes that affluent smartphone users (income above $150,000) have a rotation of, on average, seven apps they use regularly.  And while the apps they download most are consistent with all smartphone users (weather, news, and game apps), there are some subject areas where they stand out.  Elkin:

The survey found that 40% of affluents downloaded travel apps and 39% business-related apps. The findings suggest that there are plenty of opportunities for luxury marketers to do in-app advertising and content sponsorships within apps. Interestingly, the majority of affluents were willing to pay for apps and spent an average of $84 in the past year on downloads. Further, the survey found 24% the affluents polled are willing to pay between $2.00 and $4.99 for an app

Read The Mobile Apps That Affluents Download here.

Posted by Graham Griffith

Econ 101 with EconGirl: Taxes on Producers

09-28-2010 9:40 AM with no comments

Jodi Beggs--aka EconGirl--has posted some new videos from her Econ 101 course.  They are from her unit on taxes.  Here is an excerpt of her lecture on the effects of taxes on producers:

Watch more from this series at Economists Do It With Models, here.  

Posted by Graham Griffith

SF Fed Economic Letter: Business Cycle Indicators Forecast Low Growth in 2011

09-28-2010 9:22 AM with no comments

In the latest Economic Letter from the Federal Reserve Bank of San FranciscoDavid Lang and Kevin J. Lansing examine recent forecasts produced by business cycle indicators from the Feder Reserve banks of Philadelphia and Chicago.  The authors note that these forecasts suggest unemployment will not abate in the coming year.  Rather, based on the traditional relationship between GDP and jobs, the unemployment rate will likely go up slightly.  

The monthly value of the CFNAI or ADS index at the end of the quarter provides a gauge of recent economic data, whereas the change from the previous quarter indicates whether the data are improving or deteriorating. Given that financial markets are forward looking, the quarterly changes in stock prices and long-term Treasury yields measure the degree to which recent data may have shifted investor expectations about the future. All these variables are statistically significant in helping explain real GDP growth two to four quarters ahead. The two-quarter-ahead forecasting models explain about 50% of the variance of real GDP growth since 1972, while the four-quarter-ahead models explain about 30% of the variance.

Figure 3 plots forecasts from the two-quarter-ahead models versus the two-quarter moving average of real GDP growth from 2007 to 2010. Both forecasts track the actual data fairly well through the first half of 2010, but with a lag, which is typical when current and past data are used to make predictions about the future. For the second half of 2010, the CFNAI model predicts an average growth rate of 1.0%, while the ADS model predicts an average growth rate of 1.9%. The four-quarter-ahead CFNAI model predicts average growth rates through the first half of 2011 of 1.6% and the four-quarter-ahead ADS model predicts 2.2%. By contrast, the most-recent Blue Chip consensus forecast is for 2% growth in the second half of 2010 and 2.3% through the first half of 2011.

Lang and Lansing note that the "conventional wisdom" that recessions are followed by rapid recoveries clearly does not apply to this recession, and that the "Chicago and Philadelphia Fed business cycle indicators predict that real GDP growth through the first half of 2011 will remain at or below potential."  As a result, they are projecting unemployment to rise another 0.5% in 2011.  Read the full article here

Posted by Graham Griffith

Revisiting the Role of Business in Society

09-27-2010 9:04 AM with no comments

Forty years ago this month, Milton Friedman critiqued the "doctrine of social responsibility" for business in a New York Times op-ed, writing:

It does not differ in philosophy from the most explicitly collectivist doctrine. It differs only by professing to believe that collectivist ends can be attained without collectivist means. That is why, in my book Capitalism and Freedom, I have called it a "fundamentally subversive doctrine" in a free society, and have said that in such a society, "there is one and only one social responsibility of business–to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."

In short, as Friedman's title put it, "The Social Responsibility of Business is to Increase its Profits."  It was a controversial and influential piece, and the Carnegie Institute revisited the debate with students and business educators earlier this month, asking, "What is the role of business in society today.  Here are two interesting excerpts from their discussion:


Posted by Graham Griffith

Measuring Opportunities for Women Workers

09-27-2010 8:42 AM with no comments

Martha McCubbin of Grayling London, writes in VoxEU that opportunities for women in business continue to fall short in emerging economies.  And, she argues, though the progress has been significantly better in wealthy countries, "full equality is still some distance away." McCubbin highlights the work of the Economist Intelligence Unit (2010) which has accumulated data that might once and for all reveal the key reasons women workers have found more challenges in some countries.  The Women's Opportunity Index grades individual countries based on "laws, regulations, practices, customs and attitudes that allow women to participate in the workforce under conditions roughly equal to those of men, whether as wage-earning employees or as owners of a business."  And McCubbin shares these ratings:


No index of this kind can ever be perfect. This one focuses entirely on the formal sector – jobs that usually have set hours and agreed levels of pay, and that are reflected in national accounts. Many women, especially in lower-income economies, work in the informal sector, where activity is often untaxed and not usually counted by the authorities, but also where labour rights and contracts cannot be enforced. While informal employment can lead to short-term gains, these may be outweighed by informality’s long-term negative impact on economic growth and job creation. For example, a study in Mexico found that women moving from informal to formal employment enjoyed a significant increase in earnings (de Laiglesia et al. 2008).

This new index is intended to spur further debate on the drivers of, and constraints on, women’s economic opportunity. The results have been validated against existing external benchmarks, such as the ratio of female-to-male participation in the labour force. The scores were also correlated against other standards of women’s achievement, such as the UN Development Program’s Gender Empowerment Measure. The index was reviewed at critical stages by a peer panel of international development and gender experts.

This index breaks new ground by focusing specifically on a country-by-country comparison of economic opportunities for women, going beyond a measurement of gender gaps. For this reason it includes an assessment of the national business environments in which women must function. The index also builds on well-established legal codes, such as the International Labour Organisation’s annual evaluation of equal-pay conventions; in this case, the project team created a scoring scheme based on the International Labour Organisation’s written assessments. 

Read Empowering women economically: 2010 Women’s Economic Opportunity Index here

Posted by Graham Griffith

Steven Johnson: Good Ideas Come from Cohesion of Smaller Ideas, and Take Time to Develop

09-24-2010 9:42 AM with no comments

We are looking forward to the release of Steven Johnson's new book, Where Good Ideas Come From: The Natural History of Innovation, as we expect it to provide great insight for creative, entrepreneurial minds.  And we know it will debunk the notion that great ideas are like magic, or come in, as Johnson says, "eureka moments."  So it is a good thing we don't have to wait for the book to get some of Johnson's key thoughts on the subject.  We have his recent Ted Talk, and also this narrated animation roadmap of the book's central thesis:

(H/t: Brain Pickings via Rainey Tisdale)

Posted by Graham Griffith

NY Fed Report: 'Improving Survey Measures of Household Inflation Expectations'

09-24-2010 9:21 AM with no comments

Researchers at the Federal Reserve Banks of New York and Cleveland have been working to improve on how they collect data on household inflation measures.  Such measures are vital to understanding consumer behavior, and, the researchers argue, affecting central bank policies.  In a new report available this week in the New York Fed's Current Issues, the researchers note limitations in current surveys, like those in the monthly Reuters/University of Michigan Survey of Consumers, and set about to address those limitations.  But their report is also interesting in how income levels can affect the way families anticipate inflation.  Take a look at these fluctuations:

Other interesting features of the data emerge when we examine “rate of inflation”expectations across income groups,differentiating between high- and low-income respondents. Chart 4 presents the median inflation forecast and the 25th and 75th percentiles of the forecast distribution for each group (with the difference between percentiles representing our measure of disagreement for each group), while Chart 5 depicts median inflation uncertainty for each group. We derive several findings of note. First, disagreement is generally higher within the low-income group. Second, as December 2008 approaches, inflation expectations diverge across income groups, owing mainly to an increased concern about low inflation— or even deflation—expressed by high-income respondents. Third, disagreement across high-income respondents is marked and persistent beginning in December 2008, but disagreement among those of low income spikes in the summer of 2008 and then falls to pre-crisis levels.We observe very little change in forecast uncertainty within each group during the same period. In fact, median forecast uncertainty actually declines beginning in the fall of 2008.

Interestingly, two distinct views emerged around the time when the federal funds rate approached its lower bound of zero: While the high-income group displayed a marked increase in concern about the risk of deflation, the low-income group generally maintained its concern about ongoing inflation. In addition, a considerable polarization in views occurred within the high-income group, as disagreement more than doubled between September and December 2008 and became comparable to that of the low-income group.


Watch an interview with report authors, and read the full report, here.  

(Hat tip: Real Time Economics)

Posted by Graham Griffith

McKinsey: With a Potential for 700 Million New Internet Users, Asia Poised for Massive Growth in Digital Opportunities

09-23-2010 1:23 PM with no comments

Emerging markets in Asia are set to "explode" in digital opportunities, according to McKinsey researchers Vikash Daga, Nimal Manuel, and Laxman Narasimhan.  They estimate a market potential of nearly $80 billion combined for Internet-related business combined in China, India and Malaysia by 2015:

This growth is based on the costs of hardware continuing to drop, giving access to more and more new users of digital media.  But in order to take advantage of these growing markets, Daga, Manuel, and Narasimhan write, companies need to " make money while creating a variety of low-cost content."  And that makes these three issues key:

  • Innovators and entrepreneurs must develop content creation and delivery models priced low enough to compete against the pirated options currently available.
  • Content and Web services providers need to foster the growth of local and regional advertising markets to help defray the cost of content creation.
  • E-commerce platforms, including transaction systems that make purchases more convenient and trusted, must be developed.

Read Riding Asia's digital tiger here.  

Posted by Graham Griffith

Wessel on the Bankruptcy Option for State and Local Governments

09-23-2010 10:41 AM with no comments

No.  David Wessel, economics editor for the Wall Street Journal, is not saying that local and state governments filing for bankruptcy would be a good thing.  But when he looks at the alternatives, he has a hard time finding better options:

Posted by Graham Griffith

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