Global Economic Watch


Recent Posts



  • Nouriel Roubini on Economic Roots to 'New Nationalismm'

    At Project Syndicate , Nouriel Roubini raises some concerns over the rising nationalism in Europe. Rising economic populism is a logical result of slow recovery. Policy makers must pick up the pace of recovery among poor Europeans, and especially among young workers, he argues. This new nationalism takes different economic forms: trade barriers, asset protection, reaction against foreign direct investment, policies favoring domestic workers and firms, anti-immigration measures, state capitalism, and resource nationalism. In the political realm, populist, anti-globalization, anti-immigration, and in some cases outright racist and anti-Semitic parties are on the rise. These forces loath the alphabet soup of supra-national governance institutions – the EU, the UN, the WTO, and the IMF, among others – that globalization requires. Even the Internet, the epitome of globalization for the past two decades, is at risk of being balkanized as more authoritarian countries – including China, Iran, Turkey, and Russia – seek to restrict access to social media and crack down on free expression. The main causes of these trends are clear. Anemic economic recovery has provided an opening for populist parties, promoting protectionist policies, to blame foreign trade and foreign workers for the prolonged malaise. Add to this the rise in income and wealth inequality in most countries, and it is no wonder that the perception of a winner-take-all economy that benefits only elites and distorts the political system has become widespread. Nowadays, both advanced economies (like the United States, where unlimited financing of elected officials by financially powerful business interests is simply legalized corruption) and emerging markets (where oligarchs often dominate the economy and the political system) seem to be run for the few. For the many, by contrast, there has been only secular stagnation, with depressed employment and stagnating wages. The resulting economic insecurity for the working and middle classes is most acute in Europe and the eurozone, where in many countries populist parties – mainly on the far right – outperformed mainstream forces in last weekend’s European Parliament election. As in the 1930’s, when the Great Depression gave rise to authoritarian governments in Italy, Germany, and Spain, a similar trend now may be underway. Read The Great Backlash here .
  • OECD: Obesity Rates and the Economy

    The good news: while obesity rates keep climbing in developed nations, the rate at which they are climbing has slowed down. This according to the latest OECD report on obesity among member nations. Rising obesity rates means rising costs to the economy. But there may also be a strong link from economic struggles to the rise in obesity. From the report: In 2008, the world economy entered one of the most severe crises ever. Many families, especially in the hardest hit countries, have been forced to cut their food expenditures, and tighter food budgets have provided incentives for consumers to switch to lower-priced and less healthy foods. During the 2008-09 economic slowdown, households in the United Kingdom decreased their food expenditure by 8.5% in real terms, with some evidence of an increase in calorie intake (the average calorie density of purchased foods increased by 4.8%). This change resulted in additional 0.08 g of saturated fat, 0.27 g of sugar and 0.11 g of protein per 100 g of purchased food (Institute for Fiscal Studies, Briefing Note No. 143). A similar trend was observed in Asian countries experiencing a recession in the late 1990s, with consumers switching to foods with a lower price per calorie (Block et al., 2005, Economics and Human Biology; World Bank, 2013, Working Paper No. 6538). Between 2008 and 2013, households in Greece, Ireland, Italy, Portugal, Spain and Slovenia decreased slightly their expenditure on fruits and vegetables, while households in other European OECD countries increased it at an average of 0.55% per year (OECD/ Imperial College analyses of passport data, Euromonitor International). Fruit and vegetable consumption was inversely related with unemployment in the United States, in the period 2007-09, and the effect was three times stronger in disadvantaged social groups at higher risk of unemployment (corresponding to a 5.6% decrease in fruit and vegetable consumption for each 1% increase in state-level unemployment). Given the size of job losses at the peak of the crisis, the most vulnerable groups may have reduced their consumption by as much as 20% (Dave and Kelly, 2012, Social Science and Medicine). Evidence from Germany, Finland and the United Kingdom shows a link between financial distress and obesity. Regardless of their income or wealth, people who experience periods of financial hardship are at increased risk of obesity, and the increase is greater for more severe and recurrent hardship (Munster et al., 2009, BMC Public Health; Conklin et al., 2013, BMC Public Health; Laaksonen et al., 2004, Obesity Research). An Australian study found that people who experienced financial distress in 2008-09 had a 20% higher risk of becoming obese than those who did not (Siahpush et al., 2014, Obesity). Financial hardship affects all household members. American children in families experiencing food insecurity are 22% more likely to become obese than children growing in other families (Metallinos-Katsaras et al., 2012, Journal of the Academy of Nutrition and Dietetics). While some evidence suggests that shorter working hours and lack of employment are associated with more recreational physical activity (Tekin et al., 2013, NBER Working Paper No. 19234), at times of increasing unemployment any gains are likely to be offset by reduced work-related physical activity. In the United States, in the aftermath of the economic crisis, leisure-time physical activity increased by three METs (metabolic equivalents – a measure capturing both duration and intensity of physical activity) but work-related physical activity decreased by 19 METs (Colman and Dave, 2013, NBER Working Paper No. 17406). In summary, the evidence of a possible impact of the economic crisis on obesity points rather consistently to a likely increase in body weight and obesity. Download the full report here .
  • Geithner Talks 'Stress Test' with Charlie Rose

    If you have not had the opportunity to read Tim Geithner 's Stress Test yet, and/or you have no intention of reading it but you want to know what he is arguing, you are in luck. The former Treasury Secretary has been making the rounds, so most of the key points of the book are out there in the public sphere already. For example, he sat down with Charlie Rose , and whether you are a fan or not of one Mr. Rose and the follow-up questions he neglected to ask, the long form interview allowed the two of them to cover a lot of ground. Here is one excerpt in which Geithner defends his, and the Bush and Obama administrations', responses to the global economic meltdown of 2008. And in this excerpt, Geithner talks about what he got wrong in 2008 (though he talks more about insufficient tools at his disposal rather than "mistakes," per se): Watch the full interview here .
  • Zachary Karabell on Making Statistics More Meaningful

    Zachary Karabell is on a quest. He wants us to have a healthier relationship with economic statistics. And that means not placing too much pressure on those statistics to tell us more than they are designed to. In his latest book, The Leading Indicators: A Short History of the Numbers That Rule Our World , Karabell knocks some of the magic shine off of GDP and other key data that we follow closely. He recently spoke about GDP, income per capita, and other headline stats at the Carnegie Council . Here is an excerpt: For more information on the event, and to listen to the full talk, click here .
  • Shiller on What Drives Markets

    Robert Shiller recently sat down with David Wessel and took a step back from current events to talk about how his thinking on markets and market behavior developed. The takeaway: academics can get caught up in "fadish" thinking, and good economists must be careful to always search widely for information. He also says it would be nice to "tame" bubbles, but "we don't want to do draconian things that would upset the whole system." From WSJ.Money :
  • Planet Money: Greece's Economy May Stop Shrinking

    Greece's economy has a had a bad six years. At times, very very bad. But it may be getting better. The latest Planet Money podcast focuses on Greece, because the government there has put out a less-than-bad economic forecast. If the forecast is accurate, "the amazing shrinking economy will finally stop shrinking."
  • CEA Final Report on the Effect of Recovery Act

    On the occasion of the fifth anniversary of the American Recovery and Reinvestment Act, the Council of Economic Advisers has released a report to Congress on the economic impact of the act. The CEA stands firmly behind the act, and the report points to several measures as signs of the effectiveness of the government's plan. Among the evidence presented: GDP per capita returned to pre-crisis levels in four years, an the economy has added over 2 million jobs a year since ARRA. The estimates for the long term impact of ARRA are bullish, with the CEA touting a significant multiplier effect from overall fiscal policy: CEA Estimates of the Recovery Act and Subsequent Fiscal Measures Combined. The combined effect of the Recovery Act and the subsequent countercyclical fiscal legislation is substantially larger and longer lasting than the effect of the Recovery Act alone. The Recovery Act represents only about half of total fiscal support for the economy from the beginning of 2009 through the fourth quarter of 2012. Moreover, as shown in Figures 7 and 8, the bulk of the effects of the other fiscal measures occurred as the Recovery Act was phasing down. These other measures thus served to sustain the recovery as effects of the Recovery Act waned. The CEA multiplier model indicates that by themselves these additional measures increased the level of GDP by between 1.0 and 1.5 percent per quarter from mid-2011 through the end of calendar year 2012. Altogether, summing up the effects for all quarters through the end of calendar year 2012, the Recovery Act and subsequent fiscal measures raised GDP by an average of more than 2.4 percent of GDP annually—totaling a cumulative amount equal to about 9.5 percent of fourth quarter 2008 GDP. The contribution of all fiscal measures to employment is equally substantial. Other fiscal measures beyond the Recovery Act are estimated to have raised employment by 2.8 million job- years, cumulatively, through the end of calendar year 2012. Adding these jobs to those created or saved by the Recovery Act, the combined countercyclical fiscal measures created or saved more than 2.3 million jobs a year through the end of 2012—or 8.8 million job-years in total over the entire period. Estimates from Private Forecasters. Private forecasters and domestic and international institutions have used large-scale macroeconomic models, mostly to estimate the effects of either the Recovery Act by itself or other policies in isolation. The models used by these individuals and organizations generally employ a similar multiplier-type analysis as is found in CEA and CBO work, although they vary considerably in their structure and underlying assumptions. Although no outside estimates of the total impact of all the fiscal measures are available, Table 6 displays the estimates of the impact of the Recovery Act offered by several leading private-sector forecasters before the Act was fully implemented. Despite the differences in the models, these private-sector forecasters all estimated that the Recovery Act would raise GDP substantially from 2009 to 2011, including a boost to GDP of between 2.0 and 3.4 percent in 2010. Read the full report here . For a helpful summary, read a summary from CEA chair Jason Furman here .
  • Draghi on Eurozone's 'Path from Crisis to Stability'

    Well, isn't this a change. At this year's annual World Economic Forum in Davos, European Central Bank President Mario Draghi spoke about reduced risks and "dramatic recovery" in Europe's economies. In this interview with Philipp Hildebrand , Draghi talked about how Europe has moved to more stable footing, and addresses the risks ahead (including deflation):
  • Bernanke Helps Open New Brookings Center for Fiscal and Monetary Policy Studies

    On Thursday the Brookings Institution opened the new Hutchins Center on Fiscal and Monetary Policy , and Ben Bernanke was one of the featured guests for the event. Bernanke spoke about the past, present, and future of monetary policy in the U.S. and the Federal Reserve in particular. With the Fed now in the early days of its centenary year, Bernanke is about to step down after being in charge for 8 challenging years. In this excerpt from his talk, Bernanke takes a moment from discussing the long view to address monetary policy during the global economic crisis, saying "we did the right thing": Here is the full talk: You can watch other sessions from the Hutchins Center launch here .
  • CFTC Chair Gary Gensler on Efforts to Regulate Derivatives Market

    Gary Gensler is wrapping up his tenure as chairman of the Commodities Futures Trading Commission . It has not been an easy ride, and one might imagine he's be happy to take it easy, maybe attend a few going-away parties, and then slip away. But Gensler is trying to tighten up the derivatives market by making sure there are strong measures in place for the reporting of transactions. As Gensler tells Knowledge@Wharton 's Steve Sherretta , his goal is to insure there is more transparency in the market:
  • Summers on Quantitative Easing, Fed Policy

    Larry Summers may not be the next Fed Chair, but it seems he is on the same page with current and future Fed leadership when it comes to quantitative easing. In an interview with Bloomberg 's Stephanie Ruhle , Summers seems pretty convinced that when we look back on this period years from now, we will be glad the Fed made the bold moves it did.
  • The Tenuous 'Quasi-Dominant Policymaking Position' of Central Banks

    Central banks have risen to positions of great power and responsibility in large developed economies. So much so that we watch their every move as if it has the potential to change everything. They not have planned on acquiring this "quasi-dominant policymaking position," as Mohamed El-Erian puts it, but this is where they are thanks to the global economic crisis. However, as El-Erian argues in a piece at Project Syndicate , they may lose their power quickly and with dangerous consequences if other policy making institutions (namely, elected leaders) don't stop relying on central banks to prop up economies, Comforted by the notion of a “central-bank put,” many investors have been willing to “look through” countries’ unbalanced economic policies, as well as the severe political polarization that now prevails in some of them. The result is financial risk-taking that exceeds what would be warranted strictly by underlying fundamentals – a phenomenon that has been turbocharged by the short-term nature of incentive structures and the lucrative market opportunities afforded until now by central banks’ assurance of generous liquidity conditions. By contrast, non-financial companies seem to take a more nuanced approach to central banks’ role. Central banks’ mystique, enigmatic policy instruments, and virtually unconstrained access to the printing press undoubtedly captivate some. Others, particularly large corporates, appear more skeptical. Doubting the multi-year sustainability of current economic policy, they are holding back on long-term investments and, instead, opting for higher self-insurance. Of course, all problems would quickly disappear if central banks were to succeed in delivering a durable economic recovery: sustained rapid growth, strong job creation, stable financial conditions, and more inclusive prosperity. But central banks cannot do it alone. Their inevitably imperfect measures need to be supplemented by more timely and comprehensive responses by other policymaking entities – and that, in turn, requires much more constructive national, regional, and global political paradigms. Having been pushed into an abnormal position of policy supremacy, central banks – and those who have become dependent on their ultra-activist policymaking – would be well advised to consider what may lie ahead and what to do now to minimize related risks. Based on current trends, central banks’ reputation increasingly will be in the hands of outsiders – feuding politicians, other (less-responsive) policymaking entities, and markets that have over-estimated the monetary authorities’ power. Read The Uncertain Future of Central Bank Supremacy here .
  • OECD Report Looks at Impact of Global Financial Crisis on Life Satisfaction

    How's Life? That's what OECD analysts researched across all OECD nations for an annual report on well-being. And they found that the global economic crisis has had a "profound impact" on how people feel about their jobs, job prospects, governments, and overall satisfaction. Not surprisingly, people who lived in countries where GDP and employment dropped the most have had the greatest drop in life satisfaction. For example, life satisfaction dropped 20% in Greece. OECD Secretary General Angel Gurría calls the report a "wake-up call." The chapter that caught our eyes is titled Well-being and the global financial crisis . You can read it here . The full report is available here .
  • 'What's Wrong With Europe?'

    At Vox , Isabella Rota Baldini and Paolo Manasse compare GDP in Europe and the U.S. and ask, "What's wrong with Europe?" In asking the question they point to the considerable disparity between EU member nations, and raise concern that the global economic crisis dealt a major blow to the very necessary "process of convergence." It is useful to compare the trend of per capita real GDP in the US (blue line) and in the Eurozone (yellow line), as shown in Figure 1. The graph shows a decline in real average incomes since 2007-2008 in both areas. The impact of the crisis on the US is larger, the decrease in per capita income is of - $2,459 at constant prices (-6 %), compared a fall of -€1200 euro (-4.7 %) in the Eurozone. However, in 2012 the average US income has recovered to pre-crisis levels, whilst Europe’s is still 2.5 points below. In order to understand why, it is useful to look at the state-level data. Figure 1 shows two bands – blue and yellow – for the US and the Eurozone respectively, whose upper and lower limits describe the per capita income in the richest and poorest state: the District of Columbia and Mississippi in the US; Luxembourg and Estonia in the Eurozone. From the graph it is clear that internal differences are much greater in the Eurozone than in the US. Between 2000 and 2012, real per capita income of the richest US state is five times that of the poorest state. In the Eurozone this ratio is 8.6 to 1. The data on unemployment confirms this pattern – both countries experience a sharp rise during the crisis years; however, aggregate unemployment rate in the US has been declining since 2010, whilst it is still increasing in Europe. In 2012 the gap between the lowest (4.3% in Austria) and the highest (25% in Spain) rate skyrocketed. According to the standard model of economic growth, poor countries should grow faster than rich ones. This is because in such countries capital, compared to labour, is relatively scarce, and thus more productive. Consequently, one would expect poorer countries to save and invest more, as return on capital is higher. This process of convergence has occurred in Europe between 2000 and 2007; however, the speed of convergence has halved in recent years. Read the full article here .
  • The Importance of Resource Reallocation, Crisis or No Crisis

    Change is hard. Change takes time. And in the short run, change can seem like a lot of work that distracts people from their daily work. And yet, long term success depends on regular change. In good times or in bad, companies that reshuffle or reallocate their assets with regularity outperform their competitors, according to research shared in the latest McKinsey Quarterly . Analysis by Mladen Fruk , Stephen Hall , and Devesh Mittal covers the last two decades. When we looked at companies sector by sector, the same broad pattern emerged: whether in basic materials, energy and utilities, information technology, or consumer products and retailing, the median TRS was consistently greater for the high reallocators than for the low ones. A similar story is apparent in the corporate-survival statistics. Over the new, longer period of our study, the survival gap between high and low reallocators increased to 22 percent, up from 13 percent in the original period. In addition, since our data now cover both of the major global economic downturns of the past 20 years (for our purposes, 1999 to 2002 and 2007 to 2010), we can divide companies into those slow to respond by reallocating resources in the two crises, those that actively reallocated in only one, and those that did so in both. The results speak for themselves (Exhibit 2). On average, a company that was a high reallocator during both downturns had a TRS 3 percent greater than a company that was a high reallocator in only one and 4.5 percent greater than a company that wasn’t in either. Realizing the benefits of resource reallocation during a downturn often requires shifting capital and other resources from one existing business to another: when times are tough, there is generally less new capital around, either in the form of growth in retained earnings or of new debt and equity capital. From 2007 to 2010, for example, the volume of new capital available to corporate-management teams in our sample declined by over 15 percent. In these circumstances, it is more incumbent than ever on companies to make difficult trade-offs between the funding of promising growth opportunities (which require nurturing with more capital) and of mature or underperforming ones (which may need pruning). We found that high reallocators in our sample tended to reallocate existing and new resources equally; low reallocators, by contrast, had a much harder time taking resources away from existing lines of business and tended predominantly to reallocate new resources. The willingness to rob Peter to pay Paul is one of the hallmarks of a dynamic top team. Read Never let a good crisis go to waste here .
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