• Brad DeLong Gives Credit to Bush and Obama Administrations for Avoiding Larger Economic Turmoil

    Brad DeLong has been sharply critical of politicians(and members of the media, and some fellow economists). And if he ran the country, he would have done things differently than those in power over the last couple of years. For example, he writes at Project Syndicate and on his blog , he would have let Lehman Brothers and AIG fail. And he would have nationalized Fannie Mae and Freddie Mac. But even as he disagrees with those moves taken or not taken, he gives the Bush and Obama Administrations passing grades for their work in economic policy over the last 30 months: Thus it is worth stepping back and asking: What would the economy look like today if policymakers had acceded to the populist demand of no support to the bankers? What would the economy look like today if Congressional Republican opposition to the Troubled Asset Relief Program (TARP) program had won the day? What would the economy have looked like today had Senators Nelson, Snowe, and company done to Obama's discretionary deficit-spending plan what their predecessors did to Clinton's in 1993 and blocked it? The only point of reference is the Great Depression itself. That is the only time in more than a century when (a) a financial crisis caused a widespread, lengthy, and prolonged reinforcing chain of bank failures, and (b) the government by and large washed its hands--neither intervened on a large scale itself nor passed the baton to a consortium of private banks (usually, in the U.S., headed by Morgan) to support the system as a whole. It is now 19 months after Bear Stearns failed and was taken over by JP MorganChase, with the assistance of up to $30 billion of Federal Reserve money on March 16, 2008. Industrial production now stands 14% below its peak in 2007. By contrast, 19 months after the Bank of United States, with 450,000 depositors, failed on December 11, 1930 – the first major bank collapse in New York since the Knickerbocker Trust failure during the panic and depression of 1907 – industrial production, according to the Federal Reserve index, was 54% below its 1929 peak. Read What Would Have Happened If World Governments Had Washed Their Hands of the Financial Crisis? here .

  • Pew Project for Excellence in Journalism Audit on Economic Reporting Shows Reactive Press

    The Obama Administration has been writing the narrative for economic news coverage since Inauguration Day, according to the Pew Project for Excellence in Journalism . The PEJ analyzed coverage from February 1 through July 3 and found that government action was the impetus for nearly half the stories--49% to be exact. The media "triggered" 23% of stories themselves through investigative pieces, interviews, or other types of stories. Businesses drove the story line almost as often as the media themselves--triggering 21% of the stories. The government led the way even more during February and March, with all the stimulus package and TARP stories dominating the news. The report shows a media that was responding to events more than seeking out root causes and leading investigations. From the report: The study also sheds some light on the question of how aggressive and proactive the press itself was in covering the economy story. Overall, about one-fifth of the economic stories were triggered primarily by the initiative of journalists. But the degree of media enterprise varied notably depending on the topic—and the bigger topics tended to have less press enterprise while the smaller ones had more. When it came to the biggest economic storylines, the media were more reactive. In coverage of the banking sector problems, for instance, press enterprise and investigations triggered only 14% of stories, and on stimulus coverage, 15%. The media were more pro-active in monitoring the housing crisis (23%) and quite aggressive when it came to covering the unemployment picture, with press enterprise and investigation accounting for 35% of the triggers. And in one significant storyline, the crisis’ impact on ordinary citizens, press enterprise proved to be the trigger for more than half (54%) of the stories. Among the other findings by the PEJ report: -Three storylines have dominated: efforts to help revive the banking sector, the battle over the stimulus package and the struggles of the U.S. auto industry. Together they accounted for nearly 40% of the economic coverage from February 1 through August 31. Other topics related to the crisis have been covered much less. As an example, all the reporting of retail sales, food prices, the impact of the crisis on Social Security and Medicare, its effect on education and the implications for health care combined accounted for just over 2% of all the economic coverage -Fully 76% of the datelines on economic stories studied during the first five months of the Obama presidency were New York (44%) or metro Washington D.C. (32%). Only about one-fifth (21%) of the stories originated in any other city in the U.S., and about a quarter of those emanated from two other major media centers: Atlanta and Los Angeles. -Once the economic situation showed some signs of improvement—and the political fights over legislative action subsided—media coverage began to diminish. After accounting for 46% of the overall news coverage in February and March, for instance, coverage of the economic crisis dropped by more than half (to 21% of the newshole studied) from April through June. And in July and August, it fell even further (to 16%). The clearest example came in cable news. Once the political battles subsided, coverage fell by about two-thirds from March to April. You can read the full report here .

  • Global Housing Prices Chart from McKinsey

    The McKinsey Quarterly gives a little global perspective on the rise and fall of housing prices since 1970 (and especially since 2000) in the following chart: More on the chart's data here .

  • Paul Volcker: Feds "Did what they had to do" In Facing Crisis

    Paul Volcker spoke with Charlie Rose last week, and the former Fed chair gave Ben Bernanke and Timothy Geithner generally good marks for its handling of the financial crisis so far. Here's an excerpt: To watch the full interview, in two parts, click here .

  • Lacking Hope in Regulatory Reform

    We're past the one-year anniversaries of the fall of Lehman Brothers and the near collapse of AIG, but the question over what we have learned from the crisis is bothering more than a few big economic thinkers and policy makers. Emma Bonino is Vice President of Italy's senate, and she concludes in today's Financial TImes that global leaders seem to have learned very little: As the saga of platitudes on the financial crisis comes to an end, hard questions now lie on the hands of world leaders. And the number of hands has expanded, with the Group of 20 leading nations set to replace the G7 and G8 as the hub of global economic co-operation. Economic giants, such as China, India and Brazil, will now have a voice in shaping world finance. This, of course, illustrates that decentralisation of economic power in the new world order is an unstoppable development, which may prove to be a positive one if the newcomers behave as responsible stakeholders. But will all this summitry really make a difference? With the benefit of hindsight we can see the flaws in the financial system that allowed the collapse of Lehman Brothers to bring the global economy to its knees. But will we be able to say we wised up and put in place a better financial system? Unlikely. So far, all we have really done is change the decision-making body, while the causes and symptoms of the financial crisis remain unchecked. Small and medium-sized banks continue to file for bankruptcy at a worrying pace. We still have not curbed the noxious behaviour of big banks: their social and political importance was enhanced more than scrutinised by the financial fallout after the Lehman disaster. “No more Lehmans” was the motto, cried both by banks and the public. The toxic combination of bank subsidies and bankers’ bonuses have socialised losses and privatised gains. Read What did we really learn from the financial crisis here . In the Washington Post, Simon Johnson and James Kwak argue that if we learned anything from the events of a year ago, the time to act is now. "The next couple of months will be crucial in determining the shape of the financial system for decades to come," they write. And they don't hold a lot of confidence in the Obama administration's ability to push through reform: We have criticized the administration's reform proposals, in particular for not going far enough to address the problem of financial institutions that are "too big to fail." But we support much of what was in the original package, particularly the CFPA and increased regulation of complex financial products. The question now is how hard Obama and Geithner will fight for it. Financial regulation, like health care reform, has entered the phase where speeches and proposals matter less than arm-twisting and horse-trading on Capitol Hill. With health care, President Obama attempted to go over the heads of Congress, directly to the American people. With financial regulation, that is no longer an option, given the extent to which it has faded from public consciousness. Read It's Crunch Time: The Fight to Fix the Financial System Comes Down to This here .

  • Joseph Stiglitz on the State of the Economy, and the Progress of Recovery

    Joseph Stiglitz says the federal government needs to spend more money (on infrastructure, schools, and elsewhere). And if he were president, he would work to restructure "large parts of the economy," and bring them up-to-date with the economics of the Twenty-First Century, rather than allowing them to keep following "Nineteenth Century economic principles." Those are among the ideas he shares with The New Yorker's James Surowiecki in this interview:

  • Charlie Rose Lehman Brothers Segment

    Of all the discussions we've heard or seen or read this week of the collapse of Lehman Brothers , the Charlie Rose segment might be the best. Andrew Ross Sorkin and Jim Stewart were particularly clear in putting the event into context. The video of the program is now available, so we thought we'd share. Here's a short excerpt: Click here for the full program:

  • OECD Report: Worst Unemployment Across Nations in Decades

    In 1993, the unemployment rate for the 30 member nations of the Organisation for Economic Co-operation and Development was 7.5%. And as Matthew Saltmarsh points out in the New York Times, that was the highest rate for the OECD nations since 1970. But now, unemployment continues to climb, and in a report released earlier today, the OECD is projecting it will approach a new post-World War II high of 10% (the current 8.5% rate is already a post-war high). And while the report says that most nations have taken strong measures to offset the dangers of high unemployment, those measures should not be seen as long term. Instead, the report recommends that nations: --Help young people who have been hardest hit by the crisis, especially those with few or no qualifications. Targeting this group will reduce the risk of a “lost generation” of young people falling into long-term unemployment and losing touch with the job market. --Reinforce social safety nets to avoid jobless people falling into poverty: on average in the OECD area, 37% of individuals living in jobless households are poor - five times higher than for individuals living in a household where at least one person has a job. --Increase spending on active labour market policies, such as job search assistance, and training, to help the unemployed back to work. Spending on these policies has risen in many countries over the past year, but only modestly compared with the magnitude and pace of job losses. In Ireland, Spain and the United States, which have seen the fastest rise in unemployment in OECD countries, spending per unemployed person on active labour market policies has fallen by 40% or more over the past year. --Foster skill formation to ensure that workers are well-equipped with the appropriate skills for emerging jobs, including green jobs. You can read more on the report here . And watch the OECD's video release below.

  • Lehman Brothers Compliance Chief Tells Complinet That Faith in Models Ultimately Doomed Company

    The financial pages are abuzz over the anniversary of the the collapse of Lehman Brothers , and President Obama is going to mark the occasion by speaking about Wall Street on Wall Street. He is expected to address regulatory reform and the government's continuing efforts to drive economic recovery. As for Lehman Brothers , David DeMuro provides a particularly interesting perspective. DeMuro was Lehman's head of compliance and regulation. Earlier this summer he spoke at Complinet , a firm specializing in compliance issues. And DeMuro stressed that the issues at Lehman were not unique to that firm. He places a lot of blame for the collapse on a sort of bubble euphoria. He and others may have seen red flags, particularly with mortgage subsidiaries, but the firm did not change its ways because of what DeMuro calls an "almost religious belief in the veracity of the models that comforted a lot of people": The Great Crash of 2008: An Insider's View of a Global Economy in Crisis and the Regulatory Failures from complinet on Vimeo .

  • GEC Timelines from the NY Fed

    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.

  • Grading Bernanke

    Ben Bernanke has half a year left on his term as chair of the Federal Reserve , and at this point it is not certain whether he will be asked to serve another. Bernanke has said that he expects the economy to pick up later this year , and perhaps his future as chair depends on whether he is right or not. David Wessel , economics editor of the Wall Street Journal , assesses Bernanke's tenure in this short video, and says Bernanke "did a great job in saving us from something that could have been a catastrophe."

  • GE's Immelt on Global Recovery and a New Age for US Economy

    General Electric CEO Jeffrey Immelt weighs in on the state of the global economy in this interview with Charlie Rose . He says we are in a "tough situation." and that while there is recovery in emerging economies (China, Brazil), "headwinds" are going to keep slowing down the US economy. And, he tells Rose, "this is more than just a cycle....This company and this country is going to come out the other side, I think, looking differently."

  • Japan's Triangular Trade Problem

    Over at VoxEU.org , Kyoji Fukao and Tangjun Yuan of Hitotsubashi University in Tokyo have an interesting analysis of Japan's particular economic woes. As they point out, the Global Economic Crisis hit Japan especially hard. Its GDP contracted at a rate nearly twice that of the US in the last quarter of 2008. And yet it did not have a bursting housing bubble or a toxic assets problem on anywhere near the scale as the US and Europe. So why is it struggling, it seems, worse than most? The answer, Fukao and Yuan find, is in Japan's "triangular trade" model. Japan's economic strength is dependent on exports to the West--in large part, the US. But it is also dependent on exports to other Asian countries: Until the economic crisis, there was vigorous “triangular trade”, in which the advanced economies of Asia, such as Japan, South Korea, and Taiwan, exported key components to developing countries, such as China, Thailand, or Vietnam, which assembled and exported the final products to the US (and Europe) in return for US Treasuries. The Asian developing countries specialised in relatively low value-added assembly and manufacturing processes, while the advanced countries concentrated on high-value added processes, such as the production of key components. However, the sudden decrease in US imports has very rapidly contracted this triangular trade. US goods imports fell during the last quarter of 2008 at an annual rate of 19.6%. And as developing countries’ exports to the US decreased, so did their imports from Asia’s advanced economies. Japan, South Korea, and Taiwan thus suffered a significant decline in exports. Of course, Japan is not alone in using this model. China does as well. But while China is taking a bigger hit in terms of net exports, its GDP is not contracting at as fast a rate. Fukao and Yuan: Finally, Figures 4 and 5 compare the impact on gross output and GDP, respectively, for the Asian countries. Reflecting the large decrease in exports, the drop in China’s gross output is 1.7 times as large as Japan’s. However, the difference in the impact on GDP is considerably smaller; the decrease in China’s GDP is only 1.3 times as large as Japan’s. This situation is also the result of triangular trade. China is relatively specialised in the processing and assembly of imported intermediate goods using cheap labour, and the products are then exported to the US. However, the value added ratio of this kind of production is typically low, and it is for this reason that the decrease in GDP is smaller than the decrease in gross output. Read the full post here .

  • NY Review of Books Panel: 'The Economic Crisis and How to Deal With It'

    The New York Review of Books held a crowded panel as part of the PEN World Voices Festival . Senator Bill Bradley , Niall Ferguson , Paul Krugman , Nouriel Roubini , George Soros , and Robin Wells filled a stage and discussed The Economic Crisis and How to Deal with It . A lot of bloggers and economists (and econobloggers, for that matter) have highlighted the talk for the jousting between Krugman and Ferguson-- Brad DeLong , for example, backs up Krugman in a post today . But the talk was much more. There are several good summaries available, like this one from Jane Ciabattari . The folks at PEN have made audio of the full event available. You can listen or download an mp3 here . And you can hear an excerpt (with slides) below:

  • Global Migration and the Economic Crisis

    Economists Timothy Hatton of the Australian National University, and Jeffrey Williamson of Harvard look at the potential impact of the global economic crisis on international migration in a new article at VoxEU. Immigration has a direct relationship with business cycles--when an economy is growing, immigration goes up--and "History leads us to expect a global recession to increase anti-immigrant sentiments and possibly spur new barriers to migration." But, they say things might be different this time around. Hatton and Williamson point to something called the 10 Percent Rule: where immigration policies are not restrictive, every 100 jobs lost in an economy means 10 fewer immigrants. This rule was in effect in as net immigration turned negative in places like the US, Canada, Australia, and Argentina during the depression of the 1890s and the Great Depression. Does the 10% rule apply today? On the one hand, migration should be less responsive to business cycle conditions when tough immigration policies are in place. On the other hand, those moving under family reunification (around half of US immigration) are much freer to move, and most recent migrants have the option to return home. It goes without saying that illegal immigrants are particularly sensitive to employment conditions. Figure 1 shows the relationship between the unemployment and the net immigration rate per thousand of the population (including illegal immigrants) for the US. It shows a striking inverse correlation. If the relationship between net immigration and employment is estimated – voila! – the 10% rule reappears. Ultimately, the key factor comes down to public response. Historically, recessions have led to anti-immigration sentiment. And while Hatton and Williamson argue that anti-immigration sentiment in OECD countries has not increased as much as it did in the late Nineteenth Century or during the Great Depression, they also say: History leads us to expect rising anti-immigrant sentiment in a global recession, and a deep recession would seem to provide the ingredients for a sharp immigration policy backlash. For some it would seem like the perfect opportunity to erect higher fences to insulate workers in the developed world from ever mounting flood of immigrants once the recession is over. But that flood is not ever-mounting. The current world crisis will reduce immigration, and the long-run pressure to immigrate will continue to ease after it is over. Read the full article here .
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