• Frances Woolley on Dragons as Fiscal Phenomena

    Some economists don't stop being economists when they step into a movie theater (or into the story of a book).  Frances Woolley wasn't able to follow the story of The Hobbit without thinking about a dragon as a "fiscal phenomenon," that wrought economic havoc to Middle Earth.  From Worthwhile Canadian Initiative:

    The interpretation of dragons as monetary phenomena is supported by the events occuring after the death of Smaug. Upon the great worm's demise, the wealth it had stockpiled was shared between the dwarves and others who had contributed to the fight. Much gold was sent to the Master of Lake-town; followers and friends were rewarded freely. The result was an immediate increase in the money supply, and a rapid growth in overall economic activity.

    One has to ask whether or not a more innovative monetary policy framework could have ameliorated the impacts of the dragon-induced economic downturn. If the peoples of Middle Earth had abandoned their gold specie standard, and switched instead to a paper currency, they could have revived trade-flows without sacrificing so many lives. Unfortunately, the lack of a central bank, or indeed any but the most rudimentary monetary institutions, was a major obstacle to currency reform.

    Dragons come. The question is how to respond to them.

    Read The Macroeconomics of Middle Earth here.

  • Killing Your Company in Order to Save It

    New Year's Resolution for top executives: kill your company.  Don't really kill it, of course.  Rather, go through the first exercise in Lisa Bodell's book Kill the Company: End the Status Quo.  Bodell--founder and CEO of FutureThink--advises top managers fully engage with an exercise to determine their organizations' most dangerous vulnerabilities.  If you figure out your weaknesses before your opponents do, you may be able to change them before they cause you real lasting harm.

    Bodell spoke about the need for this level of intense self reflection with Knowledge@Wharton's Shannon Berning:

  • Simon Wren-Lewis: The State of Academic Macroeconomics

    At his Mainly Macro blog, Simon Wren-Lewis considers the state of macroeconomics.  And he believes we might be living through a high-point for "academic macro."  There is more consensus than we might realize:

    Society does fund some academics to engage in purely intellectual pursuits, but macroeconomics is not one of these. Yet much of the flourishing of ideas and research that is currently taking place has been inspired by recent events, and is directly or indirectly policy relevant. However having lots of ideas that are relevant to policy is not sufficient to make an academic discipline useful. It also needs to respond to the evidence in sorting out what ideas are helpful and what are not, so that it can be a progressive endeavour. In this respect, academic macroeconomics appears all over the place, with strong disputes between alternative schools.

    Is this because the evidence in macroeconomics is so unclear that it becomes very difficult to judge different theories? I think the inexact nature of economics is a necessary condition for the lack of an academic consensus in macro, but it is not sufficient. (Mark Thoma has a recent post on this.) Consider monetary policy. I would argue that we have made great progress in both the analysis and practice of monetary policy over the last forty years. One important reason for that progress is the existence of a group that is often neglected - macroeconomists working in central banks.

    Unlike their academic counterparts, the primary goal of these economists is not to innovate, but to examine the evidence and see what ideas work. The framework that most of these economists find most helpful is the New NeoClassical Synthesis, or equivalently New Keynesian theory. As a result, it has become the dominant paradigm in analysing monetary policy.

    That does not mean that every macroeconomist looking at monetary policy has to be a New Keynesian, or that central banks ignore other approaches. It is important that this policy consensus should be continually questioned, and part of a healthy academic discipline is that the received wisdom is challenged. However, it has to be acknowledged that policymakers who look at the evidence day in and day out believe that New Keynesian theory is the most useful framework currently around. I have no problem with academics saying ‘I know this is the consensus, but I think it is wrong’. However to say ‘the jury is still out' on whether prices are sticky is wrong. The relevant jury came to a verdict long ago.

    When it comes to fiscal policy, Wren-Lewis writes that "there can be no equivalent claim to progress or consensus."  Read Is academic macroeconomics flourishing? here.

    (H/t Mark Thoma)

  • WSJ: How the Euro Survived

    There are still a few days of 2012 left, but it seems safe to say that reports of the euro's death, to paraphrase Mark Twain, "have been greatly exaggerated."  The currency remains in tact, and all members of the Euro Zone are currently sticking with it.  Wall Street Journal Brussels bureau chief Stephen Fidler gives credit to ECB president Mario Draghi for staying true to his word and keeping the euro going. 

  • Case-Shiller: 'Sustained Recovery in Home Prices'

    Home prices did better than forecasters expected, but still dipped slightly in October.  Average home prices dropped 0.1% in from September to October, according to the latest S&P/Case-Shiller Home Price Indices release.  Home prices dropped in 12 of the 20 metro areas that make up the 20-city composite index. 

    The twelve month picture, on the other hand, looks very strong.  On an annual basis, prices rose 3.4% for the 10-city composite index and 4.3% for the 20-city composite. Here's a look at the long term trend:

    From the release, quoting David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices.

    “The October monthly numbers were weaker than September as 12 cities saw prices drop compared to seven the month before.” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “The five which turned down in October but not in September, were Atlanta, Dallas, Miami, Minneapolis and Seattle. Among all 20 cities, Chicago was the weakest with prices dropping 1.5%, followed by Boston where prices fell 1.4%. Las Vegas saw the strongest one-month gain with prices up 2.8%."

    “Annual rates of change in home prices are a better indicator of the performance of the housing market than the month-over-month changes because home prices tend to be lower in fall and winter than in spring and summer. Both the 10- and 20-City Composites and 19 of 20 cities recorded higher annual returns in October 2012 than in September. The impact of the seasons can also be seen in the seasonally adjusted data where only three cities declined month-to-month. The 10-City Composite annual rate of +3.4% in October was lower than the 20-City Composite annual figure of +4.3% because the two weaker cities – Chicago and New York – have higher weights in the 10-City Composite."

    “Looking over this report, and considering other data on housing starts and sales, it is clear that the housing recovery is gathering strength. Higher year-over-year price gains plus strong performances in the southwest and California, regions that suffered during the housing bust, confirm that housing is now contributing to the economy. Last week’s final revision to third quarter GDP growth showed that housing represented 10% of the growth while accounting for less than 3% of GDP."

    Read the full release here.

  • Creating Serendipity

    Just as you make your own luck, innovative companies make their own serendipity.  So says Jack Hidary--founder of Samba Energy and of the Auto X Prize.  For Hidary, the best way to bring innovative ideas into the world is to gather people who are both smart and open to new ideas, and let them have at it.  The results are better products and and more productive interactions. (Maybe we need to reconsider the guest list for our New Year's Eve parties)

    From Big Think:

  • Derek Thompson: Recovery Will Speed Up With More Household Formation

    With the aim of getting us to focus more on household formation as an important economic indicator, The Atlantic senior editor Derek Thompson shares his choice for most important graph of 2012.  It shows the impact of selling cars and houses on recoveries. 

    Thompson makes an interesting point about our current, slow recovery.  "This recovery is different from all others because we just. Aren't. Selling. Enough. House."

    That might be changing. With home prices rising, construction hours-worked recovering, and multi-family homes making a sustained comeback, 2013 could be the year our economy breaks out of "new normal" growth and gets back to "normal normal" growth.

    Behind my optimism is a trend that doesn't get a lot of play in some corners of the financial press. It's household formation. Household means is a group of people living together. It can be six roommates, a four-person nuclear family plus a grandmother in the guest room, or a a young couple of two. Formation means one more of those categories. More formations is good news. It suggests more people getting jobs, getting apartments, getting married, having kids, and (in all likelihood) spending more money to furnish their new households and express their independence.

    This recovery, however, has been a story of few jobs, crowded apartments, low marriage-rates, and low birthrates. It all comes down to households.

    Read The Most Overlooked Statistic in Economics Is Poised for an Epic Comeback: Household Formation here.

  • In Praise of the American Consumer

    Brookings has compiled a series of articles and talks from its Economic Studies experts that address what the top economic issues of the year.  You can access them all at this page.

    Among the top stories: the resilience of the American consumer.  Karen Dynan, co-director of the Brookings Economic Studies Program, says American consumers were the key to the positive trending of the economy. 

  • The Case for Tying Interest Rate Policy to Employment Targets

    Kemal DerviĊŸ, former minister of economy in Turkey and VP of the World Bank, is glad that the Federal Reserve has tied interest rate policy to a "numerical employment target". He would like to see other central banks follow the Fed's lead, especially the European Central Bank.  From Project Syndicate:

    The spread of global value-chains that integrate hundreds of millions of developing-country workers into the global economy, as well as new labor-saving technologies, imply little chance of cost-push wage inflation. Likewise, the market for long-term bonds indicates extremely low inflation expectations (of course, interest rates are higher in cases of perceived sovereign default or re-denomination risk, such as in Southern Europe, but that has nothing to do with inflation). Moreover, the deleveraging underway since the 2008 financial implosion could be easier if inflation were moderately higher for a few years, a debate the International Monetary Fund encouraged a year ago.

    Together with these considerations, policymakers should take into account the tremendous human and economic costs of high unemployment, ranging from the millions of shattered lives, skills erosion, and disappearance of opportunities for an entire generation, to the dead-weight loss of idle human resources. Is the failure to ensure that millions of young people acquire the skills required to participate in the economy not as great a liability for a society as a large stock of public debt?

    Nowhere is this reordering of priorities more needed than in the eurozone. Yet, strangely, it is the Fed, not the ECB, that has set an unemployment target. The US unemployment rate has declined to around 7.7% and the current-account deficit is close to $500 billion, while eurozone unemployment is at a record high, near 12%, and the current account shows a surplus approaching $100 billion.

    If the ECB’s inflation target were 3%, rather than close to but below 2%, and Germany, with the world’s largest current-account surplus, encouraged 6% wage growth and tolerated 4% inflation – implying modest real-wage growth in excess of expected productivity gains – the eurozone adjustment process would become less politically and economically costly. Indeed, the policy calculus in Northern Europe greatly underestimates the economic losses due to the disruptions imposed on the South by excessive austerity and wage deflation. The resulting high levels of youth unemployment, health problems, and idle production capacity also all have a substantial impact on demand for imports from the North.

    Read Should Central Banks Target Employment? here.

  • Tax Rates over the Last 100 Years

    'Tis the season to think about taxes.  Or at least to think about last minute tax-deductible gifts to charities and other not-for profits.  That and all the fiscal cliff talk has us thinking about tax rates.

    At Quartz, Ritchie King has put together a helpful interactive graph that provides a quick glimpse into tax rates over the last 100 years.  Here is how rates have changed for someone earning $50,000:

    For someone earning $500,000 this is what tax rates have looked like:

    Click here to use the interactive graph and to read King's analysis.

  • Stephanie Kelton: 'Forget Fiscal Cliff,' Key Economic Challenge Remains Job Creation

    In an op-ed for the Los Angeles Times, Stephanie Kelton, associate professor of economics at the University of Missouri-Kansas City and the founder and editor of New Economic Perspectives, says we need to be careful what we wish for when it comes to sorting out Washington's economic crises.

    The federal government has achieved fiscal balance (even surpluses) in just seven periods since 1776, bringing in enough revenue to cover all of its spending during 1817-21, 1823-36, 1852-57, 1867-73, 1880-93, 1920-30 and 1998-2001. We have also experienced six depressions. They began in 1819, 1837, 1857, 1873, 1893 and 1929.

    Do you see the correlation? The one exception to this pattern occurred in the late 1990s and early 2000s, when the dot-com and housing bubbles fueled a consumption binge that delayed the harmful effects of the Clinton surpluses until the Great Recession of 2007-09.

    Why does something that sounds like good economics — balancing the budget and paying down debt — end up harming the economy? The answers may surprise you.

    Spending is the lifeblood of our economy. Without it, there would be no sales, and without sales, no profits and no reason for any private firm to produce anything for the marketplace. We tend to forget that one person's spending becomes another person's income. At its most basic level, macroeconomics teaches that spending creates income, income creates sales and sales create jobs.

    And creating jobs is what we need to do. Until the fiscal cliff distracted us, we all understood that. Today, we have roughly 3.4 people competing for every available job in America. The unemployment rate is like a macroeconomic thermometer — when it registers a high rate, it's an indication that the deficit is too small.

    Read the full article here

    (Hat tip Barry Ritholtz)

  • Adam Davidson Brings Some Math into the Fiscal Cliff Discussion

    Earlier this month, Adam Davidson gave a Ted Talk on the so-called fiscal cliff--or what he calls "the self imposed, self self destructive arbitrary deadline about resolving an inevitable problem."  Refreshingly, he helps us look at this "crisis" as a math problem.  Math problems can be solved.  Existential crisis and political deadlock?  Not so easy.  So Davidson suggests that we look more at what American citizens and economists think about economic matters rather than the polticians:

  • OECD Lays out the Case for Countries to 'Act Now' on the Gender Gap

    Take a look at this chart.  What stands out to you?

    This chart shows the impact of having children on women's income levels across OECD countries.  The extremes here are striking.  What is going on in Italy and in Japan, for example?  But overall the trend is, while not surprising, quite clear.  In a new report called Closing the Gender Gap, OECD researchers point out the economic benefits to nations that improve the economic conditions of women at all stages of their lives. From the report:

    Greater educational attainment has accounted for about half of the economic growth in OECD countries in the past 50 years – and that owes a lot to bringing more girls to higher levels of education and achieving greater gender equality in the number of years spent in education.

    Greater educational equality does not guarantee equality in the workplace, however. If high childcare costs mean that it is not economically worthwhile for women to work full-time; if workplace culture penalises women for interrupting their careers to have children; and if women continue to bear the burden of unpaid household chores, childcare and looking after ageing parents, it will be difficult for them to realise their full potential in paid work. In developing countries, if discriminatory social norms favour early marriage and limit women’s access to credit, girls’ significant gains in educational attainment may not lead to increased formal employment and entrepreneurship.

    The issues are complex and tackling them successfully means changing the way our societies and economies function. Men and women have to be able to find a work-life balance that suits them, regardless of family status or household income. Sharing childcare responsibilities can be difficult in a culture where men are considered professionally uncommitted if they take advantage of parental leave and mothers are sidetracked from career paths. And if good quality, affordable childcare is unavailable, it may simply be impossible for many parents, especially those on low incomes, to work full-time and take care of their families.

    Access the full report here.

  • Spending, Income Both Rise in November

    Personal income and spending both rose in November, according to the Commerce Department.  Income rose by 0.6 percent, exceeding expectations.  Real Disposable Income rose 0.8 percent after dropping 0.1 percent in October. Real Consumer Spending rose by 0.6 percent. Take a look at the monthly change:

    Here are the toplines from the Bureau of Economic Analysis:

    Personal income increased 0.6 percent in November after increasing 0.1 percent in October. Wages and salaries increased 0.6 percent in November after decreasing 0.3 percent in October. The October decrease reflected work interruptions caused by Hurricane Sandy, which reduced wages and salaries by 0.3 percent.

    Real consumer spending, spending adjusted for price changes, increased 0.6 percent in November after falling 0.2 percent in October. Spending on durable goods increased 2.9 percent in November after falling 0.9 percent in October.

    Read the BEA's full report here.

  • A Call to Hire, and Manage Idiosyncratic Talent

    In a Harvard Business Insight video, Robert Austin--dean of the business faculty at the University of New Brunswick--shares a remarkable story of a company building an extraordinary workforce.  The Danish company Specialisterne has built a practice of hiring people with autism and training them to test software.  And Austin says they are "the best software testers in the world."  The lesson here is not about the capacity of people with autism to become top employees (even though that is an important lesson).  Rather, Austin shares this story to make a point about talent.  Some of the most talented workers might be "idiosyncratic" and less appealing in standard hiring processes.  But a failure to examine the potential for these people is equivalent to, Austin says, "leav[ing] talent on the table."

  • The British Economy and Challenging the Austerity Narrative

    Fantastic storytelling from Adam Davidson in the New York Times about visiting the Bank of England and meeting with Monetary Policy Committee member Adam Posen.  But Davidson's story is also about, well, storytelling and how it is applied to decision making at one of the most influential global financial institutions.  It seems Posen has been fighting against the tide within the BofE and losing because his math hasn't squared with the narratives his fellow committee members have bought into:

    Economics often appears to be an exercise in number-crunching, but it actually resembles storytelling more than mathematics. Before the members of the Monetary Policy Committee gather for their monthly meeting, they sit through a presentation from the Bank of England’s economic staff. The staff members take the most recent economic data — G.D.P. growth, the unemployment rate and more subtle details gathered from interviews with businesspeople throughout the country — and try to fashion it into a narrative. Does a sudden spike in new factory orders represent a fundamental shift, or is it just a preholiday blip? Do anecdotal reports of rising food prices herald a period of inflation, or is it the result of a cold snap? Which story feels truer?

    A few days later, each of the nine members of the M.P.C. puts forth his or her own interpretation. Over two days, the members debate these competing narratives and discuss what the Bank of England should do. Then the committee votes, and the winning policies are implemented.

    Soon after Cameron was elected, Posen argued that the committee should endorse a more radical, expansionary approach of economic recovery. He believed that the data indicated the sputtering would end and the economy would grow only if the Bank of England began buying many billions of pounds’ more worth of bonds. This added stimulus would flood the banking system with new cash and indirectly push banks to lend to businesses and citizens. (Banks don’t make money by sitting on cash.) Some of Posen’s colleagues warned that this would lead to inflation. He countered that the economy was operating below its capacity, so there was no reason to fear inflation.

    Each month, the committee heard Posen’s advice. Each month, it voted 8 to 1 against him. The bank eschewed his more expansionary suggestions and stuck to a more conservative approach of keeping interest rates low and modest bond-buying. Soon Posen became a famously divisive figure in London’s financial community, alternatively the enlightened genius trying to save the country and the mad Yank who wanted to inflate the pound out of existence. “There was this period,” he remembers, “when I would lie awake at night and think: Am I just crazy? Maybe I’m nuts. It’s like the scene in ‘12 Angry Men.’ I almost wavered. But then I decided: No, no, no. I was convinced: They’re nuts and I’m right.”

    Read God Save the British Economy here.

  • What Workers Want: Preferred Benefits Around the World

    You can learn a lot about a nation's business culture based on what employees think they need more of.  This Mercer/Think infographic shows what additional benefits are most appealing to workers around the world.  Here in North America, we all want more time off.  That's not the case through most of the world. (see the full-size graphic here)


  • A Defense of 'Cuddly Capitalism' and Innovation in Nordic Countries

    At VoxEU, three Finnish economists respond to a recent paper in which the authors assert that "cuddly capitalist" countries like Finland and other Nordic economies, "free ride" off of "cut-throat" capitalist countries like the U.S. Not surprisingly, Niku Määttänen, Mika Maliranta, and Vesa Vihriälä see a different picture.  First, they take issue with the idea that the U.S. economy is more innovative:

    As Acemoglu et al. (2012a, 2012b) stress, innovation requires risk-taking. In a very innovative economy, one would therefore expect to find intensive job creation and job destruction, as firms that are successful in innovative activities expand rapidly while others are forced to exit the market.

    The available data do not suggest that the US economy is unambiguously more dynamic than the Nordic economies (Bassanini and Marianna 2009, OECD 2004). In Denmark, worker reallocation is more intensive, and in Finland almost as intensive as in the US (Table 1). Moreover, time series from the US indicate a marked decline in job and worker flows since the late 1990s (Davis et al. 2012), whereas – at least in Finland – both flows have stayed intensive (Ilmakunnas and Maliranta 2011).

    The authors go on to challenge the assumption that there is less dynamism in Nordic countries like Finland, and make the case that these are actually highly innovative economies in which entrepreneurs are encouraged to take risks for some of the same reasons they might be described as "cuddly" countries:

    One explanation for Nordic good performance might be that they are better in mobilising human resources. While hours per capita are higher in the US, a larger share of the working age population is employed in the Nordics owing to more inclusive educational, social and employment policies.

    This may imply that talents are harvested better for gainful economic activity. A second explanation could be the rather determined public policies to promote innovation.

    A third explanation might be that the economic incentives for innovation in the Nordics, while weaker than in the US, are not miserable after all, at least not across the board. For instance, all Nordic countries have introduced dual income taxation, according to which capital incomes are taxed at a flat rate. This helps in motivating entrepreneurs, despite quite progressive taxes on earned income. Sweden has recently encouraged wealth accumulation by abolishing wealth and inheritance taxes altogether.

    A well-designed safety net may also work to promote risk-taking. In particular, unemployment insurance may help risk-taking entrepreneurs by making it is easier for them to hire workers (see Acemoglu and Shimer 2000).

    Read Are the Nordic countries really less innovative than the U.S.? here.

  • The Five Qualities of Successful Leaders

    The New York Times Corner Office column is a must read for those of us trying to keep tabs on the business world and leadership.  Adam Bryant, the NYT editor behind the column, has now compiled key lessons from the hundreds of interviews he has done with CEOs for the column and put them into a new book.  He recently discussed The Corner Office: Indispensable and Unexpected Lessons from CEOs on How to Lead and Succeed with Knowledge@Wharton's Shannon Berning.  In the interview, Bryant says there are five traits that are common among people who have been able to reach the corner office:

    passion and curiosity,

    battle-hardened confidence,

    team smarts,

    simple mindset,

    and fearlessness.

  • SF Fed: Impact of Discouraged Workers Rejoining Labor Force on Unemployment Rate

    Take a look at the trend line for the percentage of Americans who are not currently looking for work but who want jobs, from a new Economic Letter by San Francisco Fed researchers Mary Daly, Early Elias, Bart Hobijn, and Òscar Jorda:

    There is a clear growth of what the Bureau of Labor Statistics terms "discouraged workers" since the recession.  These workers do not count against the unemployment rate.  So as we get set to begin another year of watching monthly job reports closely, we need to be aware of how a positive trend of these Americans returning to the workforce will affect the unemployment rate.

    Nearly 6.9 million people report being out of the labor force but wanting a job. As economic conditions improve, it is reasonable to expect that some of these workers will move back into the labor force or join for the first time. Based on historical averages, about 2.1 million of them could enter the job market. These potential entrants will either take jobs directly or join the labor force as unemployed workers actively searching for jobs.

    The near-term path of unemployment will reflect both how quickly potential workers enter the labor force and the rate at which jobs are created. Assume that the average pace of job creation over the past two years continues. We can then project the path of the unemployment rate over the next year according to the rate at which the 2.1 million potential workers enter the labor force.

    If these workers take a year and a half to join the labor force, which would be about a year faster than the entry rate from 1994 to 1999, the recent decline in the unemployment rate would stall at more than 8% by the end of next year. Suppose though that the number of workers who want a job but are not actively looking falls at a more moderate pace and it takes three-and-a-half years for this group to join the labor force. In that case, the unemployment rate would stay at 7.7% through the end of next year. For comparison, if none of the 2.1 million potential workers were to enter the labor market, the unemployment rate would fall to 7.4% by the end of 2013. Of course, the rate at which these workers join the labor force may reflect the labor market’s overall strength. A faster rate of job creation may offset a faster rate of labor force entry, allowing the unemployment rate to fall.

    Read Will the Jobless Rate Drop Take a Break? here.

  • The Newspaper Business May Have Hit Bottom, and Why That's Good News

    Watching the newspaper industry over the last decade has been like watching a slow motion train wreck.  Poor management and lack of a coherent strategy mixed with rapid growth of online information sources and changing consumer habits to cast the print news industry in the role of the canary in the coal mine for the digital age.  But some newspapers may have found a way to stop plummeting revenue.  Alexandra Suich covers the media business for The Economist.  And while she does not seem ready to say there is good news to report on the business, there are some signs that the newspaper industry may have at least bottomed out. 

  • Scott Shane: Startup Survival Rates

    Among the many academics and econobloggers who write about startups, Scott Shane has become a reliable, albeit sobering, voice.  Shane, Professor of Entrepreneurial Studies at Case Western Reserve University, often focuses on the conditions required for small businesses to succeed.  And he doesn't fall victim to the romantic side of entrepreneurship.  So it comes as no surprise that he is once again reminding us of how difficult it is for small businesses to survive in today's business climate.

    At Small Business Trends, Shane has compiled the data from the Bureau of Labor Statistics and the Census Bureau in order to track the survival rate of startups.  And the resulting picture is not very rosy:


    The 1995 BLS EST, 2000 BLS EST, and 2005 BLS EST lines each track the five year survival rates of the cohorts of new establishments founded in 1995, 2000 and 2005 respectively. Five years after they were started, 50, 49 and 47 percent of the new establishments started in 1995, 2000 and 2005, respectively, were still alive.

    The remaining two series come from the Census Bureau. The 2005 CENSUS EST line shows the survival rate of new establishments founded in 2005 through 2010, while the 2005 CENSUS FIRMS line shows the survival rate of new firms started in 2005 over the same period. Five years after they were started, the Census Bureau finds that 45 percent of the new establishments and 43 percent of the new firms were still alive.

    While I have thrown a whole lot of numbers at you, I am making a very simple point: The typical new business started in the United States is no longer in operation five years after being founded. That’s true whether statisticians at the BLS or Census are doing the measuring and it’s true whether you measure new establishments or new firms.

    Read Start Up Failure Rates: The Definitive Numbers here.

  • Chicago Fed: the Slowing of Growth in Productivity

    In a new Chicago Fed Letter, Chicago Fed Economists Jake Fabina and Mark L. J. Wright try to make sense of the reduction of the rate of growth in productivity in the U.S. and other advanced economies.  Take a look at the trend:

    From Fabina and Wright:

    Figure 1 plots Fernald’s measure of the level of multifactor productivity of the U.S. business sector (i.e., excluding general government and household production) quarterly from 1973 to 2012. The data are scaled so as to equal 100 in 1973:Q1. The figure identifies four distinct periods of productivity growth. The first is the ten years beginning in 1973, which corresponds to the wellknown productivity slowdown of the 1970s. This was succeeded by a period of modest growth of productivity that continued into the mid-1990s. In the third period, multifactor productivity growth increased again to 1.7% per year.

    The fourth and final period shows a dramatic decline in the rate of growth of multifactor productivity to about 0.5% per year. This period begins somewhere around 2004, in advance of the Great Recession. The Great Recession is associated with a large temporary drop in the level of multifactor productivity, reflecting the fact that both labor and capital were underutilized during the recession.

    In asking the big question, "Where has all the productivity growth gone?" Fabina and Wright lay out a series of other questions that are helpful in understanding all the key variables to productivity:

    It is possible that the current slowdown is a short-term aberration, and that as the advanced economies emerge from this period of economic crisis, fasterproductivity growth will also reemerge. If not, then it is tempting to revisit explanations that were proposed for the 1970s productivity slowdown. Is it perhaps simply a problem of measurement related to the increasing share of the economy devoted to services—in particular, business and financial services— for which it is difficult to measure output (and, hence, productivity)? Or is it perhaps due to a more widespread problem with the measurement of intangible investments (see, e.g., Aizcorbe, Moylan, and Robbins, 2009)? Alternatively, might it be due to the exhaustion of the gains from the information technology revolution? Or to declines in the quality of education and, hence, the quality of the labor force? Or even to declines in government investments in infrastructure? Depending on the answer, slow measured productivity growth may be consistent with continued rising living standards or a period of stagnation in the developed world. 

    Read Where has all the productivity growth gone? here.

  • Building a Culture of Innovation and What It Takes to be First

    Innovation doesn't just happen. Organizations need to first build a culture that supports creative thinking and innovative approaches among it workers/members.  In this instructive video for Big Think, University of Michigan Business School Professor Jeff DeGraff lays out a path toward that culture.  DeGraff focuses on what it takes to create high risk innovation--which he also describes as "breakthrough innovation.":

  • CPI Drops in November

    The Consumer Price Index for All Urban Consumers declined 0.3 percent (seasonally adjusted) in November, with the dropping gasoline prices pulling the overall index down.  The all items index has risen 1.8 percent over the last 12 months (not seasonally adjusted), according to the Bureau of Labor Statistics.  Here's a look at the CPI for All Urban Consumers over the last year:

    Here are some key details from the BLS release:

    The index for all items less food and energy increased 0.1 percent in November after increasing 0.2 percent in October. The shelter index, which rose 0.3 percent in October, increased 0.2 percent in November, with both rent and owners’ equivalent rent rising 0.2 percent. The index for household furnishings and operations rose 0.4 percent, its largest increase since September 2008. The index for airline fares rose 1.4 percent in November, its third consecutive increase. The new vehicles index increased 0.2 percent after declining in September and October. The indexes for medical care and recreation both rose 0.1 percent in November. In contrast to these increases, the index for apparel turned down in November, falling 0.6 percent after rising the two previous months. The index for used cars and trucks also fell in November; its 0.5 percent decline was its fifth consecutive decrease. The indexes for tobacco and personal care were both unchanged in November.

    The index for all items less food and energy has risen 1.9 percent over the last 12 months; this figure matches the average annualized increase over the past ten years. All major components have increased over the past 12 months except for used cars and trucks, which has declined 2.3 percent.

    Read the full release here.