• Stephen Roach: "China doubters in the West have misread the Chinese economy’s vital signs once again"

    Yale economist Stephen Roach wants us to look less at declining GDP in China and to focus more on how the Chinese economy is rebalancing.  "The Chinese economy is at a pivotal point," Roach writes at the World Economic Forum's site.  As more jobs shift to the service sector, the long term prognosis for China's economy is rather strong, Roach says.

    The composition of GDP is probably the worst metric to use in assessing early-stage progress on economic rebalancing. Eventually, of course, GDP composition will provide the acid test of whether China has succeeded. But the key word here is “eventually.” It is far too early to expect significant shifts in the major sources of aggregate demand. For now, it is much more important to examine trends in the potential determinants of Chinese consumption.

    From this perspective, there is good reason for optimism, especially given accelerated growth in China’s services sector – one of the key building blocks of a consumer-led rebalancing. In the first half of 2013, services output (the tertiary sector) expanded by 8.3% year on year – markedly faster than the combined 7.6% growth of manufacturing and construction (the secondary sector).

    Moreover, the gap between growth in services and growth in manufacturing and construction widened over the first two quarters of 2013, following annual gains of 8.1% in both sectors in 2012. These developments – first convergence, and now faster services growth – stand in sharp contrast with earlier trends.

    Indeed, from 1980 to 2011, growth in services output averaged 8.9% per year, fully 2.7 percentage points less than the combined growth of 11.6% in manufacturing and construction over the same period. The recent inversion of this relationship suggests that the structure of Chinese growth is starting to tilt toward services.

    Why are services so important for China’s rebalancing? For starters, services are far more labor-intensive than the country’s traditional growth sectors. In 2011, Chinese services generated 30% more jobs per unit of output than did manufacturing and construction. This means that the Chinese economy can achieve its all-important labor-absorption objectives – employment, urbanization, and poverty reduction – with much slower GDP growth than in the past. In other words, a 7-8% growth trajectory in an increasingly services-led economy can hit the same labor-absorption targets that required 10% growth under China’s previous model.

    That is good news for three reasons. First, services growth is beginning to tap a new source of labor-income generation, the mainstay of consumer demand. Second, greater reliance on services allows China to settle into a lower and more sustainable growth trajectory, tempering the excessive resource- and pollution-intensive activities driven by the hyper-growth of manufacturing and construction. And, third, growth in the embryonic services sector, which currently accounts for just 43% of the country’s GDP, broadens China’s economic base, creating a significant opportunity to reduce income inequality.

    Read Why China's economic rebalancing is good news here

  • Ice Cream, Stocks, and Personal Finance Lessons

    The St. Louis Fed has begun a video series aimed at teaching basic finance to a younger audience.  The latest video in the series covers the trading and issuing of stocks, capital gains, dividends, and price fluctuations of stocks.  And it does so through the story of an ice cream cart owner.  

    (Not: while this is aimed at a younger audience, the series may very well be useful for people of any age looking to increase their economic literacy).  

  • Case Shiller: Home Prices Continue Steady Climb Across the U.S.

    Home prices continued to rise in May, according to the latest Case-Shiller Home Price Indices release.  On an annual basis, prices rose 11.8% for the 10-city composite index and 12.2% for the 20-city composite--the largest increase since March 2006.  Average home prices rose 2.5% and 2.4% for the Case-Shiller 10-city and 20 city composites.  Prices rose in all 20 top metro areas, with Dallas and Denver reaching new all-time highs in home prices.  Here's a look at the long term trend:

    From the release: 

    “Home prices continue to strengthen,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “Two cities set new highs, surpassing their pre-crisis levels and five cities – Atlanta, Chicago, San Diego, San Francisco and Seattle – posted monthly gains of over three percent, also a first time event.

    “The Southwest and the West saw the strongest year-over-year gains as San Francisco home prices rose 24.5% followed by Las Vegas (+23.3%) and Phoenix (+20.6%). New York (+3.3%), Cleveland (+3.4%) and Washington DC (+6.5%) were the weakest. Monthly numbers before seasonal adjustment showed all 20 cities experienced rising prices. San Francisco (+4.3%), Chicago (+3.7%) and Atlanta (+3.4%) were the leaders. However, two cities – Cleveland and Minneapolis were down slightly after seasonal adjustment.

    “The overall report points to some shifts among various markets: Washington DC is no longer the standout leader and the eastern Sunbelt cities, Miami and Tampa, are lagging behind their western counterparts.”

    Read the full release here.  

  • Two Takes on Emerging Market Growth Projections

    Earlier this month, the IMF's Olivier Blanchard expressed concern over increasing risks in emerging markets:

    Stephen Grenville isn't sure where this "wave of gloom" is coming from.  The picture he sees isn't quite so bleak.  From the interpreter:

    Let's spell this out. In terms of growth rates, the emerging economies had their best period in the four years leading up to the 2008 crisis: they grew at an annual rate of around 8%, accounting for just over half of global growth. When growth collapsed in most advanced countries in 2008, the emerging economies slowed but still recorded rapid growth: they averaged 5.5% during 2008-2011. In a limp world, this kept global expansion going: the emerging economies accounted for three quarters of world growth. Since then, they have slowed a touch more, to around 5%. China is growing at 7% rather than 10%-plus and Brazil and India have reverted to their traditional lacklustre performance.

    But in the meantime, the cumulative expansion of these emerging economies means that they have more heft. The emerging countries are two-thirds bigger than they were in 2006: thus 5% growth now adds more to the world economy than 8% did back in 2006.

    So why all the gloom about their prospects? The current IMF forecast puts their growth rate this year and next at around 5%, the same as during the past few years. Perhaps the IMF feels that it is a bit optimistic about China, but provided China's growth stays somewhere near 7% (which is still the predominant market forecast), there is nothing here to justify the gloom.

    As well, the advanced economies could turn out a bit better than current forecasts. While there seems no early prospect of Europe getting its act together, America has done a lot to repair its immediate budget position (at the cost of crimping growth over recent years), opening the possibility of easing the austerity next year if the political bickering could be overcome. Winding back unemployment in the two countries with room to ease austerity (the US and the UK) would, in itself, deliver a substantial growth spurt. Sentiment in Japan is much improved, even if Abenomics has been more talk than substance so far.

    Thanks to the sustained performance of the emerging economies, the IMF's forecast for global growth during this year and next is around the same pace as was achieved in the first half of the 2000s, which in turn was a bit faster than growth in the previous decade. Why, then, all the breast-beating about emerging economies? The policy message here is to spend less time fretting about the emerging economies and focus instead on sorting out the pathetic economic performance in most of the advanced world.

    Read Emerging economies: Why so gloomy? here

  • A Startup Story About Vodka, a Methodical Approach, and Unexpected Success

    Tito Beveridge's success gives weight to the argument that building a business has as more to do with process than it does with vision, or at least intent.  As he says in this BigThink video, Beveridge started Tito's Handmade Vodka to "meet girls, write off my bar tab, and maybe make like $1,200 a month." He ended up doing that and more.  And his approach--work, test, improve, work, test, improve--was one that we imagine is a big part of the story for many successful startups.

  • The Case for Economic History

    At Vox, Kevin O'Rourke makes a stand for teaching economic history.  Even the big employers in finance now understand the need for analysts of the present to have basic comprehension of how we (or at least the current financial system) all got here.  O'Rourke outline six "benefits of trying to understand economic history."  Here are the first three: 

    • Knowledge of economic and financial history is crucial in thinking about the economy in several ways.

    Most obviously, it forces students to recognise that major discontinuities in economic performance and economic policy regimes have occurred many times in the past, and may therefore occur again in the future. These discontinuities have often coincided with economic and financial crises, which therefore cannot be assumed away as theoretically impossible. A historical training would immunise students from the complacency that characterised the “Great Moderation”. Zoom out, and that swan may not seem so black after all.

    • A second, related point is that economic history teaches students the importance of context.

    As Robert Solow points out, “the proper choice of a model depends on the institutional context” (Solow 1985, p. 329), and this is also true of the proper choice of policies. Furthermore, the 'right' institution may itself depend on context. History is replete with examples of institutions which developed to solve the problems of one era, but which later became problems in their own right.

    • Third, economic history is an unapologetically empirical field, exclusively dedicated to understanding the real world.

    Doing economic history forces students to add to the technical rigor of their programs an extra dimension of rigor: asking whether their explanations for historical events actually fit the facts or not. Which emphatically does not mean cherry-picking selected facts that fit your thesis and ignoring all the ones that don't: the world is a complicated place, and economists should be trained to recognise this. An exposure to economic history leads to an empirical frame of mind, and a willingness to admit that one’s particular theoretical framework may not always work in explaining the real world. These are essential mental habits for young economists wishing to apply their skills in the work environment, and, one hopes, in academia as well.

    Read Why economics needs economic history here

    (Hat tip Mark Thoma)

  • McKinsey: Five "Game Changers" to Speed up Growth

    The recovery remains too slow for a lot of us.  But what will it take for the rate of growth to speed up? McKinsey analysts have some ideas.  In a new report, they put forward five "game changers" that could "deliver a substantial boost to GDP by 2020."  Here's a short animated video outlining the challenges and opportunities:

    Download the full report here

  • Calculated Risk: Breaking Down New Home Sales Data

    The Census Bureau released the new home sales numbers yesterday (spoiler alert: they were up), and Bill McBride uses the news to give us a little lesson on how to read the data.  From Calculated Risk:

    When we look at sales for existing homes, the focus should be on the composition between conventional and distressed, not total sales. So, for those who follow housing closely, the existing home sales report on Monday was solid even though sales were down.

    However, for the new home sales report, the key number IS sales! An increase in sales adds to both GDP and employment (completed inventory is at record lows, so any increase in sales will translate to more single family starts). So sales in June at 497 thousand SAAR were very solid (the highest sales rate since May 2008).  The housing recovery is ongoing.

    Looking at the first half of 2013, there has been a significant increase in sales this year.  The Census Bureau reported that there were 244 new homes sold in the first half of 2013, up 28.4% from the 190 thousand sold during the same period in 2012. This was the highest sales for the first half of the year since 2008.

    And even though there has been a large increase in the sales rate, sales are just above the lows for previous recessions. This suggests significant upside over the next few years.  Based on estimates of household formation and demographics, I expect sales to increase to 750 to 800 thousand over the next several years - substantially higher than the current sales rate.

    And an important point worth repeating every month: Housing is historically the best leading indicator for the economy, and this is one of the reasons I think The future's so bright, I gotta wear shades.

    Read the full post here

  • Economic Indicator: Campers

    Kai Ryssdal and the Marketplace team are always looking for new economic indicators.  The latest: campers.  If we see more of them on the road this summer, we should think less about the cost to our visibility, and more about why people are buying them. 

    In this segment, Ryssdal shares the positive recovery story of a camper manufacturer in California, and suggests that their revived sales are a sign of a revived economy:

  • OECD Employment Outlook, 2013

    "Persistently high unemployment is threatening to leave a permanent scar in our societies," says OECD Sectetary General Angel Gurria.  In a speech supporting the release of the OECD's 2013 Employment Outlook, Gurria called on policymakers to tackle the jobs problem (there aren't enough) across developed economies--and to pay particular attention to youth unemployment and long-term unemployment.  We've posted helpful slides from the report below, but first here is a key excerpt from Gurria's speech:

    Our report reviews approaches adopted by seven different countries to combine adequate income support for the unemployed with effective re‑employment services. These countries also introduced a range of mutual obligations to help and encourage the jobless to find employment. Let me share with you some of the lessons learnt.

    First, institutional arrangements matter. Employment outcomes and services for clients can be improved by merging public employment services and benefit agencies to create a “one-stop shop”. Greater coordination between different levels of government can also make a real difference.

    Second, the effectiveness of employment services can be improved through more robust performance management. For example, Australia and Switzerland rate the performance of local employment offices after adjusting for differences in client profiles and local labour market conditions.

    Third, sufficient resources for cost-effective labour market activation policies should be available. Resources per unemployed jobseeker have declined by almost 18% since the start of the crisis through 2011. This raises concerns about the ability to prevent structural unemployment from gaining root.

    Putting effective activation strategies into place is not only important to deal with the crisis-induced rise in unemployment but also for coping with on-going structural change. In good or bad times every year, between 2 to 7% of all OECD workers are forced to leave their jobs for involuntary reasons. Providing effective job search assistance and necessary skills upgrading is vital to prevent discouragement and early withdrawal from the labour market, especially for older workers who lose their jobs.

    In emerging-markets and many developing countries, the major challenge in promoting an effective labour market activation strategy is to broaden the coverage and the scope of social protection. It is important to protect the most vulnerable social groups and allow them to invest in the human capital of their children and participate in productive activities.

    Read the report here.

  • Lessons for China's Policymakers in Detroit's Economic Decline

    The bankruptcy of Detroit has Sanjeev Sanyal looking east, far east, to China and India.  Sanyal, Global Strategist for Deutsche Bank, points to Detroit as a prime example of a city built largely around one sector.  The good news for Western economies is that the urban revival of the last few decades has been driven by cities where innovators across sectors are coming together.  The same can not be said for the rapid urban growth elsewhere.  From Project Syndicate:

    Until the nineteenth century, innovation was carried out mostly by generalists and tinkerers, which meant that the accumulation of new knowledge was slow, but that its diffusion across different fields was rapid. In the twentieth century, knowledge creation became the job of specialists, which accelerated knowledge creation but retarded inter-disciplinary application.

    But recent studies have shown that this source of innovation is rapidly decelerating (the productivity of an American research worker may now be less than 15% of a similar researcher in 1950). Instead, innovation is increasingly based on mixing and matching knowledge from different specializations. Certain cities are ideally suited for this, because they concentrate different kinds of human capital and encourage random interactions between people with different knowledge and skills.

    The problem with this post-industrial urban model is that it strongly favors generalist cities that can cluster different kinds of soft and hard amenities and human capital. Indeed, the growth dynamic can be so strong for some successful cities that they can hollow out smaller rivals (for example, London vis-à-vis the cities of northern England).

    Some specialist cities could also do well in this world. But, as Detroit, with its long dependence on the automotive industry, demonstrates, cities that are dependent on a single industry or on a temporary location advantage may fare extremely poorly.

    All of this has important implications for emerging economies. As it transformed itself into the “factory of the world,” the share of China’s urban population jumped from 26.4% in 1990 to around 53% today. The big, cosmopolitan cities of Beijing and Shanghai have grown dramatically, but the bulk of the urban migration has been to cookie-cutter small and medium-size industrial towns that have mushroomed over the last decade. By clustering industrial infrastructure and using the hukou system of city-specific residency permits, the authorities have been able to control the process surprisingly well.

    This process of urban growth, however, is about to unravel. As China shifts its economic model away from heavy infrastructure investment and bulk manufacturing, many of these small industrial cities will lose their core industry. This will happen at a time when the country’s skewed demographics causes the workforce to shrink and the flow of migration from rural areas to cities to slow (the rural population now disproportionately comprises the elderly).

    Read The Detroit Syndrome here.

  • Frontier Asia as the Engine for Future Regional Growth

    Are we spending too much time watching the shifts in China's GDP?  We don't think so.  But the IMF seems to want us to expand our view of Asia, and has put out an interesting video on Frontier Asia.  The argument is that future growth for the region will come from emerging Asian economies like Cambodia, Bangladesh, Sri Lanka, and Bhutan (among others).  Take a look:

  • Unemployment, Race, and Commuting Times in France

    We know that unemployment for black Americans is much higher than for white Americans.  The same is true in France, though the gap is a bit smaller.  There are, of course, many reasons for the gap.  Some French and American economists have been looking into one factor: commute times.  At Vox, Laurent Gobillon, Peter Rupert, and Etienne Wasmer make the "spatial" argument over unemployment differences:

    The persistence of ethnic unemployment-rate gaps is a major policy concern, first in terms of equality of opportunities and second in terms of economic efficiency, since considerable resources are wasted for the economy if large groups cannot easily access to jobs. However, the causes of the gaps are still debated. In particular, it is not yet known whether it is ‘race’ or ‘space’ that is the key explanatory factor of the poor labour-market outcomes of many minorities (see Ellwood 1986). The spatial mismatch literature, initiated by Kain (1968), has indeed attempted to determine whether minority workers have worse access to the labour market or whether they face barriers in housing choice, making it difficult to locate close to job opportunities.

    A clue may come from the observation of commute-time data by groups of workers. The data indicate that the Minority faces longer commute times to work, potentially reflecting a more difficult access to jobs. Table 1 shows that, in France, the difference between median commute times as a fraction of daily working time is 17 % (and 24% for the mean commute time).

    In the US, differences in commute time between black and white workers are similar to those in France. In addition, France and the US differ regarding job-related geographical mobility rates: they are higher for minority workers than for majority workers in France, and quite similar for white people and black people in the US.

    Since several factors affect the equilibrium rate of unemployment of a given group, including not only productivity and job acceptance decisions but also geographical features such as geographical mobility, access to residential locations with good access to jobs and finally the ability to commute, it is hard to assess the respective role of each factor in the determination of ethnic unemployment rates. Unfortunately, it is difficult to find an appropriate natural experiment to properly decompose the respective role of each market (housing and labour market).

    Read the full article here.

  • Impact of Tax Expenditures on Intergenerational Mobility

    Harvard University economists Raj Chetty and Nathaniel Hendren, and the University of California Berkeley's Patrick Kline and Emmanuel Saez have been looking into economic mobility in the US. Focusing on metro areas, they came up with some interesting findings, and put them into this map:

    From the authors:

    We constructed measures of relative and absolute mobility for 741 “commuting zones” (CZ’s) in the United States. Commuting zones, constructed by Tolbert and Sizer (1996) based on Census data, are geographical aggregations of counties based on commuting patterns that are similar to metro areas but also cover rural areas. Children are assigned to the CZ based on their location at age 16 (no matter where they live today), so that the location is matched as close as possible to the notion of “where the child grew up”. When analyzing local area variation, we continue to rank both children and parents based on their positions in the national income distribution. Hence, our statistics measure how well children do relative to those in the nation as a whole rather than those in their own particular community.

    We find substantial variation in mobility across areas. Our measures of mobility are not significantly affected by accounting for differences in cost-of-living. We also accounted for differences in racial characteristics across areas and found very similar spatial differences after controlling for race. We do find higher rates of upward income mobility in areas with high rates of economic growth over the past decade, but the vast majority of the difference in mobility across areas is unrelated to economic growth. Hence, we believe our statistics provide a reasonably accurate picture of prospects for upward mobility across areas for children raised in the 1980’s and 1990’s.

    Read more about their work here.

    (Hat tip: Matthew Yglesias, Slate)

  • We Already Have a Flat Tax in Place, It is Called Cable TV Pricing

    The Atlantic's Derek Thompson has an interesting post about how sports, and live sports events in particular, are keeping television alive.  But the part that strikes us as most interesting is Thompson's astute analysis of the cable tv pricing system as a non-mandatory flat tax. 

    You can think of TV as "I pay for what I want, plus a sport tax," or " ... plus an AMC tax," or "... plus a History Channel tax." But when you line up 100 million pay-TV households, a bigger picture emerges. We are all paying each other's TV taxes.

    The cable bundle is perhaps the closest thing to a non-mandatory flat tax in America. The idea is that if 100+ million households all pay $70ish a month for television, the breadth of the customer base will support a diverse and thriving entertainment business without asking any group to pay too much for what they want. Readers -- and, more certainly, network executives -- might bristle at the idea of TV being compared to taxes. But what is the government if not the biggest of bundles? Every year, 150+ million tax-paying families across the country pay into a common system with each household consuming varying amounts of different goods and services (interstates around D.C., defense spending in San Antonio, NIH in Bethesda). The point isn't that everybody in America consumes every good and service provided by the federal government. The point is that public financing makes a diverse and quality array of goods and services possible for those who want and need them.

    The subscription fees in your bundle are, in a way, like a national entertainment treasury divided between a handful of media companies. One hundred million subscribing households pay a collective $7 billion a month into the entertainment super-coffers, with each family consuming varying amounts of different programming, all of it made affordable by scale. The TV business is so rich in part because its popularity allows it to achieve the scale of something like public financing.

    I don't know if this is an entirely good thing, or an entirely unchangeable thing. But it is the thing that's created the current golden age of TV.

    Read Sports Could Save the TV Business—or Destroy It here.

  • Impact of China's Rules Changes on Lending Rates

    China made some significant reforms to its financial system at the end of last week.  The biggest change was eliminating a lower limit on interest rates.  Banks in China now have more leeway to set their own lending rates.  The Wall Street Journal's Michael Casey says that the move should make banks more competitive, even though most lending rates have been above the state-set floor already.  But, he adds, there is a lot of additional liberalization of the financial system that can still be done. 

    Casey discusses the potential impact of liberalizing China banking on the global market in this Moneybeat interview with Paul Vigna.

  • Gallup Survey: College Graduates Are the Least Engaged Workers in the US

    While there are some doubts creeping in about how much debt one should take on in the pursuit of higher education, a college degree is still a good investment.  Get a degree, your wages are likely to be significantly higher than if you don't have one.  But be warned: you may end up a less engaged worker.  That's an interesting--and surprising, to us at least--result of a recent Gallup workplace survey.

    An increasingly educated workforce is expected to bring many benefits to the U.S. economy, but it appears that just having a college education isn't necessarily enough to feel engaged on the job. As workplace engagement is itself a key to economic growth, a workforce with so many highly educated workers who are either not engaged or actively disengaged is bad for the U.S. economy.

    Figuring out why college-educated Americans are less engaged is important to improving the economy, but also the educational system. Ensuring colleges are preparing students to get jobs in which they will feel engaged is just as crucial as urging employers to create engaging workplaces.

    Half of recent graduates are in jobs that don't require a degree, according to a 2012 Gallup/Lumina Foundation poll. This is likely a contributing factor to lower engagement. Building a better pipeline between colleges and workplaces in the U.S. is key. And, even though college-educated Americans may struggle more to find an engaging job, a degree may allow them to avoid becoming "trapped" in a bad job by providing more employment options. Thus, employers and managers should take note and assess the engagement status of their college-educated workers to see if there are ways to improve the work environment and increase the engagement of these highly educated employees.

    Read the full release here.

  • Justin Fox Calls for a Greater Focus on How Wages Are Set

    At the Harvard Business Review Blog, Justin Fox argues "it's becoming clear that pay levels aren't set by the market."  Or at least not entirely.  And the impact of some of the "customs" of lower pay may be having a negative economic effect.  Fox:

    For decades, most discussions of pay levels and income disparity in the U.S. have been accompanied by a pronounced economic fatalism. Pay is set by the market and the labor market has gone global, the reasoning goes — and when a Chinese or Mexican worker can do what an American can for less, wages have to go down. In explaining what's happened to autoworkers, say, that story makes some sense (although it doesn't explain why German autoworkers have for the most part kept their high pay and their jobs while Americans haven't).

    But McDonald's burger-flippers and Walmart checkout clerks can't be replaced by overseas workers. Instead, both companies were able to build low pay into their business models from the beginning — McDonald's because so much of its workforce was made up of living-at-home teenagers who did not in fact have to pay for heat, Walmart because of its roots in small Southern towns where wages were low and "living wage" laws unheard of. Now McDonald's is increasingly staffed by grownups (teens have gone from from 45% of its workforce in the 1990s to 33% recently), while Walmart is trying to conquer the big cities of the North. Both companies have been understandably loath to depart from their low-pay traditions, so conflict and criticism are pretty much inevitable. Which is an extremely healthy development.

    That's because it's becoming clear that pay levels aren't entirely set by the market. They are also affected by custom, by the balance of power between workers and employers, and by government regulation. Early economists understood that wage setting was "fundamentally a social decision," Jonathan Schlefer wrote on HBR.org last year, but their 20th century successors became fixated on the idea of a "natural law" that kept pay in line with productivity. And this idea that wages are set by inexorable economic forces came to dominate popular discourse as well.

    Since 1980, though, overall pay and productivity trends have sharply diverged in the U.S.. And since the 1990s, research on the impact of minimum wage laws has demonstrated that there clearly is some distance between the textbook versions of how wages are set and how it happens in reality. It's not that minimum wage laws work miracles, but they also don't have nearly the downward effect on employment levels that a pure supply-demand model would predict. Not to mention that decades of research at the organizational and individual level have shown the link between pay and on-the-job performance to be extremely tenuous.

    Read The Case for Paying People More here.

  • Connectivity and the Future of African Economies

    Juliana Rotich says "Africa is transcending its geography problem."  Thanks to relatively new undersea fiber-optic cables (some of which are still being set up), some parts of the continent are connected to the world like never before.  This map from Many Possibilities illustrates what Rotich is noting:

    Rotich is co-founder of Ushahidi, an open-source software and web-based reporting system based in Kenya.  In order to get the software to as many people in Africa as possible, Rotich found she had to work on extending connectivity.  In this TedTalk, Rotich discussed the push to make sure that African communities and businesses were not left behind in the digital revolution:

  • Kauffman Foundation: "Growing Challenges for Female Entrepreneurs"

    The more women rise to top executive positions, the better it is for U.S. business, as Kauffman Foundation vice president Lesa Mitchell noted at Media Planet:

    New firms are able to scale if they have access to strategic customers or partners, allowing them to grow their firms without outside funding. If that isn’t possible due to the type of firm (capital requirements drive much of this), then firms receive a monetary boost from family and friends, angel funders or venture capital. Because it is extremely difficult to collect data on the former (firms that scale without outside funding) but possible to collect it on the latter (firms that scale with funding), I will use the following as a proxy of measurement: Between 1997 and 2000, women-led businesses received only 6 percent of the $18.5 billion in venture capital invested during that period. But, the Dow Jones report found that companies have a greater chance of going public, operating profitably or being sold for more money than they’ve raised when they have females acting as founders, board members, C-level officers, vice presidents and/or directors. At successful companies, the median proportion of female executives was 7.1 percent; at unsuccessful companies, 3.1 percent. This is what one writer called “the woman effect” in a recent Forbes article about the financial success of women-led firms that was aptly titled, “The Mysterious Success of Female-led Firms.”

    Mitchell's points hit home in a helpful infographic from the Kauffman digital team. 

    See the full size graphic here.

  • Simon Johnson: Huge Profits, Huge Risks for Big Banks

    U.S. banks, especially the big names, are bringing in big profits these days.  But every time we read a story like this one, or this one, Simon Johnson wants us to keep thinking about the risks attached to the banks we have placed in the too-big-to-fail category.  At the Economix blog, Johnson argues that the bigger profits point to continue vulnerability, and a "major political problem for the big banks," as they continue to argue against tightened regulation.

    Charles Prince, the former chief executive of Citigroup, famously remarked, “But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.” This was in July 2007 when, really, the music had already stopped (the subject of a commentary from Yves Smith at nakedcapitalism.com at the time).

    The banks are lifted now by the (partial) economic recovery. But what happens when the economy weakens in the United States or somewhere else in the world? What happens also when money is lost on securities trading or on loans to emerging markets or on complex derivatives that no one in management fully understands? More highly leveraged businesses go up faster and come down further.

    At the same time, a deeper political shift is under way, with a big step toward bipartisan agreement that structural change is needed in our largest banks. Specifically, Senator John McCain has joined forces with Senators Elizabeth Warren, Maria Cantwell and Angus King to push for a 21st century Glass-Steagall Act.

    Speaking with Yahoo Finance this week, Senator King, an independent from Maine, made a common-sense and compelling case that the United States needs to limit reckless gambling using insured deposits – and the only way to do this is with structural change, separating out boring banking from high-risk trading activities (see also this interview with Elizabeth Warren on CNBC).

    Thomas Hoenig, vice chairman of the F.D.I.C., also explains clearly that breaking up the banks along functional lines would be helpful – we should aim to separate relatively risky “broker-dealer activities from the federal safety net.”

    Read High Profits Signal Danger for Big Banks here.

  • World Economic Forum: Immigrant Inventors

    Let's block out the political discourse (if you can call it that) on immigration for a moment.  The World Economic Forum has posted an interesting article on the migration of inventors.  The U.S. is by far the preferred location for "immigrant inventors," as Carsten Fink calls them. 

    Fink writes:

    Immigrant inventors account for 18% of all inventors residing in the US. Several small European countries see even higher immigration rates –notably, Belgium (19%), Ireland (20%), Luxembourg (35%), and Switzerland (38%). Among the larger European countries, the UK (12%) shows a relatively high share of immigrant inventors. By comparison, foreign nationals only account for 3% to 6% of all inventors in Germany, France, Italy and Spain. Japan is the only high-income economy with an inventor immigration rate of less than 2%.

    Inventor migration is a concentrated phenomenon. The 30 most important bilateral migration corridors account for less than 0.08% of all corridors in our dataset; yet, they account for close to 60% of overall inventor migration. Among the 30 top corridors, the US is the most frequently listed destination. Most origin countries are other high-income countries, although the top two corridors – China-US and India-US – have middle-income country origins.

    Looking specifically at south-north migration, the lead position of the US is even more pronounced: close to 75% of migrant inventors from low- and middle-income countries reside in the US. China and India clearly stand out as the two largest middle-income origins, followed by Russia, Turkey, Iran, Romania, and Mexico (Figure 2).

    Fink goes on to explore some of the reasons inventors choose to migrate.  Read the full article here.

  • The Stickiness of Wages

    In a new Economic Letter, San Francisco Fed economists Mary Daly, Bart Hobjin, and Timothy Ni take a look at wage rigidity.  In what may seem counter-intuitive, wage growth did not slow much during the Great Recession, even as unemployment climbed rapidly.  And now wages are not rising much during the economic recovery and dropping unemployment.  Apparently, this has happened in other recent recessions, though the extent to which wages have been slow to respond to overall economic change seems greater. 

    Figure 1 clearly shows downward nominal wage rigidity in the distribution of wage changes among U.S. workers in 2006 and 2011. The data cover all workers and measure how their wages compared with their previous year’s wages, if they were employed. We use 2006 as an example of a typical wage change distribution and compare those numbers with the post-recession wage changes for 2011.

    The distribution of wage changes in 2006 and 2011 both spike at zero, suggesting that the wages of many workers did not change from year to year. In both years, the distribution is larger to the right of zero, that is, for wage increases, than to the left of zero, for wage cuts. Consistent with downward nominal rigidity, this suggests that a large fraction of wage cuts employers wanted to carry out were not actually made. Instead, those workers were swept into the zero-change group.

    What is more interesting in this figure is how 2006 and 2011 data differ. First, the fraction of workers whose wages were frozen jumped from 12% of the workforce in 2006 to 16% in 2011. Second, despite the severity of the Great Recession, very few workers experienced wage cuts. These numbers edged up only slightly from 2006 to 2011. Finally, and perhaps most interestingly, the percentage of workers who received wage increases dropped notably in 2011 compared with 2006. This compression of wage increases resulted in a larger spike at zero.

    Read The Path of Wage Growth and Unemployment here.

  • Key Factors Behind 'Reshoring Phenomenon'

    We are hearing more and more talk of reshoring--multinational companies moving jobs closer to home.  Knowledge@Wharton's Mukul Pandya spoke with Morris Cohen--professor of manufacturing and logistics at Wharton--and Scott Staples--President of Americas at Mindtree--about the key factors driving "the reshoring phenomenon."  Cohen outlined four important drivers: Costs, risks, technology, and innovation.  Staples points to another big driver: "talent availability."

  • Eichengreen: Important Lessons For China, US Central Banks

    On June 19, as Federal Reserve chair Ben Bernanke was unsettling investors by announcing that the Fed might ease its quantitative easing program, China's Central Bank set off a similar reaction by deciding not to halt rising interest rates.  At Project Syndicate, Barry Eichengreen shares what he sees as the lessons from that day

    First, the June 19 episode reminds us that central banks’ communications strategies remain works in progress. The Fed has repeatedly sought to explain its policies better. But, if a few relatively anodyne words can spark such a powerful reaction, then investors evidently remain uncertain, if not confused, about the Fed’s intentions.

    The PBOC performed even worse, having done nothing to prepare the markets for its new anti-speculation strategy. The Chinese authorities are seeking to develop the renminbi into a first-class international currency. But China’s June 19 episode is a reminder that the PBOC in particular and Chinese policy-making institutions in general have a long way to go before they succeed in instilling the necessary confidence in both the renminbi and themselves.

    A second lesson is that central banks are wise not to overreact to the latest bit of news. The Fed’s statements suggesting an end to quantitative easing appear to have been grounded in very recent evidence that the economy was improving. Now that the markets have reacted adversely, some investors have begun to worry that, as a result, the economy is doing worse. The Fed should wait for more – much more – data to come in before adjusting either its policy or its rhetoric.

    The PBOC, similarly, seems to have overreacted to data indicating a bank credit boom. In fact, some of this supposed evidence was misleading, because it reflected nothing more than a change in regulatory standards that had brought hidden loans to the surface. The PBOC would have been wise to wait for more data, so that it could distinguish the trend from the accounting glitch.

    A final lesson is that monetary policy is a blunt instrument for addressing asset-market problems. In the absence of inflation, it was mainly warnings about new asset bubbles that pressured the Fed to curtail its purchases of long-term securities. Similarly, worries about property prices drove the PBOC’s abrupt change of course.

    Bubbles should be a concern, but the June 19 episode in the US and China reminds us that addressing them is first and foremost the responsibility of regulators. Central bankers cannot afford to ignore them, but they should be wary of reacting too soon. In the meantime, they have bigger fish to fry.

    Read A Tale of Two Tapers here.