• Fourth Quarter GDP Growth Revised Down

    Real Gross Domestic Product expanded at an annual rate of 2.4% in the fourth quarter of 2013, according to the latest (second) estimate from the Commerce Department.  Growth was revised downward from the advanced estimate, that reported 3.2% growth in real GDP. 

    The Bureau of Economic Analysis reports these four areas were revised down from the last report:

    •Consumer spending on both goods and services; the revisions were widespread.

    •Inventory investment, led by wholesale trade industries.

    •Exports, mainly nonautomotive capital goods and consumer goods.

    •State and local government spending, mainly investment in structures.

    Here is an updated look at the trend:

    Read the BEA release here.

  • 'What Makes a Great Leader in the 21st Century'

    Want to be a great leader in today's digitally-driven, global business world?  Ask yourself these three questions:

    Where are you looking to anticipate the next change to your business model or your life?

    hat is the diversity measure of your personal and professional stakeholder network?

    Are you courageous enough to abandon a practice that has made you successful in the past?

    Boston Consulting Group's Roselinde Torres studies leadership, and those are three questions she poses in this Ted Talk.  They are part of what she calls "preparation practice" for leaders of forward thinking organizations. 

  • McKinsey Quarterly: Disciplines for Leaner Management

    In the 21st century's smaller, faster, more efficient business climate, organizations have been able to increase revenue share by paring down their operations, thanks to advancing technologies.  McKinsey's David Jacquemot argues that smart companies can also reap rewards by paring down management.  In the McKinsey Quarterly, Jacquemot shares four "integrated disciplines" for leaner management:

    •Delivering value efficiently to the customer. The organization must start by understanding what customers truly value—and where, when, how, and why as well. It must then configure how it works so that it can deliver exactly that value, no more and no less, with the fewest resources possible, improving coordination, eliminating redundancy, and building quality into every process. The cycle of listening and responding never ends, as the customer’s evolving needs reveal new opportunities to attack waste, create new worth, and build competitive advantage.

    •Enabling people to lead and contribute to their fullest potential. The organizations that get the most from their people provide them with support mechanisms so that they can truly master their work, whether at the front line or in the boardroom. Revamped physical space fosters collaboration, visual-management techniques let everyone see what needs to be done, targeted coaching builds capabilities, and simple “job aids” reinforce standards. These and other changes enable employees to own their own development, without leaving them to figure it out by themselves.

    •Discovering better ways of working. As customers, competitors, and the broader economic and social context change, the whole enterprise must continually think about how today’s ways of working and managing could improve. To guide the inquiry, people will need a clear sense of what “better” means—the ideal that the organization is reaching toward—as well as an unvarnished view of current conditions and the ability to work with others to close gaps without fear of reprisal. Problem identification and resolution must become a part of everyone’s job description, supported by structures to ensure that problems flow to the people best able to solve them.

    •Connecting strategy, goals, and meaningful purpose. Organizations that endure operate from a clear direction—a vision of what the organization is for, which in turn shapes their strategy and objectives in ways that give meaning to daily work. At every level, starting with the CEO, leaders articulate the strategy and objectives in ways that their people can understand and support. The final step aligns individual goals to the strategy and vision, with the result that people fully understand their role in the organization and why it matters.

    Read the full article here.

  • Keith Ferrazzi: 'Relationships Power Growth' in Today's Global Economy

    Some people may define success as being able to get what you want.  But in order to get that, Keith Ferrazzi says, you need to focus on "what's in it" for them--your customers and colleagues.  Because success in today's global economy is all about building relationships.

    Keith Ferrazzi describes his company as a "research institute on relational and collaborative sciences."  In this interview with Knowledge@Wharton's Adam Grant, Ferrazzi shares some of his findings into the how and why of relationship building.  Spoiler alert: turns out it is more important for leaders to project authenticity and vulnerability than charm and power.

  • The Rise and Fall of Orange Juice

    At Quartz, Roberto Ferdman has a nice abbreviated history of orange juice.  It is not so much a food history or even a fruit history, but is, rather, an interesting economic short story with lessons in commodities trading, scarcity, and consumer behavior. Ferdman was prompted to rite about orange juice by some startling data.  Orange juice consumption (per capita) has dropped 40% in the last decade.  It is a "big deal," says Ferdman.

    After World War II, a group of scientists changed the American orange juice landscape forever. Determined to find a more palatable intersection between preservation and flavor, these scientists developed a new process roughly based on the one they saw used to dehydrate food during the war effort. Instead of boiling the juice, they heated it lightly until water evaporated. Then, they’d add a touch of fresh orange, which gave the concoction a “fresh” taste. Orange juice “from concentrate” was born. As was the industry’s marketing push.

    The product was a hit. Per capita orange juice consumption jumped from under eight pounds per person in 1950, to over 20 pounds per person in 1960. Florida’s production of concentrated juice leapt from 226,000 gallons in 1946 to more than 116 million in 1962, according to a report by agricultural economist Robert A. Morris. By 1970, 90% of Florida’s oranges were being used to make orange juice and the vast majority of that was from concentrate.

    The increased popularity of flash-pasteurized, ready-to-drink juice advertised as “not-from-concentrate” helped drive consumption still higher in the 1980s and 1990s.

    But as you can see, things started to roll over in the late 1990s. Since 1998, US orange production and orange juice sales have fallen virtually every year. That decline comes despite strong population growth in the US, which means the average American consumes far fewer oranges today than she did in 2000.

    Why? Read How America fell out of love with orange juice here.

  • Case Shiller: Home Prices Lose Momentum in December But 2013 Best Year Since 2005

    After a steady rise through the fall, home prices were flat in December, according to the latest Case-Shiller Home Price Indices release. For the month, average home prices dropped 0.1% for the Case-Shiller 20-city composite and were unchanged for the 10-city composite.  The year-over-year data is much more promising, as prices were up 13.6% for the 10-city composite and 13.4% for the 20-city composite.  Here's a look at the long term trend:

    Overall, it was a strong year.  From the release:

    “The S&P/Case-Shiller Home Price Index ended its best year since 2005,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “However, gains are slowing from month-to-month and the strongest part of the recovery in home values may be over. Year-over-year values for the two monthly Composites weakened and the quarterly National Index barely improved. The seasonally adjusted data also exhibit some softness and loss of momentum.

    After 26 months of consecutive gains, Phoenix posted -0.3% for the month of December, its largest decline since March 2011. Phoenix once led the recovery from the bottom in 2012, but Las Vegas, Los Angeles and San Francisco were the top three performing cities of 2013 with gains of over 20%. The Sun Belt, with the exception of Dallas, Miami and Tampa, saw lower annual rates in December when compared to their November numbers. The six cities with the highest year-over-year figures saw their rates decline (Las Vegas, San Francisco, Los Angeles, Atlanta, San Diego and Detroit) and most cities ranked at the bottom improved (Denver, Washington and New York) – Charlotte and Cleveland were the two exceptions.

    “Recent economic reports suggest a bleaker picture for housing. Existing home sales fell 5.1% in January from December to the slowest pace in over a year. Permits for new residential construction and housing starts were both down and below expectations. Some of the weakness reflects the cold weather in much of the country. However, higher home prices and mortgage rates are taking a toll on affordability. Mortgage default rates, as shown by the S&P/Experian Consumer Credit Default Index, are back to their pre-crisis levels but bank lending standards remain strict.”

    Read the full release here.

  • Ian Goldin on 'Balancing Individual Needs and Global Responsibilities'

    In a recent talk for the World Economic Forum, Ian Goldin, Professor of Globalisation and Development and Director of the Oxford Martin School at the University of Oxford, gave a best-of-times-worst-of-times assessment of globalisation today.  Goldin noted that there has never been a better time to be alive.  There are more paths out of poverty than ever before, and the quality of life standards are rising all over the world.  But there are some dangerous traps with today's global economy.  "What's rational for individuals becomes less and less rational for the collective," notes Goldin.  And that presents significant challenges:

  • James Hamilton Explains the Value of Logs

    Good economists love logs.  Or, to be precise, they love natural logarithms.  At Econbrowser, James Hamilton uses a series of equations and graphs to explain why.  Here's an excerpt:

    Using logs, or summarizing changes in terms of continuous compounding, has a number of advantages over looking at simple percent changes. For example, if your portfolio goes up by 50% (say from $100 to $150) and then declines by 50% (say from $150 to $75), you’re not back where you started. If you calculate your average percentage return (in this case, 0%), that’s not a particularly useful summary of the fact that you actually ended up 25% below where you started. By contrast, if your portfolio goes up in logarithmic terms by 0.5, and then falls in logarithmic terms by 0.5, you are exactly back where you started. The average log return on your portfolio is exactly the same number as the change in log price between the time you bought it and the time you sold it, divided by the number of years that you held it.

    Logarithms are often a much more useful way to look at economic data. For example, here is a graph of an overall U.S. stock price index going back to 1871. Plotted on this scale, one can see nothing in the first century, whereas the most recent decade appears insanely volatile.

    On the other hand, if you plot these same data on a log scale, a vertical move of 0.01 corresponds to a 1% change at any point in the figure. Plotted this way, it’s clear that, in percentage terms, the recent volatility of stock prices is actually modest relative to what happened in the Great Depression in the 1930′s.

    Read the full post here.

  • Marketplace Whiteboard: Compounding

    Paddy Hirsch recently reminded us that you need money to make money.  Or, to put it another way, borrowing is one important way to generate wealth.  In his next Marketplace Whiteboard lesson, he goes back to the basics on generating wealth by explaining compounding.  Take a look:

  • Bank of America Chief Economist on Deflation Concerns

    With annual rates of inflation hovering near just 1% in the U.S., Europe, and Japan, the concern about deflation and its effect on the global market is up.  Bank of America Chief Economist Mickey Levy sees the three cases as somewhat different, and warns us not to treat them as part of a clear global trend.  More importantly, he argues that we should be careful to distinguish between "bad deflation" and "healthy price declines."  Here is an excerpt from his op-ed at Vox:

    Deflation stemming from insufficient demand and growth-constraining economic policies can drain confidence and become negatively reinforcing, as Japan has shown. In such situations, aggressive macroeconomic policy stimulus designed to jar expectations and boost demand is appropriate. Europe’s downward price and wage pressures are necessary adjustments to its earlier excesses, and relying excessively on aggressive monetary policy to stimulate demand is not a lasting economic remedy. Europe is not destined to fall into a Japanese-style prolonged malaise, but it must continue to pursue reforms that lift productive capacity and confidence.

    The US situation is very different. The economic expansion is gaining momentum (temporarily sidetracked by unseasonal winter storms), unemployment is falling steadily, personal income is growing faster than inflation, and household net worth is at an all-time high. Expectations of deflation are not apparent in either household or business behaviour. Concerns about lingering labour-market underperformance are warranted; angst about deflation is not.

    Prices of some goods and services in the US have been falling, benefitting from technological innovation, improved product design, or heightened competition and distribution efficiencies through the internet. Examples abound: flat-screen TVs, computers, automobiles, reduced fees on financial transactions, online consumer and business purchases, etc. These lower prices and quality improvements explain the vast majority of the recent deceleration in inflation – the PCE deflator for goods continues to decline and is flat for nondurables, while it has been rising at a fairly steady pace of 2% for services.

    These innovation-based price reductions improve standards of living and free up disposable income to spend on other goods and services. They boost aggregate demand and enhance economic performance. And they contribute positively to longer-run potential growth.

    It is unclear why US policymakers and commentators fear disinflation that stems from innovation-based price reductions amid accelerating aggregate demand. European policymakers face tougher choices.

    Read Clarifying the debate about deflation concerns here.

  • MThink Infographic: Global Risks

    We highlighted the World Economic Forum's 2014 Global Risk Report last month.  Now the team at Mercer's MThink have put out an infographic that shares the reports highlights in a new way.  Take a look (go to the full-size image at MThink here):

  • CPI Continues Steady Rise

    The Consumer Price Index for All Urban Consumers rose 0.1% in January, according to the Bureau of Labor Statistics.  The CPI-U has grown in eight of the last nine months (in October it came in at 0.0).  The all items index has grown 1.6% over the last 12 months.  From the Bureau of Labor Statistics release:

    Increases in the indexes for household energy accounted for most of the all items increase. The electricity index posted its largest increase since March 2010, and the indexes for natural gas and fuel oil also rose sharply. These increases more than offset a decline in the gasoline index, resulting in a 0.6 percent increase in the energy index.

    The index for all items less food and energy also rose 0.1 percent in January. A 0.3 percent increase in the shelter index was the major contributor to the rise, but the indexes for medical care, recreation, personal care, and tobacco also increased. In contrast, the indexes for airline fares, used cars and trucks, new vehicles, and apparel all declined in January. The food index rose slightly in January. The index for food at home rose 0.1 percent, with major grocery store food groups mixed.

    The all items index increased 1.6 percent over the last 12 months; this compares to a 1.5 percent increase for the 12 months ending December. The index for all items less food and energy has also risen 1.6 percent over the last 12 months. The energy index has risen 2.1 percent over the span, and the food index has increased 1.1 percent.

    Here's a look at the CPI for All Urban Consumers over the last year:

    Read the full release here.

  • Federal Open Market Committee Policy Action From the January Meeting Minutes

    The Federal Reserve released the minutes from the January Federal Open Market Committee meeting yesterday.  While we already knew the big takeaway from the meeting--the plan to the Fed's bond-buying quantitative easing program by roughly $10 billion--the minutes allow bankers, investors, and policymakers around the world to get a sharper view of the FOMC's collective thinking. Here are a few key paragraphs from the minutes on policy action:

    Committee members saw the information received over the intermeeting period as indicating that growth in economic activity had picked up in recent quarters. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate had declined but remained elevated when judged against members' estimates of the longer-run normal rate of unemployment. Household spending and business fixed investment had advanced more quickly in recent months than earlier in 2013, while the recovery in the housing sector had slowed somewhat. Fiscal policy was restraining economic growth, although the extent of the restraint had diminished. The Committee expected that, with appropriate policy accommodation, the economy would expand at a moderate pace and the unemployment rate would gradually decline toward levels consistent with the dual mandate. Moreover, members continued to judge that the risks to the outlook for the economy and the labor market had become more nearly balanced. Inflation was running below the Committee's longer-run objective, and this was seen as posing possible risks to economic performance, but members anticipated that stable inflation expectations and strengthening economic activity would, over time, return inflation to the Committee's 2 percent objective. However, in light of their concerns about the persistence of low inflation, many members saw a need for the Committee to monitor inflation developments carefully for evidence that inflation was moving back toward its longer-run objective.

    In their discussion of monetary policy in the period ahead, all members agreed that the cumulative improvement in labor market conditions and the likelihood of continuing improvement indicated that it would be appropriate to make a further measured reduction in the pace of its asset purchases at this meeting. Members again judged that, if the economy continued to develop as anticipated, further reductions would be undertaken in measured steps. Members also underscored that the pace of asset purchases was not on a preset course and would remain contingent on the Committee's outlook for the labor market and inflation as well as its assessment of the efficacy and costs of purchases. Accordingly, the Committee agreed that, beginning in February, it would add to its holdings of agency mortgage-backed securities at a pace of $30 billion per month rather than $35 billion per month, and would add to its holdings of longer-term Treasury securities at a pace of $35 billion per month rather than $40 billion per month. While making a further measured reduction in its pace of purchases, the Committee emphasized that its holdings of longer-term securities were sizable and would still be increasing, which would promote a stronger economic recovery by maintaining downward pressure on longer-term interest rates, supporting mortgage markets, and helping to make broader financial conditions more accommodative. The Committee also reiterated that it would continue its asset purchases, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability.

    In considering forward guidance about the target federal funds rate, all members agreed to retain the thresholds-based language employed in recent statements. In addition, the Committee decided to repeat the qualitative guidance, introduced in December, clarifying that a range of labor market indicators would be used when assessing the appropriate stance of policy once the unemployment rate threshold had been crossed. Members also agreed to reiterate language indicating the Committee's anticipation, based on its current assessment of additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments, that it would be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's longer-run objective.

    Read the full release here.

  • NY Fed Household Debt and Credit Report for 4th Quarter 2013

    When the global financial crisis hit, Americans got more concerned about debt.  Household debt continued to drop almost every quarter over the next 5 years, with only tiny increases in the first quarter of 2011 and the fourth quarter of 2012.  That trend seems to have turned.  Household debt increased $127 billion in the third quarter of 2013, and then another $241 billion last quarter, according to the New York Fed.  That's a 2.1% increase.  From the NY Fed quarterly report:

    Mortgages, the largest component of household debt, increased 1.9% during the fourth quarter of 2013. Mortgage balances shown on consumer credit reports stand at $8.05 trillion, up by $152 billion from their level in the third quarter. Furthermore, calendar year 2013 saw a net increase of $16 billion in mortgage balances, ending the four year streak of year over year declines. Balances on home equity lines of credit (HELOC) dropped by $6 billion (1.1%) and now stand at $529 billion. Non-housing debt balances increased by 3.3%, with gains of $18 billion in auto loan balances, $53 billion in student loan balances, and $11 billion in credit card balances.

    Delinquency transition rates for current mortgage accounts are near pre-crisis levels, with 1.48% of current mortgage balances transitioning into delinquency. The rate of transition from early (30-60 days) into serious (90 days or more) delinquency dropped, to 20.9%, while the cure rate – the share of balances that transitioned from 30- 60 days delinquent to current –improved slightly, rising to 26.9%.

    Read the full report here.

  • Sustainability Thinking and Investment Strategies

    "Do companies that take sustainability into account really do well financially?" Chris McKnett asks in this Ted Talk.  "The answer that may surprise you is yes," he says.  McKnett's job at State Street Global Advisors is to make sure that large investors understand how "sustainability thinking" affects the bottom line, and how long term investment strategies require us to examine the environmental viability of companies and products.  In this Ted Talk, he makes the case that "sustainability thinking" is not an add-on or an alternative approach, but, rather, is central to investment:

  • CEA Final Report on the Effect of Recovery Act

    On the occasion of the fifth anniversary of the American Recovery and Reinvestment Act, the Council of Economic Advisers has released a report to Congress on the economic impact of the act.  The CEA stands firmly behind the act, and the report points to several measures as signs of the effectiveness of the government's plan.  Among the evidence presented: GDP per capita returned to pre-crisis levels in four years, an the economy has added over 2 million jobs a year since ARRA.  The estimates for the long term impact of ARRA are bullish, with the CEA touting a significant multiplier effect from overall fiscal policy:

    CEA Estimates of the Recovery Act and Subsequent Fiscal Measures Combined. The combined effect of the Recovery Act and the subsequent countercyclical fiscal legislation is substantially larger and longer lasting than the effect of the Recovery Act alone. The Recovery Act represents only about half of total fiscal support for the economy from the beginning of 2009 through the fourth quarter of 2012. Moreover, as shown in Figures 7 and 8, the bulk of the effects of the other fiscal measures occurred as the Recovery Act was phasing down. These other measures thus served to sustain the recovery as effects of the Recovery Act waned. The CEA multiplier model indicates that by themselves these additional measures increased the level of GDP by between 1.0 and 1.5 percent per quarter from mid-2011 through the end of calendar year 2012. Altogether, summing up the effects for all quarters through the end of calendar year 2012, the Recovery Act and subsequent fiscal measures raised GDP by an average of more than 2.4 percent of GDP annually—totaling a cumulative amount equal to about 9.5 percent of fourth quarter 2008 GDP.

    The contribution of all fiscal measures to employment is equally substantial. Other fiscal measures beyond the Recovery Act are estimated to have raised employment by 2.8 million job- years, cumulatively, through the end of calendar year 2012. Adding these jobs to those created or saved by the Recovery Act, the combined countercyclical fiscal measures created or saved more than 2.3 million jobs a year through the end of 2012—or 8.8 million job-years in total over the entire period.

    Estimates from Private Forecasters. Private forecasters and domestic and international institutions have used large-scale macroeconomic models, mostly to estimate the effects of either the Recovery Act by itself or other policies in isolation. The models used by these individuals and organizations generally employ a similar multiplier-type analysis as is found in CEA and CBO work, although they vary considerably in their structure and underlying assumptions. Although no outside estimates of the total impact of all the fiscal measures are available, Table 6 displays the estimates of the impact of the Recovery Act offered by several leading private-sector forecasters before the Act was fully implemented. Despite the differences in the models, these private-sector forecasters all estimated that the Recovery Act would raise GDP substantially from 2009 to 2011, including a boost to GDP of between 2.0 and 3.4 percent in 2010.

    Read the full report here

    For a helpful summary, read a summary from CEA chair Jason Furman  here.

  • An Optimistic Take on Japan's Weaker Than Expected GDP Data

    Japan's economy grew at a disappointing rate to close 2013, expanding at an annualized rate of 1 percent during the fourth quarter.  That has some analysts disappointed and worried about the short term prospects for Japan, but not Dalju Aoki.  Aoki, economist for UBS, tells the Wall Street Journal's Deborah Kan that he is still optimistic about growth in Japan this year.  And he explains what he looks at as helpful economic indicators:

  • Kemal Derviş Sees 'Vulnerability' in Emerging Market Private Sector Balance Sheets

    There has been a fair bit of pessimism about the fate of emerging market economies this year.  At Project Syndicate, Kermal Derviş writes that, with the Federal Reserve expected to begin tapering off its quantitative easing programs, "the emergent market bears are ascendant once again."  In gauging whether countries like Brazil, India, Indonesia, South Africa, and Turkey are in trouble, Davis urges us to pay a little less attention to public deficits and look more at private sector balance sheets.

    To be sure, the weakest-looking emerging countries have large current-account deficits and low net central-bank reserves after deducting short-term debt from gross reserves. But one could argue that if there is a capital-flow reversal, the exchange rate would depreciate, causing exports of goods and services to increase and imports to decline; the resulting current-account adjustment would quickly reduce the need for capital inflows. Given fiscal space and solid banks, a new equilibrium would quickly be established.

    Unfortunately, the real vulnerability of some countries is rooted in private-sector balance sheets, with high leverage accumulating in both the household sector and among non-financial firms. Moreover, in many cases, the corporate sector, having grown accustomed to taking advantage of cheap funds from abroad to finance domestic activities, has significant foreign-currency exposure.

    Where that is the case, steep currency depreciation would bring with it serious balance-sheet problems, which, if large enough, would undermine the banking sector, despite strong capital cushions. Banking-sector problems would, in turn, require state intervention, causing the public-debt burden to rise. In an extreme case, a “Spanish” scenario could unfold (though without the constraint of a fixed exchange rate, as in the eurozone).

    It is this danger that sets a practical and political limit to flexible exchange rates. Some depreciation can be managed by most of the deficit countries; but a vicious circle could be triggered if the domestic currency loses too much value too quickly. Private-sector balance-sheet problems would weaken the financial sector, and the resulting pressure on public finances would compel austerity, thereby constraining consumer demand – and causing further damage to firms’ balance sheets.

    To prevent such a crisis, therefore, the exchange rate has to be managed – and in a manner that depends on a country’s specific circumstances. Large net central-bank reserves can help ease the process. Otherwise, a significant rise in interest rates must be used to retain short-term capital and allow more gradual real-sector adjustment. Higher interest rates will of course lead to slower growth and lower employment, but such costs are likely to be smaller than those of a full-blown crisis.

    Read Tailspin or Turbulence? here.

  • Strobe Talbott: Jean Monnet and Economic Integration in Europe, Past and Present

    Though never elected to political office, Jean Monnet was one of Europe's most important politicians of the last 100 years.  As a young businessman, he set to work on strengthening economic ties between European economies, and strengthening a European economy well before the birth of the European Union.  In a new essay, Brookings Institution president Strobe Talbott calls Monnet the "master architect" for the "European Project," and he argues that Monnet's thinking is very much relevant today.

    He died 35 years ago, long before the euro went into circulation. Still, he would have understood the purpose that monetary union is meant to serve: binding up the wounds of the most bloodstained continent in modern history and turning it into a zone of peace, prosperity, democracy, and global clout, animated by common values and governed by common policies and institutions. That is the European Project. As its master architect, Monnet would also have understood the mistakes, dilemmas, and dangers that threaten the project now.

    The method that guided him throughout his long life put a premium on the careful sequencing of innovations in economic policy so as to make irreversible the overall process of political integration. Unlike Monnet, however, the leaders responsible for the adoption of the euro in the 1990s failed to ensure that the necessary political conditions and institutions were in place, thus making the current troubles of the European Union all but inevitable.

    The relevance today of this historical figure is all the more striking in the light of his idiosyncratic career. Monnet spent much of his life as a private citizen. He never held elective office or a ministerial post. He was an effective advocate, who used his carefully cultivated mellifluous speaking voice and forensic skills to good effect in interviews and declarations. But it was primarily from behind the scenes that he influenced generations of major actors on the world stage: in his youth, Georges Clemenceau, Arthur Balfour, Neville Chamberlain, Winston Churchill, and Franklin Roosevelt; in his middle years, Dean Acheson, Konrad Adenauer, and John F. Kennedy; in old age, Willy Brandt, Helmut Schmidt, and Shimon Peres. At crucial moments and on vital issues, these leaders and others took his counsel and adopted his ideas as their own.

    In a sense, Monnet is once again exerting his influence, this time from beyond the grave. The crisis in the eurozone has focused minds in key capitals on cobbling together institutional measures of the sort that he believed were necessary for monetary union. As a result, his vision of a united Europe may well survive and, over time, succeed.

    You can read the full essay here

    And watch Talbott discuss Monnet and the economic integration of Europe in this interview:


  • Growth Picks Up the Pace in Europe

    The rate of growth picked up in Europe at the end of the year.  According to data released by Eurostat this morning,  GDP across the euro area rose 0.3% in the fourth quarter of 2013.  That's following third quarter growth of 0.1%.  For the EU overall, the numbers were better. GDP for the EU28 rose by 0.4% in the fourth compared with 0.3% for the third quarter.    .

    The Czech Republic and Romania had standout quarters, with growth rates of 1.6% and 1.7%, respectively, for the quarter.  Cyprus, on the other hand, had the biggest drop at -1.0%, and Finland came in at -0.8%. The data for each country is available here.

  • Treasury Secretary Lew on the "End" of Too Big to Fail

    Treasury Secretary Jacob Lew is feeling good about the economy.  In an interview with Charlie Rose last night, Lew expressed optimism that growth will pick up in 2014, and though he tended to remain cautious about his predictions, he suggested that our elected officials in Washington are making progress in economic policy around debt and immigration.  Rose and Lew covered a lot of ground--from domestic issues to emerging markets and China.  

    In this excerpt, Lew argued that banking rules are significantly stronger now than they were six years ago:

    We will post the full video when it becomes available.

    See also: Damian Paletta's "12 Takeaways" from the interview at the Wall Street Journal Washington Wire blog, here.

  • Russia's Market Volatility and Economic Diversity Problem

    The Winter Olympics are beginning their second week in Russia, and most people want to talk about the figure skating, the hockey, the medal count, maybe even the pageantry.  But some economists have other thoughts on their minds.  At Vox, World Bank economists Alvaro González, Leonardo Iacovone, and Hari Subhash are focusing on a major Russian weakness, and it isn't a lack of strong two-way forwards on the ice hockey team.  No, they are concerned about Russia's "limited economic diversification."  The nation's policy leaders have struggled to help limit market volatility, the authors note.  Russia is susceptible to economic bad times that are really bad and last longer than for other large economies, and that makes it hard for new sectors to grow:


    Volatility in Russia is a nearly all-encompassing event. When things are booming, the boom is shared by nearly all manufacturing sectors. When things go bust, practically all sectors go bust. The relatively high level of concentration of output across firms and sectors exacerbates the problem. Further, when analysing slumps and surges across time and comparing these to other economies, we find that although surges in Russia have similar looking peaks and last about as long as those in comparator countries, the slumps are deeper (Figure 2) and longer (Figure 3). For slumps of less than 6 years (the horizontal axis), the probability (the vertical axis) of a slump persisting for another period is higher in Russia (the step-like line is above that of the other economies).

    The survival of new, relatively efficient firms (particularly during longer and deeper slumps) is a central weakness and likely key issue limiting economic diversification in Russia. Our analysis shows that during slumps, more productive firms tend to have lower odds of surviving relative to less productive ones than during surges. During long and deep slumps, older firms and firms facing less intense competition are more likely to survive. Unfortunately these firms are often not the champions of change and innovation that form the basis of diversification. In Russia the slumps do in fact wipe away some of the hard fought gains made by new, emerging entrants. So much for the new blood needed for the economy to diversify.

    Read Russian volatility: Obstacle to firm survival and diversification here.

  • Bloomberg: 'The European Debt Crisis Visualized'

    The European debt crisis is old news.  And while the heat may have come down in the last year, it is not over.  The interactive team at Bloomberg News has put together a new way of telling the story of the debt crisis.  Some students may find the debt crisis easier to understand through this visualization.  And we appreciate that this telling of the story goes back almost a century, so there students get the deeper context of Europe's current challenges.

  • Yellen Stays the Course in First Congressional Hearing as Chair of the Fed

    Congress welcomed Janet Yellen to her new post as Chair of the Federal Reserve yesterday by asking her to spend six hours with them in an extended hearing on the state of the U.S. economy.  Yellen did not give any signs that she will turn sharply from any Fed positions held by her predecessor, Ben Bernanke.  The Fed will continue to aim to ease out of some of its quantitative easing as long as the labor market shows improvement.  Here are a few key excerpts from her testimony.

    On the state of the economy:

    My colleagues on the FOMC and I anticipate that economic activity and employment will expand at a moderate pace this year and next, the unemployment rate will continue to decline toward its longer-run sustainable level, and inflation will move back toward 2 percent over coming years. We have been watching closely the recent volatility in global financial markets. Our sense is that at this stage these developments do not pose a substantial risk to the U.S. economic outlook. We will, of course, continue to monitor the situation.

    On monetary policy:

    Our current program of asset purchases began in September 2012 amid signs that the recovery was weakening and progress in the labor market had slowed. The Committee said that it would continue the program until there was a substantial improvement in the outlook for the labor market in a context of price stability. In mid-2013, the Committee indicated that if progress toward its objectives continued as expected, a moderation in the monthly pace of purchases would likely become appropriate later in the year. In December, the Committee judged that the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions warranted a modest reduction in the pace of purchases, from $45 billion to $40 billion per month of longer-term Treasury securities and from $40 billion to $35 billion per month of agency mortgage-backed securities. At its January meeting, the Committee decided to make additional reductions of the same magnitude. If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. That said, purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on its outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.

    on strengthening the financial system:

    Regulatory and supervisory actions, including those that are leading to substantial increases in capital and liquidity in the banking sector, are making our financial system more resilient. Still, important tasks lie ahead. In the near term, we expect to finalize the rules implementing enhanced prudential standards mandated by section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. We also are working to finalize the proposed rule strengthening the leverage ratio standards for U.S.-based, systemically important global banks. We expect to issue proposals for a risk-based capital surcharge for those banks as well as for a long-term debt requirement to help ensure that these organizations can be resolved. In addition, we are working to advance proposals on margins for noncleared derivatives, consistent with a new global framework, and are evaluating possible measures to address financial stability risks associated with short-term wholesale funding. We will continue to monitor for emerging risks, including watching carefully to see if the regulatory reforms work as intended.

    Read the full speech here.

  • Larry Summers on the Cost of Not Taking Advantage of Low Interest Rates

    Lawrence Summers isn't officially an adviser to the White House at the moment, but that doesn't mean he is without advice for politicians in Washington.  In an interview with Here and Now's Jeremy Hobson, following the latest deal in Congress to raise the debt ceiling, Summers said "we don't have a realistic option, ever, of defaulting on the debt."  Summers went on to discuss the importance of smart spending while interest rates are low.  Costs for fixing infrastructure and improving education will get higher in the future, and the costs for not fixing infrastructure and improving education will be great, he argues.  Here is the full interview: