• Advance Estimate for First Quarter Shows 0.1% Growth in GDP

    Real Gross Domestic Product expanded at an annual rate of 0.1% in the first quarter of 2013, according to the advance estimate from the Commerce Department. As we know, the advance estimate is only the first public release based on source data, and we are likely to see a different figure at the end of May.  But still, that is a far cry from the fourth quarter growth rate of 2.6%.

    The Bureau of Economic Analysis report points to personal consumer expenditures driving the growth, while the slowdown came from several directions:

    •A downturn in exports. Exports of industrial supplies and materials as well as foods, feeds, and beverages declined after increasing in the fourth quarter.

    •A downturn in business investment. Spending on transportation equipment fell after rising significantly in the fourth quarter. Spending on computers and peripherals also turned down.

    •A larger decrease in inventory investment. Inventory investment by retail trade companies (mainly motor vehicles dealers) declined significantly after an increase in the fourth quarter.

    •A slowdown in consumer spending, mainly in nondurable goods, notably clothing and footwear as well as food and beverages. These movements were partly offset by faster growth in utilities and healthcare.

    Here is a look at the trend:

    Read the BEA release here.

  • Thomas Piketty On Point

    Thomas Piketty visited On Point yesterday for a robust, hour-long conversation on his book, Capitalism in the Twenty-First Century.  This is a chance to listen to him detail his research and forecasts for the global economy and capitalism--or at least the version of capitalism for the age we are in and the century to come.  Greg Mankiw joins Tom Ashbrook in the discussion too:

  • The Lifespan of the Current Bull Market

    We're in a bull market, and it, as is the case every time we are in a bull market, we are spending a lot of time speculating about when it will end.  RBC's Jonathan Golub says he knows when it will end.  It will end, he says, when the next recession begins.  Which begs the next question: will the markets marry the new realities of weather--life will now always seem to be about extremes?

    From the Wall Street Journal:

  • Home Prices Not Showing Much Promise as Economic Engine

    Home prices had trouble gaining momentum in most major US markets in February, according to the latest Case-Shiller Home Price Indices release.  Thirteen of the 20 cities saw declines in growth rates in February.  Cleveland led the way with a 1.6% decline.  Year-over-year the 10-city composite index came in at 13.1% while the 20-city composite was at 12.9%.

    From the release:

    “Prices remained steady from January to February for the two Composite indices,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “The annual rates cooled the most we’ve seen in some time. The three California cities and Las Vegas have the strongest increases over the last 12 months as the West continues to lead. Denver and Dallas remain the only cities which have reached new post-crisis price peaks. The Northeast with New York, Washington and Boston are seeing some of the slowest year-over-year gains. However, even there prices are above their levels of early 2013. On a month-to-month basis, there is clear weakness. Seasonally adjusted data show prices rose in 19 cities, but a majority at a slower pace than in January.

    “Despite continued price gains, most other housing statistics are weak. Sales of both new and existing homes are flat to down. The recovery in housing starts, now less than one million units at annual rates, is faltering. Moreover, home prices nationally have not made it back to 2005. Mortgage interest rates, which jumped in May last year and are steady since then, are blamed by some analysts for the weakness. Others cite difficulties in qualifying for loans and concerns about consumer confidence. The result is less demand and fewer homes being built.

    “Five years into the recovery from the recession, the economy will need to look to gains in consumer spending and business investment more than housing. Long overdue activity in residential construction would be welcome, but is certainly not assured.”

    Read the full release here.

  • Ageing, Retirement, and the Global Economy

    Something big is about to happen to the global economy, warns Zanny Minton-Beddoes, economics editor at The Economist.  Such a big proportion of the world's population is reaching retirement age that policy makers will be tested like never before.  Minton-Beddoes explains the challenges to her colleague, Richard Davies:

  • IMF Releases Positive Economic Outlook Report on Asia and Pacific

    If uncertainty in Western developed economies has taught us anything this last decade, it is that the global economy depends on robust growth in Asia.  So the latest projections from the IMF will be seen by many as welcome. 

    Hitting these projections depends on Asia's policymakers staying on course.  The IMF report suggests the risks are not as great as they were a year ago, but there are still clear risks:

    Risks to the outlook have become more balanced. Global growth has strengthened and overall global prospects have improved (especially in advanced economies). But Asia still faces new and old risks (geopolitical uncertainty, exit from unconventional monetary policy in the United States and low inflation in the euro area).

    The main external risk remains an unexpected or sharp tightening of global liquidity. Rapid movements in global interest rates could lead to further bouts of capital flow and asset price volatility. Pockets of high corporate leverage in some Asian economies could magnify the effects of higher interest rates and lower growth on balance sheets, and weaken domestic demand.

    Asia is also facing various risks emanating from within the region. Growth in China and Japan could also fall below expectations, with negative spillovers for the rest of the region. In China, a gradual slowdown as a result of reforms would be welcome as it would put growth on a more sustainable path. However, a sharp fall in growth—which remains a low risk—would adversely affect those regional trading partners that are most dependent on Chinese final demand. In Japan, Abenomics could be less effective than envisaged, resulting in lower inflation and weaker growth, with spillovers to economies that have strong trade and foreign direct investment linkages with Japan.

    Strong intra-regional trade integration, which is shown to have contributed to greater business cycle synchronization and spillovers over the years, could transmit geopolitically related disruptions along regional supply chains.

    Read the full report here.

  • Kauffman Sketchbook: Visionaries

    Do you have passion for something?  Good.  Can you channel that passion in a methodical, productive manner?  And learn from failure?  And actually find a way to get momentum and more passion from setbacks?  You may have what it takes to start a company.

    In this Kauffman Sketchbook, Dave Gilboa and Neil Blumenthal share what they learned from starting and running Warby Parker--a company that disrupted the eyewear manufacturing and retail sector. Their thoughts provide some interesting insights into how the contemporary marketplace is working, and what it rewards in new companies and new approaches.

  • The Case for College Remains Strong

    For soon-to-be college students and parents of soon-to-be college students, April is a month of mixed emotions.  Pride is high, as competitive students learn what elite institutions want them.  But then anxiety rises, as the reality of the cost sets in.  The Washington Post's Catherine Rampell makes the case that college is still worth the investment.  Maybe not as much as in the past, but it remains a ticket to better earnings and higher quality of life.  And, our overall economy improves when a higher percentage of Americans go to college.

    Even though unemployment rates for young college grads seem high — especially in the first few months after graduation — they’re still much lower than they are for people without degrees. According to Labor Department data, the unemployment rate for Americans ages 20 to 29 who have a bachelor’s degree was 5.8 percent in 2013. In that same age group, among people with no education beyond a high school diploma, it was 14 percent.

    And for those who do find work, the wage premium for higher education has grown over time. In 1979, among full-time workers of all ages, the median college graduate earned 38 percent more than did the median high school graduate; today the college-educated worker earns about 82 percent more. College is, as the Hamilton Project has pointed out, one of the best possible investments you can make, outperforming stocks, gold, long-term Treasurys, AAA corporate bonds and housing. That’s true for both a four-year degree and even more so for an associate’s degree.

    A college degree is certainly no guarantee of financial success, but it is nearly a prerequisite for moving up the income ladder if you’re poor. Of Americans born into families in the bottom income quintile, almost half who didn’t get a college degree remained stuck in the poorest income quintile as adults; the same was true for just 10 percent of Americans born poor who then got a college degree, Pew’s Economic Mobility Project found in 2012.

    Read College is not a losing investment here.

  • Jeremy Rifkin on Zero Marginal Cost and 'The Internet of Things'

    Yes, the economic system is changing.  But is it possible the change has been within the system all along?  Jeremy Rifkin says "there's a paradox deeply embedded in the very heart of the capitalist market system."  And in order to understand the "new economic paradigm," we need to get our heads around that paradox.  Rifkin helps as he explains the importance of 'zero marginal cost" to capitalism today.  From Big Think:

  • Spain's Path to Recovery

    It was bad enough to be in economic turmoil, but Spain had the additional indignity to be included in a group of economies that we labeled either PIGS or PIIGS (depending on whether we included both Ireland and Italy).  The PIIGS were EU nations that had amassed so much public debt that they were threatening to bring down the EU economy as a whole.  So it is nice to read about signs of a turnaround.  At Project Syndicate, Michael Spence writes that investors are beginning to find Spain attractive again. 

    Spain was not in an enviable position. The rapid deterioration of fiscal position after the crisis made any substantial countercyclical response impossible, while regulatory constraints limited the economy’s structural flexibility.

    The path to recovery, though difficult and lengthy, has been relatively clear and specific. First, unit labor costs needed to decline toward productivity levels to restore competitiveness – a painful process without the exchange-rate mechanism. In fact, there has been substantial post-crisis re-convergence toward German levels.

    Second, both capital and labor needed to flow to the tradable sector, where demand constraints can be relaxed as relative productivity converges. Like many other southern European countries, however, labor-market and other rigidities dramatically reduced the speed and increased the costs of structural economic adjustment, resulting in lower levels of growth and employment, especially for young people and first-time job-seekers.

    But Spanish policymakers and business leaders appeared to grasp the nature of the pre-crisis economic imbalances – and the importance of the tradable sector as a recovery engine. Recognizing that the economy could not benefit from a partial restoration of competitiveness without structural shifts, the government passed a significant labor-market reform in the spring of 2013. It was controversial, because, like all such measures, it rescinded certain kinds of protections for workers. But the ultimate protection is growing employment. With a lag, the reform now appears to be bearing fruit.

    Read The Gain in Spain here.

  • Marketplace Whiteboard: Guidance

    One of the ways publicly traded companies manage expectations is through forward guidance.  That's how a company like Google can report a drop in profit without seeing its stock price take a hit.  But, as Paddy Hirsch explains in this Marketplace Whiteboard episode, if you are providing forward guidance, you better get it right, or shareholders will feel misled rather than guided. 

  • Existing Home Sales Flat in March

    Your neighborhood realtor may not be too thrilled these days.  The seasonally adjusted annual rate of sales for the month was 4.59 million, down just slightly from February's disappointing figure of 4.60 million, according to the National Association of Realtors.  NAR's chief economist, Lawrence Yun, says “There really should be stronger levels of home sales given our population growth.”

    Yun expects some improvement in the months ahead. “With ongoing job creation and some weather delayed shopping activity, home sales should pick up, especially if inventory continues to improve and mortgage interest rates rise only modestly.”

    The median existing-home price2 for all housing types in March was $198,500, up 7.9 percent from March 2013. Distressed homes3 – foreclosures and short sales – accounted for 14 percent of March sales, down from 16 percent in February and 21 percent in March 2013. “With rising home equity, we expect distressed homes to decline to a single-digit market share later this year,” Yun said.

    Ten percent of March sales were foreclosures, and 4 percent were short sales. Foreclosures sold for an average discount of 18 percent below market value in March, while short sales were discounted 12 percent.

    Total housing inventory4 at the end of March rose 4.7 percent to 1.99 million existing homes available for sale, which represents a 5.2-month supply at the current sales pace, up from 5.0 months in February. Unsold inventory is 3.1 percent above a year ago, when there was a 4.7-month supply.

    Sales may be flat, but that means prices continue to rise.  Read the full release here.

  • Ideas@davos: 'Scenarios of the International Monetary System'

    The global economy is tied together by the international monetary system.  It is quite a dynamic system, but one that has been through a lot of changes in the last decade.  And the all knowing voice in this World Economic Forum video says "the existing system has reached a breaking point."  Whether you agree with that conclusion or not, the video makes a compelling argument at least about strains on the system:

  • L.A. Times: Would-Be Home Buyers Held Back By Student Debt

    We'll be seeing some new data sets on home buying this week, and we'll spend a lot of air and cyber-ink trying to make links between home buying and overall economic growth.  One of the factors that does not show up in the data: why people don't buy homes.  One of the reasons is surely existing debt.  And for a lot of would-be first-time home buyers, that existing debt is left over from college.  L.A. Times reporter Tim Logan:

    The amount owed on student loans has tripled in a decade, to nearly $1.1 trillion, according to the Federal Reserve Bank of New York. People in their 20s and 30s — often the best-educated and highest-earning among them — owe most of that tab. That is keeping a crucial segment of home buyers on the sidelines, deferring one of the traditional markers of adult success.

    The National Assn. of Realtors recently identified student debt as a key factor in soft demand for home-buying this spring. A recent study by the trade group identified student loans as the top reason many home buyers delayed their purchase. Many more didn't buy at all. Surveys show today's adults value homeownership just as much as their parents did. But the shaky job market, higher debt loads, and the roller-coaster market of recent years is keeping many from pulling the trigger, said Selma Hepp, senior economist with the California Assn. of Realtors.

    "They're just postponing," she said. "It's the economy and the recession and what that generation has gone through."

    The share of buyers who are first-timers has dropped well below historical averages — 28% of California buyers last year, compared with 38% typically, according to CAR surveys. The absence of a new generation of customers could become a long-term problem for the industry, said Dustin Hobbs, spokesman for the California Mortgage Bankers Assn.

    Read Student debt holds back many would-be home buyers here

  • Educating Workers For The 21st Century

    It is all about the skills.  Workers need skills in order to be successful in an increasingly stratified global economy.  Companies need skilled workers to compete.  So says the OECD's Andreas Schleicher.  In this Big Think video, Schleicher argues that we need to rethink our approach to education.  Preparing global citizens for success in the 21st century depends on educating people for "jobs that have not been created" and new technologies that will arise, not just the ones we already have.

  • The Atlantic: Good Times for Retail Sales, Bad Times for Retail Workers

    "The business of selling stuff is becoming much more efficient," writes The Atlantic's Derek Thompson.  Online retailers and mega-stores can move supply quickly and relatively cheaply.  That has turned out to be good news when we are buying things.  But not so good for the retail worker, as it turns out.  Thompson:

    This isn't the end of retail. But it is the end of some retail.

    According to data obtained by The Atlantic from EMSI, the retail industry gained about 49,000 jobs between 2001 and 2013, which means it grew by exactly 0.32 percent. Which means it didn't grow.

    But the major action is at the bookends of this graph below, which shows employment growth in the largest retail subcategories. Department stores, like JCPenney, lost more than 200,000 jobs this century. But supercenters like Walmart, which operates in more than 3,200 domestic locations, added half a million (often lower-paying) jobs.

    The death of the salesmen isn't a uniform trend. It's spiky. Supercenters nearly doubled their total employment this century. But music stores, photo stores, computer stores, and book stores have been crushed. These used to be services you needed a store to buy. Now they're apps.

    Read The Sad, Slow Death of America's Workforce here.

  • Gallup: Americans Regaining Confidence in Real Estate

    Does the bursting of the housing bubble seem like ages ago to you?  It doesn't to us.  Middle class families across the U.S. saw their primary investment channels--their homes and real estate in general--depreciate.  And yet, when Gallup asked Americans where they feel most confident putting their money, real estate topped the list. 

    These results are from Gallup's April 3-6 Economy and Personal Finances poll that asked Americans to choose the best option for long-term investments: real estate, stocks and mutual funds, gold, savings accounts and CDs, or bonds. Prior to 2011, Gallup asked the same question, but did not include gold as an option.

    Gold was the most popular long-term investment among Americans in 2011 -- a time when gold was at its highest market price and real estate and stock values were lower than they are today. Gold prices dropped significantly after that and it lost favor with Americans. The 24% of Americans who currently name gold as the best long-term investment ties with the 24% who choose stocks.

    Bonds have been Americans' least favored investment option for as long as Gallup has been asking the question. Savings accounts and CDs, on the other hand, have been more popular in the past. In September 2008, before gold was an option and at a time when the real estate and stock markets were tanking, savings accounts were the most popular long-term investment among Americans.

    This year, the housing market has been improving across the U.S., and home prices have recently been rising after a steep drop in 2007 during the subprime mortgage crisis. This current improvement in prices may be why more Americans now consider real estate the best option for long-term investments. In 2002, during the real estate boom that preceded the mortgage crisis and before gold was offered as an option in the question, half of Americans said real estate was the best investment choice.

    Read more from the survey results here.

  • Bill and Melinda Gates on Charitable Giving, Global Health, and the Global Economy

    Bill and Melinda Gates have taken their wealth and built the Gates Foundation, the largest private foundation in the world.  In this Ted Talk, they discuss the ideas, numbers, and intended impact behind what has become their life work.  While the interview, conducted by Ted's Chris Anderson, focuses on the Gates's views of how charitable giving can build a stronger world, but it also raises interesting questions about the impact of philanthropy on he global economy--and not just in emerging and under-developed nations.  Bill Gates even argues that "we can do better than venture capital" in some areas:

  • Time to Move to Angola; Or How Pay Varies Around the Globe

    Having just filed your taxes, you probably have a very clear sense of what you earned in 2013.  Now, Mercer's MThink researchers want you to better understand how other people are paid in other countries.  In this infographic they share some top-line findings from their most recent global survey on salary differentials.  (Go to the full-size image at MThink here):

  • Measuring Spillover Effects of Hedge Funds

    Understanding the impact of hedge funds on financial crises is, at best, complicated.  "Spillover effects" are difficult to measure.  But Reint Gropp--Chair of Sustainable Banking and Finance at Goethe University, Frankfurt, and visiting scholar at the Federal Reserve Bank of San Francisco--takes a crack at it in a new Economic Letter:

    While most observers tend to agree that hedge funds have some systemic importance, there is little agreement on how large a role they play as transmitters of adverse financial shocks. Figures 1 and 2 summarize the model’s findings regarding the flow of shocks between different types of financial institutions. In the figures, red arrows correspond to spillover effects; the green arrow in Figure 2 shows positive effects from insurance companies, as mentioned earlier. The thickness of the arrows correspond to the strength of the effects: a thin arrow means that a spillover is statistically significant but economically small, while a bold arrow means it is both significant and economically important.

    Figure 1 shows that during calm times the risks emanating from hedge funds are as small as those from other financial institutions. However, Figure 2 shows that during crisis times, spillover effects increase overall. In particular, hedge funds have economically large spillovers to the other three types of institutions.

    Why are the spillovers from hedge funds during financial crises so much bigger, and why do they seem to increase more than those from other financial institutions? Hedge funds are opaque and highly leveraged. If highly leveraged hedge funds are forced to liquidate assets at fire-sale prices, these asset classes may sustain heavy losses. This can lead to further defaults or threaten systemically important institutions not only directly as counterparties or creditors, but also indirectly through asset price adjustments (Bernanke 2006). One channel for this risk is the so-called loss and margin spiral. In this scenario, a hedge fund is forced to liquidate assets to raise cash to meet margin calls. The sale of those assets increases the supply on the market, which drives prices lower, especially when market liquidity is low. This in turn leads to more margin calls on other financial institutions, creating a downward spiral. Another example is investment banks that hedge their corporate bond holdings using credit default swaps. If hedge funds take the other side of the swap and fund the investment by borrowing from the same bank, the spillover risk from the hedge fund to the bank increases. These types of interconnectedness may underlie some of the spillover effects in our study.

    In percentage terms, during normal market conditions, a 1 percentage point increase in the risk of hedge funds is estimated to increase the risk of investment banks by 0.09 percentage point. During times of financial distress, however, the same shock increases the risk of the investment banking industry by 0.71 percentage point. It is interesting to compare this risk to spillovers from commercial banks to investment banks. During normal conditions, a 1 percentage point increase in the risk of commercial banks leads to a 0.01 percentage point increase in the risk of investment banks. During financial distress, spillovers from commercial banks to investment banks increase relatively modestly to 0.05 percentage point. Although somewhat higher, this increase from normal conditions to crisis times is much smaller than that for hedge funds. Spillovers from investment banks to other financial institutions show similar results, while insurance companies tend to exhibit small spillover effects, even in crisis times.

    Read How Important Are Hedge Funds in a Crisis? here.

  • Consumer Price Index On The Rise

    The Consumer Price Index for All Urban Consumers rose 0.2% in March, according to the Bureau of Labor Statistics.  0.2 doesn't look so big, but the news comes after two straight months of 0.1% growth.The CPI-U has grown in ten of the last eleven months.  The all items index has grown 1.5% over the last 12 months.  From the Bureau of Labor Statistics release:

    Increases in the shelter and food indexes accounted for most of the seasonally adjusted all items increase. The food index increased 0.4 percent in March, with several major grocery store food groups increasing notably. The energy index, in contrast, declined slightly in March as decreases in the gasoline and fuel oil indexes more than offset increases in the indexes for electricity and natural gas.

    The index for all items less food and energy also rose 0.2 percent in March. Besides the 0.3 percent increase in the shelter index, the indexes for medical care, for apparel, for used cars and trucks, and for airline fares also increased. The indexes for household furnishings and operations and for recreation both declined in March.

    The all items index increased 1.5 percent over the last 12 months; this compares to a 1.1 percent increase for the 12 months ending February. The index for all items less food and energy has increased 1.7 percent over the last 12 months, as has the food index. The energy index has risen slightly over the span, advancing 0.4 percent.

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

    Read the full release here.

  • A New Primer on China From McKinsey

    Do you have an hour for China?  That is, do you have an hour you can spare to understand the leading economic story of the century?  McKinsey's Jeffrey Towson and Jonathan Woetzel have written The One Hour China Book in an effort to bring us all up to speed on the key pieces to understanding what is happening in the world's most populous country and the impact of activity there on life everywhere.  If you can't spare an hour just yet, here are the "six big trends" from the book, as shared at McKinsey Insights:

    Here's a little more on trend number 3:

    The American middle class was the world economy’s growth engine throughout the 20th century. Now, the engine is the Asia–Pacific region, which will account for two-thirds of the world’s middle class by 2030. While Chinese consumers’ focus on “value for money” has driven the rise of companies such as apartment builder China Vanke and Tingyi Holding Company—the business behind China’s dominant instant-noodle brand—buying habits are changing. As urbanization accelerates, consumer spending is becoming more like that of the West’s middle class. Urban Chinese are shopping to meet emotional needs, driving a skyrocketing demand for middle-class goods, food, and entertainment.

    As an example, China consumed more than 13 million tons of chicken in 2012—more than the United States. Tyson Foods’s China operations has facilities able to process more than three million chickens per week, and Chinese chicken consumption, which grew by 54 percent from 2005 to 2010, is expected to grow an additional 18 percent annually during the next five years. For additional evidence, look no further than the fact that the largest Chinese acquisition of a US company had nothing to do with technology, cars, or energy. In 2013, Chinese Shuanghui International spent $7.1 billion to buy American Smithfield, the world’s largest pork producer and processor. It’s not surprising, then, that agribusiness is one of China’s hottest new industries.

    Almost every aspect needs to be improved, from land and water use to logistics and retail. Legend Holdings, the parent company of Lenovo, now lists modern agriculture as one of its five core areas, with a portfolio that includes kiwi and blueberry farming.

    Read All you need to know about business in China here.

  • Raghuram Rajan on Global Impact Uncoventional Monetary Policies

    The monetary policies of central banks in the world's largest economies have a significant impact not only on the residents of those nations, but on people and businesses around the world.  This is especially true of the Federal Reserve's monetary policy moves.  With the Fed looking to scale back its quantitative easing program, the Brookings Institution invited India's top central banker, Raghuram Rajan, to speak about the impact of the Fed's unconventional monetary policies on emerging economies.  Here are two excerpts from that speech, in which Rajan discusses his concern that central bankers in emerging and developed economies are not adapting quickly enough to a changing global economy:

    Read more about Rajan's visit to Brookings here.

  • Dani Rodrik on 'Premature Deindustrialization' in Developing Economies

    At Project Syndicate, Dani Rodrik tries to make sense of "an unexpectedly large gap in productivity between large firms and small firms," in Mexico and other developing economies.  This isn't what is supposed to happen.  At least it doesn't follow the industrialization model of the last century and a half.  "When economies develop the productivity gap between the traditional and modern parts of the economy shrinks, and dualism gradually diminishes, Rodrik writes.

    Today, the picture is very different. Even in countries that are doing well, industrialization is running out of steam much faster than it did in previous episodes of catch-up growth – a phenomenon that I have called premature deindustrialization. Though young people are still flocking to the cities from the countryside, they end up not in factories but mostly in informal, low-productivity services.

    Indeed, structural change has become increasingly perverse: from manufacturing to services (prematurely), tradable to non-tradable activities, organized sectors to informality, modern to traditional firms, and medium-size and large firms to small firms. Quantitative studies show that such patterns of structural change are exerting a substantial drag on economic growth in Latin America, Africa, and in many Asian countries.

    There are two ways to close the gap between leading and lagging parts of the economy. One is to enable small and microenterprises to grow, enter the formal economy, and become more productive, all of which requires removing many barriers. The informal and traditional parts of the economy are typically not well served by government services and infrastructure, for example, and they are cut off from global markets, have little access to finance, and are filled by workers and managers with low skills and education.

    Even though many governments exert considerable effort to empower their small enterprises, successful cases are rare. Support for small enterprises often serves social-policy goals – sustaining the incomes of the economy’s poorest and most excluded workers – instead of stimulating output and productivity growth.

    The second strategy is to enlarge opportunities for modern, well-established firms so that they can expand and employ the workers that would otherwise end up in less productive parts of the economy. This may well be the more effective path.

    Read The Growing Divide Within Developing Economies here.

  • IMF's Blanchard: Focus of Global Recovery Should Now Be On Supply Side

    The global economy has a supply side problem.  That is, the global marketplace needs more buyers.  IMF director of research Olivier Blanchard notes that while he and his team are projecting 3.6 percent growth this year, and 3.9 percent growth next year, it all depends on a "broader" recovery.

    First, potential growth in many advanced economies is very low. This is bad on its own, but it also makes fiscal adjustment more difficult. In this context, measures to increase potential growth are becoming more important—from rethinking the shape of some labor market institutions, to increasing competition and productivity in a number of non-tradable sectors, to rethinking the size of the government, to reexamining the role of public investment.

    Second, although the evidence is not yet clear, potential growth in many emerging market economies also appears to have decreased. In some countries, such as China, lower growth may be in part a desirable byproduct of more balanced growth. In others, there is clearly scope for some structural reforms to improve the outcome.

    Finally, as the effects of the financial crisis slowly diminish, another trend may come to dominate the scene, namely rising inequality. Though inequality has always been perceived to be a central issue, until recently it was not seen as having major implications for macroeconomic developments. This belief is increasingly called into question. How inequality affects both the macroeconomy, and the design of macroeconomic policy, will likely be increasingly important items on our agenda for a long time to come.

    Read the full post here.  And watch Blanchard discuss the global recovery below: