Writing at VoxEU, Simon Everett sounds a warning on protectionism. Not surprisingly, the global economic crisis spurred something of a "retreat" from global trade among many countries. Perhaps more of a surprise, though, is that there have been two phases of protectionism during the global recovery, Everett notes.
With the new evidence collected for this report it becomes clear that the protectionist impulse has not abated. Since Q1 2012 the number of new protectionist measures implemented has risen, so much so that in 2013 more new protectionism was imposed than in 2009. The latter finding is all the more remarkable as the GTA team has had nearly six years to collect data on developments in 2009 and less than two years to identify protectionism in 2013. Reporting lags matter, and the initial quarterly totals for 2014 do not provide much grounds for optimism either.
In the light of the evidence presented in Figure 1, three phases in crisis-era protectionism can be identified.
•The earliest phase, starting from the first crisis-era G20 summit in Q4 2008 through to the end of 2009, witnessed a spike in protectionism in Q1 2009. Then the quarterly totals of new protectionism fell, but never below 150 new measures per quarter.
•The second phase relates to 2010 and 2011 and coincided with growing optimism that the world economy would soon recover. During this intermediate phase the quarterly totals for new protectionism lay in the 140 to 160 range.
•After that, a third phase began in Q1 2012 when quarterly resort to new protectionism steadily rose, peaking at 200 in Q4 2012.
Protectionism creates victims and the commercial interests of the major trading nations have been harmed much more than previously thought. Figure 2 summarises the extent to which the number of hits to the commercial interests of China, the European Union, Japan, and the United States have been revised upwards since the Los Cabos summit in June 2012. In the case of China, Los Cabos documented 698 occasions where foreign protectionism harmed Sino commercial interests. Now that total has been revised up to 1804 – a 158% increase. The upward revision in the incidence of harm to the EU’s commercial interests is even larger in percentage terms.
Read the full article here.
The economic recovery in the U.S. may not be moving as fast as a lot of people would like, but the improvement has been steady. The housing market does seem to be a particular annoyance to those lacking patience. And it may take a few more years before things "normalize" in the sector, according to Jason Meister, vice president at Avison Young. Meister shared his analysis of the latest housing market data with Paul Vigna on the Wall Street Journal's MoneyBeat:
In the years following the Great Recession, we have seen a rise in part-time employment in the US. The Atlanta Fed has been spending some quality time looking into what that means for wages and overall compensation, as part-time workers are less costly on that front (return on investment is another story, and we'd be interested to see data for that). From a recent post at the Macroblog, research economists Lei Fang and Pedro Silos:
Chart 1 shows the median wage growth rate of individuals over time. During the recovery, the median growth rate of full-time workers has been higher than that of part-time workers. In particular, wage declines were more common among part-time workers.
To further analyze the wage growth pattern of full-time and part-time workers, we subdivide the sample by education. Chart 2 plots the median wage growth rates for those with at least a bachelor's degree and those with some college or less. The median wage growth rates for full-time workers are larger than for part-time workers within each education group and highest for college graduates working full-time. Also apparent is that the weak wage growth of part-time workers is significantly influenced by the sluggish wage growth among those with less than a bachelor's degree.
Overall, we find that part-time workers as a group appear to experiencing a lower average wage growth rate than full-time workers during the recovery from the Great Recession. Education matters for wage growth, but the pattern of lower wage growth for part-time workers persists for people with broadly similar educational attainment.
Read the full post here.
European Banks had a check-up recently, and they did fairly well. Only 13 out of the Euro-zone's largest 130 banks failed the European Central Bank's stress tests. Wharton professor of international banking and finance Richard Herring knows a thing or two about stress tests for banks. He says the EU is now finally putting banks through "serious" tests, and the ECB is now on a path toward restoring trust in banks. He explains the process, and compares it to similar efforts in the US, in this Knowledge@Wharton interview:
The U.S. economy added another 200,000+ jobs in October, and the unemployment rate is now down to 5.8%, according to the Department of Labor. The labor force participation is back up to 62.8% (from 62.7% in September--not a significant difference). Here's a look at the unemployment trends from the Bureau of Labor Statistics:
Here are some of the key data from other areas we like to track in the monthly jobs report:
The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was about unchanged in October at 7.0 million. These individuals, who would have preferred full-time employment, were working part time because their hours had been cut back or because they were unable to find a full-time job.
In October, 2.2 million persons were marginally attached to the labor force, little changed from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.
Among the marginally attached, there were 770,000 discouraged workers in October, essentially unchanged from a year earlier. (The data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.4 million persons marginally attached to the labor force in October had not searched for work for reasons such as school attendance or family responsibilities.
Read the full report from the BLS here.
At first glance, Silicon Valley is an odd collection of strip malls, boxy, logo-adorned office parks, and low slung houses worth a lot more than one would imagine. But it all works as great soil in which to plant new tech ventures. Now, New York City, that's a place that looks, well, completely different. And yet, it may become the world's next tech hub. According to venture capitalist Eric Hippeau, the big apple is primed to move from being a place where software and applications get refined and developed to a place right at the center of the action. He explains his take in this Big Think interview:
In a new Economic Letter for the San Francisco Fed, John Krainer and Erin McCarthy take a look at the housing market. They note that recovery in housing has been slow. That seems to have a lot to do with low access to credit for new mortgages. But that may be changing:
Rising house prices chip away at the debt overhang on homeowner balance sheets. Thus, the incentives for borrowers to borrow and lenders to lend should be improving. On the lender side of the equation, we can get a sense of how credit standards have shifted over time from the Federal Reserve’s Senior Loan Officer Opinion Survey. The surveys suggest that lenders tightened standards on virtually all types of loans during the recession. This could be because earlier losses forced banks to focus on rebuilding capital buffers and reducing risk. Alternatively, lending terms may simply have been normalizing from unusually lenient standards during the housing boom. The surveys also indicate that much of this recession-era tightening dissipated fairly quickly for prime borrowers with high credit scores and low debt-to-income ratios seeking to purchase homes. Lending standards for subprime and nontraditional mortgages, however, have not eased to the same extent and had actually tightened again until recently.
Considering the basic message from the loan officer survey, one way to gauge whether credit access is changing is to look at the characteristics of actual loan flows. In Figure 1 we break down the flow of new mortgages according to their funding sources. The bottom blue-shaded section represents the percentage of privately funded loans with no government guarantee, including those from banks and private-label securitizations, that is, pools of mortgage loans that are not owned or guaranteed by government-sponsored enterprises like Fannie Mae or Freddie Mac. This group of mortgages currently makes up just under 20% of total loans. Although this is low by historical standards, the share has been growing since early 2013. Most of this increase stems not from a revival in the private-label mortgage-backed security market, but rather from an increased share of new jumbo loans that banks have retained on their balance sheets. Jumbo mortgage borrowers typically have strong credit histories, so this development is consistent with the survey result that suggests credit access has improved for prime borrowers.
A particularly important point is that bank-funded jumbo or nonconforming loans do not have any substitute readily available elsewhere in the mortgage market. To the extent that this type of lending is making up an increasing share of new mortgage lending, there appears to be some evidence that constraints on credit access are easing somewhat at this end of the market. In addition to an increasing share, the interest rate spread for jumbo mortgages began to narrow towards the end of 2013. The drop in rates coinciding with the increase in the jumbo share suggests that the supply curve of the banks has shifted in favor of holding these loans.
Read the full letter here.
The World Economic Forum's Global Gender Gap 2014 is out, and the Nordic nations dominate the top of the rankings. Iceland, Finland, Norway, Sweden, and Denmark, all score above 0.8 (the highest possible score is 1). The next two nations would be more of a surprise to most. Nicaragua, having cracked the top 10 two years ago, comes in at 6. Rwanda makes its debut on the rankings at 7, thanks in part to a high level of political participation among women and the top ranking in labour force participation.
Explore the ranking via this heat map.
You can access the full report, including data tables, here.
And watch a summary of the report below:
Top executive pay keeps going up, according to Mercer MThink. Performance awards have become the norm at many top corporations, so the rising stock values are one part of the significant increases over the last two years, but Long Term Incentives might be the most interesting piece of the puzzle, at least for CEOs. (full-size graphic available here):
Real Gross Domestic Product expanded in the third quarter, but the rate of expansion slowed. GDP rose at an annual rate of 3.5% in the third quarter, according to the advanced estimate from the Commerce Department. This qualifies as a deceleration, since the last revised estimate for growth in the second quarter came in at 4.5%. The Bureau of Economic Analysis report points to inventory investment as the chief reason: it went up in the second quarter and came back down in the third quarter. Consumer spending and exports of goods and services also decelerated.
Here is an updated look at the trend:
Read the BEA release here.
Marc Andreessen looks at the valuation figures attached to a lot of tech companies, and some of them look a bit high. And yet he doesn't seem so worried about another tech bubble. In fact, as he told the WSJ.DLive conference, he expects to see more billion-dollar tech companies to come to a virtual neighborhood near you soon.
Home prices continued to gain in most markets across the country in August. But the rate of gain continued to slow, according to the Case-Shiller Home Price Indices. The 10 and 20-city composites gained 0.2% in August. The year-over-year gains came in at 5.5% and 5.6% respectively, "both down from the 6.7% reported for July."
From the release:
“The deceleration in home prices continues,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “The Sun Belt region reported its worst annual returns since 2012, led by weakness in all three California cities -- Los Angeles, San Francisco and San Diego. Despite the weaker year-over-year numbers, home prices are still showing an overall increase, as the National Index increased for its eighth consecutive month.
“The large extent of slower increases is seen in the annual figures with all 20 cities; the two composites and the national index all revealing lower numbers than last month. The 10- and 20-City Composites gained 5.5% and 5.6% annually with prices nationally rising at a slower pace of 5.1%. Las Vegas continues to see a sharp deceleration in their annual home prices with a 10.1% annual return, down just below three percent from last month. Miami is now leading the cities with a 10.5% year-over-year return. San Francisco, which has shown double-digit annual gains since November 2012, posted an annual return of 9.0% in August.
“Despite softer price data, other housing data perked up. September figures for housing starts, permits and sales of existing homes were all up. New home sales and builders’ confidence were weaker. Continued labor market gains, low interest rates and slower increases in home prices should support further improvements in housing."
Read the full release here.
Early next month Europe will mark the 25th anniversary of the Berlin Wall coming down. For economists, the anniversary is an excuse to look at how the opening of markets in Eastern Europe has affected the global economy and, more importantly, the markets in Eastern Europe themselves. Last week, the IMF convened meetings on "Building Market Economies in Europe" in Warsaw. Warsaw has turned out to be a poster-city of sorts for how to build economic dynamism. As IMF Deputy Managing Director David Lipton noted, "Warsaw continues to show the kind of dynamism that we can only dream of in cities of the US or Western Europe."
The IMF put together this short video for the meetings.
Japan prime minister Shinzo Abe has received a lot of kudos for his efforts to rethink and restructure economic policy. Japan's economy needed a jump-start of some sort, and "Abenomics" has been getting a lot of attention worldwide, with many looking at it as a possible model. Stephen Roach is not so impressed. Or at least he is not yet impressed. Writing at Project Syndicate, Roach says there is a lot to be done in Japan, and that Abes next policy moves will be critical.
Abenomics, one might conclude, is basically a Japanese version of the failed policy combination deployed in the United States and Europe: massive unconventional liquidity injections by central banks (with the European Central Bank apparently now poised to follow the Fed), but little in the way of fundamental fiscal and structural reforms. The political expedience of the short-term monetary fix has triumphed once again.
Such a gamble is especially problematic for Japan. With an aging – and now declining – working-age population, it has limited scope for reviving growth. Japan must either squeeze more out of its existing workforce by boosting productivity, or uncover new sources of demand at home or abroad.
At home, that could mean adding workers, either by boosting female participation in the work force, which, at 63%, is among the lowest in the developed world, or relaxing immigration restrictions. Unfortunately, there has been little progress on either front. Moreover, even if the political will to launch third-arrow structural reforms were suddenly to strengthen – a dubious proposition – any productivity payback would most likely take a long time to materialize.
That leaves external demand, which underscores what is perhaps Abenomics’ most serious strategic flaw: It does not take into consideration some of the biggest changes that are likely to occur in the global economy. That is a great pity, because Japan is well positioned to take advantage of one of the most powerful global trends – the coming rebalancing of the Chinese and US economies.
Read Last Chance for Japan? here.
"There are about 232 million international migrants in the world," Dilip Ratha tells us in the Ted Talk below. And the vast majority of them send money home. The total sum of these remittances each year exceeds 400 billion dollars. That's quite a chunk of change, and not an insignificant piece of the global economy. And yet it is something we don't often think about. Ratha argues that remittances can have a much greater influence on those people living in developing economies than other forms of commerce and foreign aid. But only when it is not blocked by government policy, or hampered by expensive exchange costs.
In a piece for the McKinsey Quarterly, James Manyika, Jaana Remes, and Jonathan Woetzel take a look at prospects for future growth, globally. They point to demographic data as a reason to be concerned. But they quickly shift the focus to what they argue is the real key to global gdp: productivity. Here is an excerpt:
The past 50 years have seen unusually rapid growth in GDP and GDP per capita (Exhibit 1). How likely is this growth to continue? Given the demographic drag that’s already coming into play, prospects for future growth—and the related implications for debt levels and future pension liabilities—will depend very heavily on sustained productivity growth. But arriving at useful forecasts of the productivity of future workers can be difficult.
It may be helpful to look back at lessons from the research of the McKinsey Global Institute (MGI), which during the last 25 years has analyzed the causes of differences in labor productivity between industries, sectors, and countries. These lessons help explain why some have thrived while others have fallen behind. To help celebrate McKinsey Quarterly’s 50th anniversary—and to examine the future prospects for economic growth around the globe—MGI looked forward and backward in time at productivity performance and economic growth.
We found that a simple extrapolation from the past does indeed suggest an impending decline in global growth—the result of a sharp decline in the number of available workers. A closer look, however, reveals substantial opportunities to maintain relatively high GDP growth rates through continued growth in labor productivity. Whether these opportunities are realized will depend on the reforms of policy makers and the ingenuity of managers and engineers, particularly in sectors with big productivity gaps. Can companies harness machine learning and artificial intelligence to raise the productivity of knowledge workers? What potential remains for shop-floor productivity gains as telematics and other advanced technologies pave the way for major process improvements? How far will we be able to expand the talent pool through the fuller economic engagement of women?
The bottom line is this: while half-century forecasts are hazardous—particularly for the forecaster!—a productivity-based perspective on the future of growth suggests that a demographic slowdown today need not lead to economic stagnation tomorrow.
Kip Tindell, CEO of The Container Store, has shared his company's secrets to success in a book: Uncontainable: How Passion, Commitment, and Conscious Capitalism Built a Business Where Everyone Thrives. The title tells it all. Or at least the subtitle does. In this short interview for Big Think, Tindell makes the case that the not-so-secret to success is hiring the best people, and paying them well. And he explains The Container Store's "one equals three" philosophy, That is, one good employee ends up producing as much as three average employees. Take a look:
The boys (and girls) of Wall Street got a lecture yesterday and told to clean up their act. Speaking at a workshop on "Reforming Culture and Behavior in the Financial Services Industry," New York Fed president William Dudley connected the dots between the overall state of the financial sector, and the behavior of those working in it.
I reject the narrative that the current state of affairs is simply the result of the actions of isolated rogue traders or a few bad actors within these firms. As James O’Toole and Warren Bennis observed in their Harvard Business Review article about corporate culture: “Ethical problems in organizations originate not with ‘a few bad apples’ but with the ‘barrel makers’.”3 That is, the problems originate from the culture of the firms, and this culture is largely shaped by the firms’ leadership. This means that the solution needs to originate from within the firms, from their leaders.
What do I mean by the culture within a firm? Culture relates to the implicit norms that guide behavior in the absence of regulations or compliance rules—and sometimes despite those explicit restraints. Culture exists within every firm whether it is recognized or ignored, whether it is nurtured or neglected, and whether it is embraced or disavowed. Culture reflects the prevailing attitudes and behaviors within a firm. It is how people react not only to black and white, but to all of the shades of grey. Like a gentle breeze, culture may be hard to see, but you can feel it. Culture relates to what “should” I do, and not to what “can” I do.
A number of factors have contributed to the cultural failures that we have seen. An important question is whether the sheer size, complexity and global scope of large financial firms today have left them “too big to manage.” Large problems can originate in small corners of these firms, as illustrated by the Financial Products Group experience at AIG, and the “London Whale” episode at JPMorgan. Differences in attitudes and business practices across countries can also be difficult to reconcile within a firm’s overall compliance function. Recent fines against BNP Paribas for violating U.S. sanctions programs and providing dollar funding to a country engaged in genocide and against Credit Suisse for facilitating tax evasion by U.S. citizens, point to these challenges. Another important element affecting culture has been the shift in the prevailing business model away from traditional commercial and investment banking activities to trading; that is, from client-oriented to transaction-oriented activities. Clients became counterparties—the other side of a trade—rather than partners in a long-term business relationship. In general, interactions became more depersonalized, making it easier to rationalize away bad behavior, and more difficult to identify who would be harmed by any unethical actions.
High-powered pay incentives linked to short-term profits, combined with a flexible and fluid job market, have also contributed to a lessening of firm loyalty—and, sometimes, to a disregard for the law—in an effort to generate larger bonuses. Often allegiance to an external network of traders has been more important than the ties the trader has to his or her particular employer. This is particularly evident in the illegal manipulations of the London Interbank Offered Rate (LIBOR), and with respect to reference rates in the foreign exchange markets.
Read the full speech here.
For at least a couple thousand years, India and China were the big kids on the block. That is, their economies were significantly larger than any others. And then the Industrial Revolution happened and European economies rose. And the the upstart U.S. stepped in. Now? India and China are back. This Economist live chart illustrates the ups and downs:
Over at the OECD's Insight blog, Brian Keeley suggests we look at global inequality in two ways. There is inequality between nations, and inequality between people And if you look out over a period of centuries, it is striking how much inequality between nations/economies has grown. Just a couple of centuries back, rich nations "had only about double the income of the rest of the world." The industrial revolution changed all that.
There are reasons to think that the long period of de-globalisation in the 20th century was reflected in global income inequality, and, in particular, in an unusual pattern in global income distribution. Typically, we’d expect to see a “bell curve” – lots of people with incomes around the average and, at either end of the curve, some people with extremely low incomes and a few with extremely high incomes. But in the mid-20th century, we see the emergence of a curve with two “bumps”.
It seems likely that these two bumps reflect the divisions of the post-World War II economy: On one side is the “rest of the world,” which included many communist states that actively pursued narrow income gaps; on the other is the “wealthy West,” which enjoyed increasing prosperity while also pursuing policies to narrow inequality.
Beginning in the 1980s, the bumps begin to fade. In a globalising economy, the wealth gap between countries began to narrow as places like China entered the global economy. By contrast, the wealth gap within countries began to rise. In part, that was a result of the collapse of the Soviet Union and the Eastern bloc. But it also reflects rising inequality in OECD countries. Since the 1980s, they, like many other countries, have faced tough choices over how to prosper in an increasingly global economy. In some cases, policies that have been good for competitiveness have not been all that great for equality.
Gas prices are down. And they are down significantly, because the price of oil is down significantly. Why is the price of oil down? As Jason Bellini explains in this brief video from the Wall Street Journal, it has something to do with supply and demand. And shocking as it may seem, politics:
Retail sales dipped in September, but are still well above where they were a year ago. Sales came in at $442.7 billion for the month, a 0.3 percent decrease from August sales, according to the Commerce Department. Overall sales were up 4.3% over September 2013. Auto sales alone are up over 10% compared to a year ago. From the Census Bureau:
Reuters' Jason Lange called the sales report a "worrisome economic signal." Read the release here.
"Employers are loosening the purse strings, ever so slightly," according to Mercer MThink. The results of a Mercer survey on employee compensation give hope that firms are increasing pay and overall compensation in order to keep top talent. Here is a look at some of the topline findings (full-size graphic available here):
VoxEU has re-posted a 2007 column by newly minted Nobel Economics Prize laureate Jean Tirole. In the column, Tirole outlines reforms that the government of France needed to make--and still needs to make, he would argue--in order to best serve its population. Here is an excerpt:
High quality public services, infrastructure that facilitates “economic dynamism”, a reduction in the debt left to our children. These expectations of the French people cannot be met unless the state becomes effective. Reforms are urgent, but difficult. To achieve them, a four-pronged approach is required: restructuring, competition, evaluation and accountability.
Many countries have undertaken fundamental governmental reforms based on a consensus between political parties and unions. In the 1990s, the Swedish Social Democrats government made large cuts in the civil service. Ministers, who formulate overall strategy and make decisions on resource allocation, have to rely on a small number of civil servants. Operational details must therefore be delegated to a large number of independent agencies, each of which can recruit and remunerate their employees as they choose. These independent agencies operate under strict budgetary limits that ensure the sustained delivery of public services.
Around the same time, Canada cut government expenditure by 18.9% without social turmoil – and without greatly reducing health, justice, or housing programmes. They did this while maintaining tax levies, so the result was a reduced public deficit and falling public debt. Spending that could not be clearly justified in terms of the resulting service to the public was pruned. Subsidies for entrepreneurial projects and privatisation facilitated the elimination of one in six positions in the civil service. Indeed the sort of government reorganisation undertaken in Canada could only be dreamed of in France with its often nightmarish collection of laws and fiscal regulations. The Canadians have a single service for the calculation and collection of taxes and a one-stop-shop for government-business relations.
Read Four principles for an effective state here.
The 2014 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel has been awarded to French economist Jean Tirole, "fr his analysis of market power and regulation." From the press release:
From the mid-1980s and onwards, Jean Tirole has breathed new life into research on such market failures. His analysis of firms with market power provides a unified theory with a strong bearing on central policy questions: how should the government deal with mergers or cartels, and how should it regulate monopolies?
Before Tirole, researchers and policymakers sought general principles for all industries. They advocated simple policy rules, such as capping prices for monopolists and prohibiting cooperation between competitors, while permitting cooperation between firms with different positions in the value chain. Tirole showed theoretically that such rules may work well in certain conditions, but do more harm than good in others. Price caps can provide dominant firms with strong motives to reduce costs – a good thing for society – but may also permit excessive profits – a bad thing for society. Cooperation on price setting within a market is usually harmful, but cooperation regarding patent pools can benefit everyone. The merger of a firm and its supplier may encourage innovation, but may also distort competition.
Here is video of the announcement at the Royal Swedish Academy of Sciences: