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August 7, 2012

Latest Posts from Economist's View

Latest Posts from Economist's View

Posted: 21 Jul 2012 12:06 AM PDT
Posted: 20 Jul 2012 07:47 AM PDT
On Twitter, Modeled Behavior says:
This should be default liberal position. Recommended RT @MarkThoma: The Problem Isn't Outsourcing... - Robert Reich
However, for my taste, Reich gives in too much to the idea that income flows over the last several decades have followed changes in productivity. But they haven't, increases in the productivity of labor have not translated into corresponding increases in real wages, the gains have gone to the top of the income distribution instead, and it's not clear to me how calling for more a more competitive, more productive workforce will change that. Of course we want labor to be more competitive and more productive, but we also want workers to be rewarded when this happens:
The Problem Isn't Outsourcing. It's that the Prosperity of Big Business Has Become Disconnected from the Well-Being of Most Americans, by Robert Reich: President Obama is slamming Mitt Romney for heading companies that were "pioneers in outsourcing U.S. jobs," while Romney is accusing Obama of being "the real outsourcer-in-chief."
These are the dog days of summer and the silly season of presidential campaigns. But can we get real, please? The American economy has moved way beyond outsourcing abroad or even "in-sourcing." Most big companies headquartered in America don't send jobs overseas and don't bring jobs here from abroad. That's because most are no longer really "American" companies. They've become global networks that design, make, buy, and sell things wherever around the world it's most profitable for them to do so.
As an Apple executive told the New York Times, "we don't have an obligation to solve America's problems. Our only obligation is making the best product possible." ...
What's going on? Put simply, America isn't educating enough of our people well enough to get American-based companies to do more of their high-value added work here. ... Transportation and communication systems abroad are also becoming better and more reliable. In case you hadn't noticed, American roads are congested, our bridges are in disrepair, and our ports are becoming outmoded.
So forget the debate over outsourcing. The way we get good jobs back is with a national strategy to make Americans more competitive — retooling our schools, getting more of our young people through college or giving them a first-class technical education, remaking our infrastructure, and thereby guaranteeing a large share of Americans add significant value to the global economy.
But big American-based companies aren't pushing this agenda, despite their huge clout in Washington. They don't care about making Americans more competitive. They say they have no obligation to solve America's problems. ...
The core problem isn't outsourcing. It's that the prosperity of America's big businesses – which are really global networks that happen to be headquartered here – has become disconnected from the well-being of most Americans.
Mitt Romney's Bain Capital is no different from any other global corporation — which is exactly why Romney's so-called "business experience" is irrelevant to the real problems facing most Americans.
Without a government that's focused on more and better jobs, we're left with global corporations that don't give a damn.
Posted: 20 Jul 2012 07:11 AM PDT
Nouriel Roubini is gloomy and doomy:
American Pie in the Sky, by Nouriel Roubini, Commentary, Project Syndicate: While the risk of a disorderly crisis in the eurozone is well recognized, a more sanguine view of the United States has prevailed. For the last three years, the consensus has been that the US economy was on the verge of a robust and self-sustaining recovery that would restore above-potential growth. That turned out to be wrong, as a painful process of balance-sheet deleveraging – reflecting excessive private-sector debt, and then its carryover to the public sector – implies that the recovery will remain, at best, below-trend for many years to come.
Even this year, the consensus got it wrong, expecting a recovery to above-trend  annual GDP growth – faster than 3%. But the first-half growth rate looks set to come in closer to 1.5% at best, even below 2011's dismal 1.7%. And now, after getting the first half of 2012 wrong, many are repeating the fairy tale that a combination of lower oil prices, rising auto sales, recovering house prices, and a resurgence of US manufacturing will boost growth in the second half of the year and fuel above-potential growth by 2013.
The reality is the opposite: for several reasons, growth will slow further in the second half of 2012 and be even lower in 2013 – close to stall speed.
After explaining the reasons, Roubini concludes:
Policy responses will have very limited effect in stemming the US economy's deceleration toward stall speed: even with only a mild fiscal drag on growth, the US dollar is likely to strengthen as the eurozone crisis weakens the euro and as global risk aversion returns. The US Federal Reserve will carry out more quantitative easing this year, but it will be ineffective: long-term interest rates are already very low, and lowering them further would not boost spending. Indeed, the credit channel is frozen and velocity has collapsed, with banks hoarding increases in base money in the form of excess reserves. Moreover, the dollar is unlikely to weaken as other countries also carry out quantitative easing.
Similarly, the gravity of weaker growth will most likely overcome the levitational effect on equity prices from more quantitative easing, particularly given that equity valuations today are not as depressed as they were in 2009 or 2010. Indeed, growth in earnings and profits is now running out of steam, as the effect of weak demand on top-line revenues takes a toll on bottom-line margins and profitability.
A significant equity-price correction could, in fact, be the force that in 2013 tips the US economy into outright contraction. And if the US (still the world's largest economy) starts to sneeze again, the rest of the world – its immunity already weakened by Europe's malaise and emerging countries' slowdown – will catch pneumonia.
I'm more optimistic than he is that coordinated monetary and fiscal policies -- both within and across countries -- could help, though I am more bullish on fiscal policy and less so on monetary policy than most. But I am discouraged -- gloomy and doomy -- at the prospect that the needed policies have any chance at being enacted. (To be clear, I don't think monetary policy is a magic bullet, but I do think it can help. However, many, many people I respect think monetary policy can have significant effects, even now, I have to consider the chance that I am wrong, the threat of inflation seems remote, and unemployment is at crisis levels, so I support the calls for the Fed to do much more -- the chance that aggressive policy will help is much larger than the [very small] chance that it will do harm. I just don't want to let fiscal policymakers off the hook by setting expectations about what the Fed can do to revive the economy too high.)
Posted: 20 Jul 2012 07:02 AM PDT
David Glasner objects to Edmund Phelps diagnosis and cure for the eurocrisis:
It's Déjà vu All Over Again, by David Glasner: ...Edmund Phelps in the Financial Times ... tells us ... that the cause of the crisis is not Chancellor Merkel's insistence on austerity measures and labor-market reforms, but the failure of the governments on the verge of insolvency to emulate the German model.
Chancellor Angela Merkel and Wolfgang Schäuble, her finance minister, are right to oppose fiscal and bank unions without political union. Without any teeth in such agreements, the nations now besotted with wealth, private and social, could use the loans and grants for financing more deficits and more entitlements – another round of corporatist excess – rather than for smoothing the way to fiscal responsibility.
It is entirely possible, even likely, that wage reductions and labor-market liberalization would be beneficial for all European countries. But that is not the issue. France and Italy and other European countries can choose their own budgetary and labor-market policies. Those choices imply costs and consequences. High taxes and unproductive government expenditures will tend to depress growth rates. If France and Italy choose to grow at a slower rate than Germany, they have the right, as sovereign countries, to do so. The choice of a reduced rate of growth need not entail insolvency, and it is not Germany's job to impose a higher rate of growth on France and Italy than they want. Except for Greece, which is a special case, the potentially insolvent countries in Europe are facing insolvency not because of their budgetary and labor-market policies, but because of a sharp slowdown since 2008 in rate of growth in nominal GDP in the Eurozone as a whole (averaging just 0.6% a year since the third quarter of 2008). Why has nominal GDP not increased as rapidly since 2008 as it did before 2008? Some of us think that that it has something to do with policies followed by the European Central Bank, policies that by and large are determined by the country in which the ECB is domiciled. (Can you guess which country that is?)
But for some reason – I can't imagine what it would be — in the 670 words in his piece in the Financial Times, Professor Phelps, in discussing the causes of the Eurozone crisis and in defending Chancellor Merkel's role in the crisis, didn't mention the European Central Bank even once. Go figure.

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