Where Do Economic Events Originate?

Michael Pettis writes:  Because the US economy and its financial markets are so large and flexible, and because many other economies have large players – usually the state – whose behavior can drive deep domestic imbalances, it is often the US that responds to events driven abroad. For example after the 1997 Asian external debt crisis, a number of Asian countries began to accumulate US dollar reserves, and this accumulation accelerated in the next decade. It is purely an accounting identity that if other countries become next exporters of capital to the US, they must run current account surpluses (although not necessarily bilateral surpluses, which are in fact unlikely) and the US must run current account deficits (although not necessarily bilateral deficits, of course), and it is also purely an accounting identity that if the US runs a current account deficit, its domestic savings must be lower than its domestic investment.

Every economist knows this, or should know this, and yet to say that the surge in the US current account deficit during the decade before the 2007-8 crisis was a necessary adjustment to Asian reserve accumulation policies of the last decade is considered an extremely political statement. Some economists in the US counter this claim by arguing that the US deficit cannot be caused by Asian reserve accumulation polices because it has bilateral deficits with many countries, or, what is even more absurd, because it has a low savings rate. It is true that in principle the capital-flow imbalances could have been caused by a decision by American households to reduce their savings rates sometime around 1997, which forced someone else – the East Asians, for some reason – to raise their savings rate, but it is hard to explain why excess US demand for foreign savings, and not excess supply of foreign savings, would have been accommodated by declining, not rising, interest rates.

It seems so logical, and yet it has become such a politicized argument in which the balance or payments identities are almost never invoked. I suspect the prejudice that only Americans can act independently, and everyone else must respond, may exist at least in part because most economists have either studied in the US or have studied under US-trained economists, and so without realizing it have developed a US-centric view of the world that cannot posit an alternative world.

America 1, 2, 3

 

Few Women at the Top in America, Especially in Journalism

Susan B. Glasser writes: There are few women at the top anywhere in America, and it’s a deficit that is especially pronounced in journalism, where women leaders remain outliers, category-defying outliers who almost invariably still face a comeuppance.

Sheryl Sandberg may be a billionaire and a bestseller, but the Facebook COO’s self-help book is  not a recipe for success in this or any other field. At least not yet. All of these women in journalism, Abramson perhaps most of all, have leaned in. They paid close attention to those anxiety-producing cover stoirs in the Atlantic about having it all. They looked men in the eye and asked for promotions and raises (well, sorta, kinda, maybe—look what apparently happened when even someone as powerful as Abramson dared to complain.   They somehow overcame the stigma of being called bossy as girls, and most of them have balanced both challenging career experiences and raising children at home. They did not lack in confidence—or at least figured out how to project it, even when they weren’t in fact entirely feeling it. In short, these women editors have done most of the things the professional women’s empowerment class recommends.

But still, they were not really able to succeed. They—and I—remained stuck in a trap not of our own making. It’s called editing while female.  I said nothing when I worked as an editor and considered myself privileged—if more than occasionally terrified—when I was sent off to cover the war in Afghanistan, and heard the sound of gunfire for the first time while reporting on the battle of Tora Bora. I learned Russian and traveled to Iraq and slept on a hospital roof in Basra with a team of British snipers and co-wrote a book about Vladimir Putin. I edited Roll Call, a newspaper about Congress, in my 20s. I edited the Washington Post Outlook section and Foreign Policy magazine.

I was an optimist, even about the Internet, killer of tradition, and I believed that the bad old days of institutionalized discrimination were mostly behind us. As for the other stuff, the lingering evidence this was not entirely the case, I just avoided it. I didn’t write about how isolated I felt as a young working mom surrounded by older men or how to run a meeting while having a miscarriage. I did not blog about the male editor who told me I shouldn’t worry about having my own slot as a Washington Post foreign correspondent alongside my husband, since I couldn’t possibly hope to be his peer as a journalist anyway. Even when I became a department head and discovered that I was paid less than all of the other senior editors at the Post, I said nothing, because after all, I was younger and I was a woman and I didn’t want it to be about that. And besides, speaking up would mean being judged. And inevitably being found wanting.

Brenda Starr Reporter

The New Economics? Man Motivated by Self-Interest and His Social Relations

Dennis J. Snower writes:  Mainstream economics – and the concept of homo economicus – recognizes only half of what makes us human. We are undoubtedly motivated by self-interest. But we are also fundamentally social creatures.

Snower argues that the world seems to be on the verge of another “great transformation,” with changes far more profound than news-grabbing economic or geopolitical headlines about Asia’s economic rise or the fires in the Middle East. The coming changes will fundamentally redefine the nature of our economic interactions – and the social dynamics that underlie them.  The New Human Being

New Humans

 

Is the New Normal the Way to Live?

Robert Schiller writes:  The hope that economic growth promotes peace and tolerance is based on people’s tendency to compare themselves not just to others in the present, but also to the what they remember of people – including themselves – in the past. According to Friedman, “Obviously nothing can enable the majority of the population to be better off than everyone else. But not only is it possible for most people to be better off than they used to be, that is precisely what economic growth means.”

The downside of the sanctions imposed against Russia for its behavior in eastern Ukraine is that they may produce a recession throughout Europe and beyond. That will leave the world with unhappy Russians, unhappy Ukrainians, and unhappy Europeans whose sense of confidence and support for peaceful democratic institutions will weaken.

While some kinds of sanctions against international aggression appear to be necessary, we must remain mindful of the risks associated with extreme or punishing measures. It would be highly desirable to come to an agreement to end the sanctions; to integrate Russia (and Ukraine) more fully into the world economy; and to couple these steps with expansionary economic policies. A satisfactory resolution of the current conflict requires nothing less.

Underconsumptionist

Contribution of Women on Boards

As we introduce the new and re-newed women on the EU Commission, we decided to visit the continuing contributions of Morten Huse to our understanding of the subject of women on boards. The EU Commission has much in common with a corporate board.

Morten Huse collarborating with Sabina Nielsen concludes that Women’s ability to make a contribution to the board may be attributable to their different leadership styles. The presence of women on corporate boards seems to increase board effectiveness through reducing the level of conflict and ensuring high quality of board development activities.
The Contribution of Women on Boards

Women on Boards

Companies Do Better with Women on Boards

Companies with at least one female director had better returns for six straight years. Which raises the question: If the financial argument for gender diversity is so compelling, then why aren’t companies recruiting more women to their boards? Or, to put it more broadly, why do public companies need an incentive to do something that is clearly in their own interest?

One solution to this dearth of women may be demographic. As more women graduate from college — in most advanced economies, their graduation rate is now higher then men’s — eventually more women will find their way to boardrooms and corner offices. Except that this isn’t necessarily true. By 2035, studies show, women will still be underrepresented.

In Silicon Valley, again, the shortage is even more acute. Only 20 percent of computer-science grads are women, down from 37 percent in 1985. The proportion of women in computer jobs declined to 27 percent in 2011 from 37 percent in 1990. Overall, women make up almost half the workforce. Yet they aren’t choosing careers in science, technology, engineering and math.

Women on Corporate Boards

How to Address Income Inequality

Michael Spence writes:  High-priority items are fairly clear. In the short run, the top priority is income support for the poor and the unemployed, who are the immediate victims of crises and the underlying imbalances and structural problems, which take time to remove. Second, especially with rising income inequality, universal access to high-quality public services, particularly education, is crucial.

Inclusion sustains social and political cohesion – and hence the very growth needed to help mitigate the effects of rising inequality. There are many ways for economies to fall short of their growth potential, but underinvestment, especially within the public sector, is one of the most potent and common.   Good and Bad Income Inequality

Equality of Opportunity?

 

Revving Up Stalled Economies Worldwide

Stephen A. Roach writes: The latest slowdown in developed countries is not so easily dismissed. Lacking cyclical vigor in the aftermath of severe recessions, today’s economies are finding it especially difficult to shrug off the impact of shocks and break out of anemic growth trajectories.  Consider the US. Though annual GPD growth is estimated to have rebounded to 4% in the second quarter of 2014, following the 2.1% first-quarter contraction, that still leaves average growth in the first half of the year at a measly 1%.

The problem is even worse in Japan, where consumers brought forward expenditures in anticipation of the sales-tax hike. The 6.1% first-quarter growth surge to which this gave rise was more than offset by a 6.8% second-quarter contraction. The net result in the first half of this year – an average decline of 0.3% – is broadly in line with the 0.2% contraction now estimated for the fourth quarter of 2013. With the trajectory of real (inflation-adjusted) growth having moved into negative territory, on average, for three consecutive quarters, Japan may once again be reverting to recessionary form.      Stalled Economies Need Fundamental Repair

Is a Stalled Economy Like a Stalled Car?

Most US Companies Still Pay US Taxes When They Move (Inversion)

Matt Levine makes brilliantly clear how the US tax system works when companies are international.

The most recent story on the Burger King press page remains “Burger King Restaurants Bring Back Chicken Fries,” but events have overtaken the chicken fries. After many media reports, Burger King and Tim Hortons have put out a press release confirming that they’ve been holding merger talks, and imagine what the catering is like. This announcement has set off a frenzy of condemnation, since any merger would be what is called an “inversion,” turning the combined Burger Tim into a Canadian company and thus freeing it from its harsh but patriotic duty to pay U.S. income taxes.

This condemnation is a bit confused, so I thought it might be helpful to explain very simply (too simply!) how the U.S. corporate income tax system works. There is nothing new here, lots of people know this, but weirdly lots of people don’t, too. It works like this.   Matt Levine Explains Inversion

US Tax Consequences of Inversion

 

Protests at Jackson Hole

More and more people realize that government fiscal policies impact them.  Protesters, worried that the central bank is about to put its foot on the brakes, have come to the Federal Reserve’s Jackson Hole retreat this year to urge the central bank to hold off and give the economy more time to heal. This is believed to be the first time there ever has been protesters at the event.

“We strongly urge the Federal Reserve to reject the calls to raise interest rates and slow the economy down,” said The Center for Popular Democracy, a coalition of 70 organizations, in a letter to Federal Reserve Chairwoman Janet Yellen and her colleagues.

“Although the stock market has roared back to life, and the wealthiest Americans are richer than ever before, too many of us struggle to secure even basic levels of dignity,” the letter said.

Becky Dernbach, 28, an organizer with Neighborhoods Organizing for Change — an advocacy group for low-income residents in Minneapolis — said she came to Jackson Hole to make sure that the voices of average workers were being heard by the Fed.

Kendra Brooks, 42, a resident of Philadelphia who has an MBA but still found herself out of work even after her unemployment benefits ended, said the American dream has “fizzled” in this economy.  “We are not their [the Fed’s] primary concern. They are more focused on the top end of the [income] scale,” she said.

The activists said the Jackson Hole protest was the start of a new effort to get officials to understand the economy is broken.  The group held a two-hour meeting with Kansas City Fed President Esther George, who has been one of several regional bank presidents advocating for a rate hike sooner rather than later.

Ady Barkan, a staff attorney with the Center for Popular Democracy, said that the group appreciated the meeting but that the two sides had talked past each other.  George told the group that higher rates might not come soon, but said are coming and will balance the economy, he said.

“That is completely wrong,” Barkan said. The way to combat imbalance in the economy is through strong regulation “not throwing people out of work,” he said.

Debate Over Monetary Policy