On the rocky road to globalization

James Surowiecki targets the problems with the Trade Agreement, which in part arise from lack of transparency, and the failure of anyone to stand up and explain the deal.  Surowiecki targets the Investor State Dispute Settlement created to resolve issues when a foreign company does business in a local country.  Disputes are currently settled not in the country where business is being conducted, but rather by a panel of three international lawyers.  This has become such a popular way to resolve matters that law schools now teach courses on the subject.

Lise Johnson, the head of inbestment law and policy at the Columbia Center on Sustainable Investment said, “ISDS was originally meant to protect investors against seizure of their assets by foreign governments.  Now ISDS lawsuits go after things like cancelled licenses, unapproved permits, and unwelcome regulations.”

Practically speaking, the ISDS style provisions may have made sense at one time.  Now they are outdated and unnecssary.  Including them in trade agreements undermines the broader case for free trade by “making it look like exctly what people fear–a system desgined to put corporate interests above public ones.”

Gunboats used to achieve what ISDS may have achieved for a time.  Neither are necessary today.

Two extreme scenarios face Greece: accept the creditors’ final offer or leave the eurozone. By accepting the offer, Grrece would have to agree to a fiscal adjustment of 1.7 per cent of gross domestic product within six months.

Martin Sandbu calculated how an adjustment of such scale would affect the Greek growth rate. I have now extended that calculation to incorporate the entire four-year fiscal adjustment programme, as demanded by the creditors. Based on the same assumptions he makes about how fiscal policy and GDP interact, a two-way process, The Greek debt-to-GDP ratio would start approaching 200 per cent. The acceptance of the troika’s programme would constitute a dual suicide — for the Greek economy, and for the political career of the Greek prime minister.

Would the opposite extreme, Grexit, achieve a better outcome? You bet it would, for three reasons. The most important effect is for Greece to be able to get rid of lunatic fiscal adjustments. Greece would still need to run a small primary surplus, which may require a one-off adjustment, but this is it.

Greece would default on all official creditors — the International Monetary Fund, the European Central Bank and the European Stability Mechanism, and on the bilateral loans from its European creditors. But it would service all private loans with the strategic objective to regain market access a few years later.

The second reason is a reduction of risk. After Grexit, nobody would need to fear a currency redenomination risk. And the chance of an outright default would be much reduced, as Greece would already have defaulted on its official creditors and would be very keen to regain trust among private investors.

The third reason is the impact on the economy’s external position. Unlike the small economies of northern Europe, Greece is a relatively closed economy. About three quarters of its GDP is domestic. Of the quarter that is not, most comes from tourism, which would benefit from devaluation. The total effect of devaluation would not be nearly as strong as it would be for an open economy such as Ireland, but it would be beneficial nonetheless. Of the three effects, the first is the most important in the short term, while the second and third will dominate in the long run .

A sudden introduction of a new currency would be chaotic. The government might have to impose capital controls and close the borders. Those year-one losses would be substantial, but after the chaos subsides the economy would quickly recover.

So if this were the choice, the Greeks would have a rational reason to prefer Grexit. This will, however, not be the choice to be taken this week. The choice is between accepting or rejecting the creditors’ offer.

The eurozone creditors may well decide that it is in their own interest to talk about debt relief for Greece at that point. Just consider their position. If Greece were to default on all of its official-sector debt, France and Germany alone would stand to lose some €160bn. Angela Merkel and François Hollande would go down as the biggest financial losers in history. The creditors are rejecting any talks about debt relief now, but that may be different once Greece starts to default. If they negotiate, everybody would benefit.

The bottom line is that Greece cannot really lose by rejecting this week’s offer.

IMF chief Christine Lagarde couldn’t “preclude” a Greek exit, after four months of tortuous bail-out talks that have failed to get both sides closer to a deal to release aid to the country.

But Greece didn’t come up at all during a formal symposium session when finance ministers and central bank chiefs listened to short speeches by leading economists on how to boost growth momentum, a German G7 delegation source said.

A so-called “Grexit” was not a scenario that Moscovici thought likely, however, and he said the Commission was “dedicated” to keep Greece in the euro zone.

Tsakalotos, who has infused a more measured tone into the talks, blamed some of the lack of headway on the hardened stance of the IMF.

“The IMF is being very, very tough on all the issues and not really engaging in proper discussion”, Tsakalotos said.

The United States dollar on Thursday hit its highest against the yen since 2002 while stocks fell after Chinese brokerages tightened margin rules and the IMF head played down talk of an imminent deal to keep Greece afloat.  But “one won’t happen without the other”, he insisted.

The Greek government was warned on Thursday that it only had a few days to reach a deal otherwise there wouldn’t be enough time for eurozone parliaments to agree to the disbursal of new loans before the end of the month, when the current program extension ends.  “The Greek government has still not made it clear how it intends to make the 1.6-billion-euro repayment, the first tranche of which falls due next Friday”.

‘Any country that doesn’t meet its commitment with the Fund…is declared in arrears and they have no access to IMF funding, ‘ he said, adding that he expected Athens wouldn’t miss any payments.

Greece’s conservative opposition criticized the government’s handling of the negotiation. “We are going into these negotiations with the aim to have an agreement with our partners by Sunday”. But it looks increasingly likely that it will have to compromise.

“In the absence of a quick agreement on structural implementation needs, the risk of an upward adjustment of the risk premia demanded on vulnerable euro area sovereigns could materialise” noted the ECB’s bi-annual financial stability report.

He called for agreement quickly on the broad terms of a deal to avoid the risk of stumbling on hard details at the last moment: “I think waiting until the day or two before whatever the deadline is, is just a way of courting an accident”.

The Atlanta Fed writes: Despite a strong impression that entire careers spent with one employer are a thing of the past, some have declared the image of job-hopping millennials a myth. These reports are all based on a September 2014 news release from the U.S. Bureau of Labor Statistics (BLS) stating that among every employee age group (even the youngest), median job tenure has not declined from when it was reported 10 years earlier. (Median job tenure is basically the “middle” amount of job tenure. If all workers are lined up from lowest tenure to highest tenure, the median tenure would be the amount of time the person in the middle of that line has been with his/her employer.)

Chart 1 illustrates the biennial data on job tenure reported by the BLS and interpreted by the reports mentioned above as indication that job tenure is not falling. Each line represents an age range, from 20- to 30-year-olds at the bottom (the lowest median tenure among all age groups) to 61- to 70-year-olds on the top (the age group with the highest median tenure). It sure doesn’t look as though workers at each age group are staying with their jobs for shorter periods.

However, the problem with simply comparing median tenure across time by age group is that different ages at different time periods face different labor market institutions, incentives, and expectations. There are generational, or cohort, differences in what the labor market looks like and has to offer a 25-year-old born in 1923 and a 25-year-old born in 1993. In other words, each generation is represented across the age groups at different points in time.

The different colored points across age groups in chart 1 indicate the range of years the people in that particular year, in that age group, were born (and to what named generation they belong). The labor market facing a 31-to 40-year-old baby boomer in 1996 looks quite different from the labor market facing a 31-to-40-year-old Gen Xer in 2012, and the social, economic, and behavioral differences are even more dramatic the farther apart the generations become.

For example, one of the most dramatic changes facing workers has been the transformation from defined-benefit to defined-contribution retirement plans. The number of years a worker spends with an employer is no longer an investment in the employee’s retirement.

To get a more accurate picture of the lifetime pattern of median job tenure and how it has changed across generations, we use the same BLS data used to produce the chart above to group workers into cohorts, or people who have similar experiences by virtue of when they were born.

What we see in this chart – using the 20- to 30-year-olds, for example – is that the median job tenure was four years among those born in 1953 when they were between 20 and 30 years old. For 20- to 30-year-olds born in 1993 (millennials), however, median job tenure is only one year. Similar – and some even more dramatic – declines occur across cohorts within each age group.

The Economist wonders:  A few years ago a wise pollster—pondering how labels like left-wing and right-wing have been scrambled by globalisation—came up with a different way to sort voters in Western democracies. Electorates, he suggested, broadly divide into two groups, one of which sees change and the outside world as a threat, and a second which takes a more optimistic view, looking for opportunities to harness global forces and turn them to good ends. The pollster, Stefan Shakespeare of YouGov, calls these two camps “Drawbridge Up” and “Drawbridge Down” people.

President Barack Obama was mugged by the Drawbridge Up bit of America, or at least by its elected representatives. A large majority of Democrats in the House of Representatives, joined by hard-right Republicans, voted to stall (and potentially kill) his hopes of reaching a big new free-trade pact between America and 11 other Pacific Rim nations, the Trans-Pacific Partnership (TPP). The Senate has already passed a bill that would allow Mr Obama to press ahead with TPP, and the House may return to the question as early as Tuesday.

Reflecting how trade scrambles partisan positions, Mr Obama is strongly supported by Republican leaders in Congress and their business allies. But Republicans are sufficiently divided that without substantial backing from moderate Democrats, TPP cannot happen.

Opposition to the president’s trade agenda involves an odd alliance between Democrats who distrust global trade and Republican hardliners who distrust Mr Obama and resent being asked to give him more authority to do anything. Some hard-right members of Congress go further, accusing the president of plotting to use TPP to rewrite immigration laws and regulate the economy in the name of fighting climate change (despite promises from Republican leaders that Congress can block such power-grabs).  TPP’s Future