Global Economy 2012
Foreign Policy Economy issue January/February 2012
Debt-ridden and hidebound, Europe may be on the verge of a painful breakup. America is still reeling from the 2008 financial crisis. Even China and India — the new engines of global growth — seem to be sputtering these days. Worse yet, the usual wonkish prescriptions don’t seem to be working anymore. So we asked 13 of the smartest people we know to give us their one out-of-the-box idea for fixing the global economy. Here’s what they recommend.
Read the Global Risks 2012 report in full
A good David & Goliath story and reminder of what is possible
Just say no to corporate greed: The case of Iceland
By Ellen Russell, economist and professor at Wilfrid Laurier University
(rabble.ca) All of us owe a debt of gratitude to the people of Iceland. They took a stand and held their ground when all of the forces of international capital were allied against them. Whether it is at Caterpillar or in the streets of Athens, we all benefit when people say no to paying the price for corporate greed. Every time we just say no, we have a better shot at demanding sanity in the face of barbarism.
Symbiosis: How the World Is Becoming Dependent on China’s Money
By Dambisa Moyo
As a growing and environmentally challenged China seeks natural resources abroad, it’s falling into cycles of mutual dependence with rich and poor countries alike.
Announcing the 2012 Albies!!
With 2012 down to its last day, it’s now safe to announce this year’s Albies — named in honor of noted political economist Albert O. Hirschman. The Albies are awarded to the best writing in global political economy over the past calendar year. The writing can be in a book, journal article, think tank report, blog post, whatever — the key is that the article makes you reconsider the way the world works.
UBS faces $1-billion in fines for Libor rigging: source
(Globe & Mail) Barclays was the first – and so far only – bank to settle charges of rigging the London interbank offered rate, known as Libor, a benchmark used for trillions of dollars worth of loans around the world. Tiny shifts in the rate, compiled from daily polls of bankers, could benefit dealers in complex products.
The fallout from the scandal forced Barclays’ chairman and chief executive to quit and prompted a political and public backlash against standards in banking across Europe and the United States. That was partly due to details in the Barclays settlement showing how traders brazenly gamed the system.
Libor is used to price financial products worth more than $300-trillion worldwide and regulators across the world are investigating more than a dozen banks for alleged rigging of rates going back to 2005 or even earlier.
Google Revenues Sheltered in No-Tax Bermuda Soar to $10 Billion
(Bloomberg) Google said it complies with all tax rules, and its investment in various European countries helps their economies. In the U.K., “we also employ over 2,000 people, help hundreds of thousands of businesses to grow online, and invest millions supporting new tech businesses in East London,” the Mountain View, California-based company said in a statement.
The Internet search giant has avoided billions of dollars in income taxes around the world using a pair of tax shelter strategies known as the Double Irish and Dutch Sandwich, Bloomberg News reported in 2010. The tactics, permitted under tax law in the U.S. and elsewhere, move royalty payments from subsidiaries in Ireland and the Netherlands to a Bermuda unit headquartered in a local law firm.
Last year, Google reported a tax rate of just 3.2 percent on the profit it said was earned overseas, even as most of its foreign sales were in European countries with corporate income tax rates ranging from 26 percent to 34 percent.
World Bank Warns Climate Change Could Devastate Global Economy
A new report … titled “Turn Down the Heat,” envisions a world that is warmer by an average of 4 degrees Celsius (7.2 degrees Fahrenheit). According to Jim Yong Kim, president of the World Bank, the report is meant to “shock [the world] into action.”
World Bank Climate Change Report Says ‘Turn Down The Heat’ On Warming Planet
* Poorest regions hit hardest
* World Bank focuses on climate change under new chief
* Must balance climate change with energy needs of poor
(Reuters) – All nations will suffer the effects of a warmer world, but it is the world’s poorest countries that will be hit hardest by food shortages, rising sea levels, cyclones and drought, the World Bank said in a report on climate change.
Under new World Bank President Jim Yong Kim, the global development lender has launched a more aggressive stance to integrate climate change into development.
“We will never end poverty if we don’t tackle climate change. It is one of the single biggest challenges to social justice today,” Kim told reporters on a conference call on Friday.
Will the Global Economy Tumble Off America’s Fiscal Cliff?
(TIME) The fiscal cliff would transfer to the rest of the world through many channels. The tax hikes and spending cuts would take cash out of the pockets of both companies and consumers, curtailing purchases of everything from German industrial equipment to Chinese-made blue jeans. A U.S. slowdown would also dampen commodity prices, hurting raw material exporters like Brazil and Russia. The jitters created by the uncertainty over U.S. fiscal policy would ripple through global financial markets as well.
Right now most economists are operating on the assumption that the U.S. will avoid falling off the cliff. The general consensus is that the two political parties will reach a compromise and put in place a more measured, long-term plan to reduce the budget deficit without producing a nasty recession in the process. … However the politics play out, the U.S. is facing a new era of fiscal austerity that will have a dampening effect on the economy. The issue is not if the U.S. will implement spending cuts and tax increases, but what the mix will be, and how deep they will go.
PBS: Income Inequality vs. Wealth Inequality
To Renminbi Or Not to Renminbi?
Why China’s currency isn’t taking over the world.
China growth model shift serves world’s interests
(China Daily) The gradual slowdown that China has experienced in recent months allows more leeway for its economic rebalancing which is also in the world’s interests, said an expert on China studies in Washington.
Slower growth would make it easier for China to carry out necessary adjustment of its growth model, one of the top priorities in its 12th Five-Year Plan, said Pieter P. Bottelier, a senior adjunct professor of China studies at the School of Advanced International Studies of the Johns Hopkins University, in a recent interview with Xinhua.
Highlights from IMF 2012
(Emerging Markets) Ultimately the outlook for the global economy will depend on how effective policymakers are in dealing with the eurozone crisis. It is also hard to read the outlook until after the US general election and the handover of power in Beijing that takes place a few days later.
But delegates were able to leave on one bright note. The International Monetary Fund’s powerful policymaking committee announced measures to use extra resources to boost efforts to help some of the world’s poorest countries. Finance ministers and central bank governor members of the IMFC approve the injection of a $2.7 billion windfall from the sale of gold reserves held by the IMF into a special fund aimed at helping low-income countries.
Inequality and the world economy
True Progressivism — A new form of radical centrist politics is needed to tackle inequality without hurting economic growth
(The Economist) BY THE end of the 19th century, the first age of globalisation and a spate of new inventions had transformed the world economy.
The rising gap between rich and poor (and the fear of socialist revolution) spawned a wave of reforms, from Theodore Roosevelt’s trust-busting to Lloyd George’s People’s Budget. Governments promoted competition, introduced progressive taxation and wove the first threads of a social safety net. The aim of this new “Progressive era”, as it was known in America, was to make society fairer without reducing its entrepreneurial vim.
Modern politics needs to undergo a similar reinvention—to come up with ways of mitigating inequality without hurting economic growth. That dilemma is already at the centre of political debate, but it mostly produces heat, not light. Thus, on America’s campaign trail, the left attacks Mitt Romney as a robber baron and the right derides Barack Obama as a class warrior. In some European countries politicians have simply given in to the mob: witness François Hollande’s proposed 75% income-tax rate. In much of the emerging world leaders would rather sweep the issue of inequality under the carpet: witness China’s nervous embarrassment about the excesses of Ferrari-driving princelings, or India’s refusal to tackle corruption.
World Bank chief sounds alarm over euro
(Emerging Markets) World Bank president Jim Yong Kim urged eurozone politicians to live up to their promises and implement tough economic reforms amid growing evidence that the crisis has started to sap global economic growth and hurt the world’s poorest people.
In an exclusive interview with Emerging Markets on Wednesday, Kim said he wanted finance ministers gathering in Tokyo this week to “drive forward” plans to restore economic growth in the eurozone.
Kim, who reached his first 100 days in office this week, gave his clearest signal yet that he plans to change the bank’s strategy to focus on ending poverty, creating jobs and tackling climate change in a three-pronged move he said would “change the arc of history”.
Micro, Macro, Meso, and Meta Economics
By Andrew Sheng and Geng Xiao
(Project Syndicate) Given the crisis weighing down the world economy and financial markets, it is not surprising that a substantive reconsideration of the principles of modern economics is underway. The profession’s dissident voices, it seems, are finally reaching a wider audience.
For example, the Nobel laureate Ronald H. Coase has complained that microeconomics is filled with black-box models that fail to study the actual contractual relations between firms and markets. He pointed out that when transaction costs are low and property rights are well defined, innovative private contracts might solve collective-action problems such as pollution; but policymakers rely largely on fiscal instruments, owing to economists’ obsession with simplistic price theory.
Another Nobel laureate, Paul Krugman, has claimed that macroeconomics over the last three decades has been useless at best and harmful at worst. He argues that economists became blind to catastrophic macro failure because they mistook the beauty or elegance of theoretical models for truth.
Both Coase and Krugman bemoan the neglect of their profession’s patrimony – a tradition dating at least to Adam Smith – that valued grand and unifying theories of political economy and moral philosophy. The contemporary obsession with reductionist and mechanical models seems to have driven the profession from theory toward ideology, putting it out of touch with the real economy.
Global Economy Gets IMF Downgrade As Farsighted Planning Urged
(Canadian Press via HuffPost) Plagued by uncertainty and fresh setbacks, the world economy has weakened further and will grow more slowly over the next year, the International Monetary Fund says in its latest forecast.
Advanced economies are risking recession while the economic malaise is spreading to more dynamic emerging economies such as China, the international lending organization says in a quarterly update of its World Economic Outlook.
The IMF forecasts that the world economy will expand 3.3 per cent this year, down from its estimate of 3.5 per cent growth issued in July. Its forecast for growth in 2013 is 3.6 per cent, down from 3.9 per cent three months ago and 4.1 per cent in April.
China, Russia Sound Alarm on World Economy
(Moscow Times) China and Russia sounded the alarm about the state of the global economy at a summit on Saturday and urged Asian-Pacific countries to protect themselves by forging deeper regional economic ties.
Chinese President Hu Jintao said Beijing would do all it could to strengthen the 21-member Asia-Pacific Economic Cooperation and boost prospects of a global recovery by rebalancing its economy, Asia’s biggest.
President Vladimir Putin said trade barriers must be smashed down. He is hosting the event on a small island linked to the Pacific port of Vladivostok by a spectacular new bridge, a symbol of Moscow’s pivotal turn to Asia, away from debt-stricken Europe.
Asia-Pacific nations pledge growth, fret over economy
(Reuters) – Asia-Pacific nations including China, the United States and Japan promised measures to boost growth on Sunday and rejected limits on food exports to try to revive the flagging global economy.
Countries on the Pacific Rim ended a two-day summit on an island off the Russian port city of Vladivostok by expressing concern about the state of the world economy, global food security and growing signs of protectionism.
The 21 members of the Asian-Pacific Economic Cooperation (APEC) group agreed to slash import duties on “green technology”, take steps to bolster growth and liberalise trade to counter problems heightened by Europe’s debt crisis.
APEC economic leaders issue joint declaration on regional development
(Xinhua) — Economic leaders of the Asia-Pacific Economic Cooperation (APEC) members on Sunday issued here a joint declaration that outlines future development of the region.
Under the theme of “Integrate to Grow, Innovate to Prosper,” the leaders agreed that robust international trade, investment and economic integration are key drivers of strong, sustainable and balanced growth.
… the leaders said they welcome European leaders’ commitment to taking all necessary measures to safeguard the integrity and stability of the euro area.
“We remain committed to reducing imbalances by strengthening deficit economies’ public finances with sound and sustainable policies that take into account evolving economic conditions and, in economies with large current account surpluses, by strengthening domestic demand and moving toward greater exchange rate flexibility,” said the declaration.
The leaders agreed to ensure long-term fiscal sustainability while recognizing the need to support recovery within the available fiscal scope. They reaffirmed their commitment to strengthening a multilateral trading system, vowing to push forward the Doha Round of global trade talks.
Amid rising risk of protectionism and continuing uncertainties in the global economy, the leaders pledged to refrain through the end of 2015 from raising new barriers to trade and investment, and not to impose new export restrictions or implement WTO-inconsistent measures in all areas.
Global economy in worst shape since 2009
(AP) — Mounting fears about Spain’s financial health help illustrate why the global economy is in its worst shape since 2009.
Six of the 17 countries that use the euro currency are in recession. The U.S. economy is struggling again. And the economic superstars of the developing world — China, India and Brazil — are in no position to come to the rescue. They’re slowing, too.
The lengthening shadow over the world’s economy illustrates one of the consequences of globalization: There’s nowhere to hide.
IMF Cuts Global Growth Outlook
(WSJ) The International Monetary Fund downgraded its outlook for the world economy and called on policy makers for stronger action to combat multiple risks to the weak global recovery. The fund warned that risks of a sharper slowdown “continue to loom large” due to the threat of delayed or insufficient action by policymakers. The report warned policymakers in Europe and the U.S. of the dangers posed by the status quo.
The Market Has Spoken – And It Is Rigged
By Simon Johnson
(NYT via Other news) In the aftermath of the Barclays rate-fixing scandal, the most surprising reaction has been from people in the financial sector who fully understand the awfulness of what has happened. Rather than seeing this as an issue of law and order, some well-informed people have been drawn toward arguments that excuse or justify the behavior of the Barclays employees.
This is a big mistake, in terms of both the economics at stake and the likely political impact.
The behavior at Barclays has all the hallmarks of fraud, pure and simple – intentional deception for personal gain, causing significant damage to others.
Britain’s financial sector in turmoil amid massive scandal
… just as the United Kingdom gets ready to party and forget — for a moment, anyway — the meltdown of the European economies and the dangers that that portends for the world, some of Britain’s most well known financial institution have been caught in what looks like the Crime of the 21st Century.
The $30 billion suspected heist from investors and thousands of businesses and customers, such as mortgage holders and pension funds, was apparently done through price fixing and interest rate swaps between leading banks and the manipulation of complex daily interest rate swaps that affected $350 trillion dollars in banking products.
The Coming Oil Crash
Good news! Gas prices could go down to $2 a gallon by autumn — and that’s bad news for Vladimir Putin.
(Foreign Policy) … the world’s petro-rulers are watching the price of oil — their life blood — plunge at a rate they have not experienced since the dreaded year 2008. Industry analysts are using phrases such as “devastation” and “severe strain” to describe what is next for the petro-states should prices plummet as low as some fear. No one is as yet forecasting a fresh round of Arab Spring-like regime implosions. But that’s the nightmare scenario if you happen to run a petrocracy.
Europe Under Pressure to Fulfil G-20 Promises
(Spiegel) World leaders emerged from the G-20 meeting in Mexico satisfied that Europe is making progress on efforts to save the common currency from collapse. But now the euro zone must come up with a concrete plan. Expectations are high for the EU summit at the end of June.
G20 leaders draw up growth pledge, IMF gets boost
In an effort to boost the fragile world economy, the G20 leaders said they would “act together to strengthen recovery and address financial market tensions,” according to the leaked draft communique.
Talks focusing on the world economy began shortly before on Monday afternoon (9.30 GMT), amid lingering disagreement about the correct balance between austerity and stimulus.
G20 to inject billions into IMF as Grexit fears ease
(Emerging Markets) Fears of a dramatic escalation of the eurozone crisis eased on Sunday following Greece’s elections and fresh momentum from G20 nations towards boosting the IMF’s war chest
G20 summit host Felipe Calderon told reporters in Los Cabos: “I estimate that there will be a larger capitalization than the pre-accord reached in Washington, which will be finalized here, but I don’t want to speculate by how much.”
The decision is likely to be seen by markets as a sign that the world’s leading nations are prepared to provide the firepower to kill the threat of euro contagion.
“This is not a trivial sum,” said Andrew Kenningham, an analyst at Capital Economics, who said the agreement would double the Fund’s usable resources to around $800bn (€650bn).
“However, it would not be enough to finance bail-outs for both Spain and Italy unless the IMF were willing to shoulder a much larger share of the burden than it has in previous bail-outs – something which the IMF’s key shareholders would not sanction,” he said. “What’s more, it is clear that the euro-zone crisis cannot be resolved by bail-outs alone, however large the sums involved.”
Sigh of relief at G20 summit over Greek election
(Associated Press via Boston.com) It’s an idyllic place to thrash out the terrifyingly uncertain fate of Europe and the global economy.
Leaders of the world’s largest economies began to assemble Sunday in this Baja California desert resort just as Greece’s pro-bailout New Democracy party won the national elections, a vote for the financial status quo that could keep panic under control at least for now. A vote against the pro-bailout party could have forced Greece to leave the joint euro currency, a move that would have had potentially catastrophic consequences for other ailing European nations and the global economy.
Most European leaders were on the long flight to Los Cabos, or put off their travel until the results were in, but the politicians and businessmen already in Los Cabos appeared deeply relieved.
China president urges G20 members to stick together
(Reuters) – Chinese President Hu Jintao has urged members of the Group of 20 (G20) to stick together and address Europe’s debt crisis in a “constructive and cooperative” way to boost market confidence, state news agency Xinhua reported on Sunday.
G20 Summit: World Economy at Stake as Harper, Obama, Other Leaders Meet
(Toronto Star) … world leaders try over the next few days to keep Europe’s crisis from sparking a repeat of the global recession.
Even as Harper, U.S. President Barack Obama and other G20 leaders prepared to meet in Los Cabos, Mexico, deepening chaos in European capitals fanned expectations that the world’s central bankers would have to step in and prevent a financial meltdown.
A shaky global economy reels on U.S., Europe, China woes
(Globe & Mail) The engines of the global economy are sputtering, driving financial markets into a state of distress.
Eurozone biggest threat to global outlook, OECD says
The eurozone crisis is the single biggest threat to the global economy, according to the Organisation for Economic Co-operation and Development.
The economy of the 17 nations that use the euro will shrink 0.1% this year, before rebounding to 0.9% growth next year, the OECD predicts.
TENSE BUT TOGETHER – The BRICS summit is attracting attention again
KANWAL SIBAL* – The Telegraph India
To assess the outcome of the fourth BRICS summit at New Delhi on March 29, a look is required at the genesis of this grouping, its value for its members and the extent to which it can influence international decision-making.
… At the New Delhi summit the five countries called for greater representation of emerging and developing countries in global governance and expressed concern about the economic and financial policies of developed countries spilling over negatively into the emerging market economies. They lectured on the need to adopt responsible macroeconomic and financial policies, the need to avoid creating excessive global liquidity and the need to undertake structural reforms of their own. They criticized the slow pace of International Monetary Fund quota reforms and welcomed, without agreeing on any one in particular, the candidatures from the developing world for the World Bank presidency. They discussed the creation of a new development bank for infrastructure projects in BRICS and other developing economies, a project on which a joint working group will report to the next summit. An agreement on extending credits in local currency under the BRICS Interbank Cooperation mechanism has been reached. All these are initial steps to obtain greater say in managing the global financial system and diluting the supremacy of the dollar, even as it is clear that progress on this will be slow and the biggest beneficiary will be China.
Ranks of global unemployed rising on heels of European austerity
Austerity measures undertaken throughout Europe in response to the global financial crisis have not resulted in more growth, as projected, but have had “devastating consequences” on the job market, according to a report by the UN’s International Labor Organization. The number of unemployed throughout the world was projected to climb to 202 million this year, up from 196 million in 2011 — a trend expected to reach still more “alarming” jobless rates in 2013 with “no signs of recovery in the near future.” Spiegel Online (Germany) (4/30), The Globe and Mail (Toronto) (5/1)
ILO Urges Worker-Friendly Recovery Policies
(IPS) – Although economic growth has resumed in much of the world since the 2008 financial crisis, the global unemployment situation remains alarming and could worsen, according to the International Labour Organisation (ILO).
European governments, in particular, should adopt more worker- friendly approaches in dealing with fiscal austerity, according to the agency’s “World of Work Report 2012” that was released here and at its headquarters in Geneva Sunday.
Such a change in policy could result in adding around two million jobs in the advanced economies over the next year, as opposed to only about 800,000 if current approaches persist, according to the report.
A history of the world, BRIC by BRIC
The bloc will account for almost 40 per cent of global GDP by 2050, signalling a change in world order.
By Pepe Escobar – (Asia Times via Al Jazeera)
Goldman Sachs – via economist Jim O’Neill – invented the concept of a rising new bloc on the planet: BRICS (Brazil, Russia, India, China, South Africa). Some cynics couldn’t help calling it the “Bloody Ridiculous Investment Concept.”
Not really. Goldman now expects the BRICS countries to account for almost 40% of global gross domestic product (GDP) by 2050, and to include four of the world’s top five economies.
Soon, in fact, that acronym may have to expand to include Turkey, Indonesia, South Korea and, yes, nuclear Iran: BRIIICTSS? Despite its well-known problems as a nation under economic siege, Iran is also motoring along as part of the N-11, yet another distilled concept. (It stands for the next 11 emerging economies.)
The multitrillion-dollar global question remains: Is the emergence of BRICS a signal that we have truly entered a new multipolar world?
Unctad criticises inconsistent attempts at global financial reform
(The Guardian) In the face of attempts to clip its wings, secretary general Supachai Panitchpakdi has defended Unctad’s global role
Governments have been too quick to pass austerity measures without first introducing financial reforms, said Supachai Panitchpakdi, secretary-general of [UNCTAD]. The remarks by the former director general of the World Trade Organization came as the UN agency faces pressure by wealthy countries to confine its mandate to trade and investment, excluding global financial markets.
Selecting a World Bank president: The resilience of a West-centric world
The governance of the world economy remains neoliberal and West-centric, and for this reason less than legitimate.
(Al Jazeera) … The procedural criticisms of the appointment process … raise fundamental questions about the legitimacy of global institutions in the post-colonial period. It was not surprising that Dr Kim’s two opponents, Ngozi Okonjo-Iweala of Nigera and José Antonio Ocampo of Colombia, openly expressed their disgust with the process, complaining that the most qualified candidate had not been selected.
World Bank vote shows lack of mortar to hold BRICs together
(Telegraph UK) Ngozi Okonjo Iweala, the Nigerian finance minister who this week missed out on becoming the president of the World Bank, said she drew one significant lesson from the contest. “We have shown we can contest this thing and Africa can produce people capable of running this entire architecture,”
… BRIC – coined by a Goldman Sachs economist to refer to the rising economies of Brazil, Russia, India and China – not only has its limitations, but can be downright unhelpful when trying to understand the world. Looking through a Western lens still badly cracked from the financial crisis and tepid recovery, it is too easy to impose a unity of purpose on a grouping as diverse as the BRICs.
Ngozi Okonjo-Iweala misses out on World Bank top job
(BBC) The board of the World Bank has selected a US academic, Jim Yong Kim, as its new president.
Many emerging market countries had hoped that this time, America’s lock on the top post at the Bank would be broken.
Several governments had been pushing for a non-American to be awarded the position. They were backing Nigeria’s finance minister Ngozi Okonjo-Iwaela.
Brazil says BRICS to make joint World Bank decision
(Reuters) – Brazilian Finance Minister Guido Mantega said the BRICS group of emerging market countries is likely to make a joint decision on who to support for the World Bank presidency as soon as Friday.
Mantega said the five countries were still discussing which candidate they would support. The BRICS group also includes Russia, India, China and South Africa.
Jeffrey Sachs on the World Bank: ‘It’s not a bank, it’s a development institution’ – video
Jeffrey Sachs in conversation at the Guardian Open Weekend. Professor Sachs put himself forward as a candidate for World Bank president in response to list of bankers, CEOs and political insiders that had been circulating. He says the bank needs the leadership someone who deals in the fight against poverty, hunger and disease and is pleased with Jim Kim’s nomination by the White House
Everyone wants to talk to Brazil’s President Rousseff, except Obama
Washington seems stuck in another age – a Latin American country serving as a model is beyond its comprehension
The second most powerful person in the western hemisphere arrived in Washington on Monday. But the most powerful one spent most of the day rolling Easter eggs on the South Lawn.
(The Guardian) Dilma Rousseff, the Brazilian president, leads an economy larger than Britain’s, commands an ocean’s worth of oil, and enjoys a 77% approval rating her American counterpart can only fantasise about. Everybody but Barack Obama wanted to see her this week. She arrived to the accompaniment of a half-dozen op-eds from professors and thinktank bosses, all of them extolling her economic stewardship and begging DC to take her seriously. The presidents of Harvard and MIT (both women, for what it’s worth) invited her up to Boston. Even the US chamber of commerce put out the bunting – surely the first time the big bad business group has been so excited to meet a former Marxist guerrilla. Only Obama shrugged.
World Bank contenders lay out visions
Leading candidates for the presidency of the World Bank on Monday spoke in wide-ranging interviews of their vision for the post, the U.S. nomination for which is facing its first-ever international challenge. American Jim Yong Kim said he had spent his “entire life working to invest in human beings and human communities,” while Nigeria’s Ngozi Okonjo-Iweala said that “it’s not good enough to say you know about poverty, you have to live it.” The Washington Post (4/9)
Andrea Mammone: Austerity vs solidarity: Democratic legitimacy and Europe’s future
(Al Jazeera via 404 System Error) Across the EU, there is an outcry – including from economists – about the potential damaging effects of austerity plans.
London, United Kingdom – German sociologist and influential European thinker Ulrich Beck recently highlighted that one of the most (problematic) prevailing contemporary tendencies is to elevate Germany’s “culture of stability” to “Europe’s guiding idea”. While it is necessary that some states take a more conscious and strict approach towards spending, national finances and public debts, this submission to a peculiar form of German Europeanism risks not solving all EU problems, while supranational institutions and democracy are fully bypassed.
Hats off to Ngozi — A golden opportunity for the rest of the world to show Barack Obama the meaning of meritocracy
(The Economist) WHEN economists from the World Bank visit poor countries to dispense cash and advice, they routinely tell governments to reject cronyism and fill each important job with the best candidate available. It is good advice. The World Bank should take it. In appointing its next president, the bank’s board should reject the nominee of its most influential shareholder, America, and pick Nigeria’s Ngozi Okonjo-Iweala.
The World Bank is the world’s premier development institution. Its boss needs experience in government, in economics and in finance (it is a bank, after all). He or she should have a broad record in development, too. Ms Okonjo-Iweala has all these attributes, and Colombia’s José Antonio Ocampo has a couple. By contrast Jim Yong Kim, the American public-health professor whom Barack Obama wants to impose on the bank, has at most one.
Why Jim Yong Kim would make a great World Bank president
(The Guardian) Obama’s pick from outside the Wall Street club is an innovator capable of reinventing the bank’s role in global finance
Jeffrey Sachs: A World Bank for a New World
(Project Syndicate) The world is at a crossroads. Either the global community will join together to fight poverty, resource depletion, and climate change, or it will face a generation of resource wars, political instability, and environmental ruin.
The World Bank, if properly led, can play a key role in averting these threats and the risks that they imply.
… the Bank’s new president should have first-hand professional experience regarding the range of pressing development challenges. The world should not accept the status quo. A World Bank leader who once again comes from Wall Street or from US politics would be a heavy blow for a planet in need of creative solutions to complex development challenges. The Bank needs an accomplished professional who is ready to tackle the great challenges of sustainable development from day one.
Mick Jagger’s Davos Top Ten
TOP celebrity at this year’s World Economic Forum (WEF) in Davos was Sir Mick Jagger, front-man of the Rolling Stones (and longtime Economist reader). At his various appearances in the Swiss Alpine resort, he asked questions, joked, briefly shook his legendary hips, but refused to sing. Had he done so, here are a few tunes from his back catalogue that would have captured the mood.
“Paint It Black”: Gloom was the official on-stage state of mind at this year’s Davos. The toxic combination of the euro crisis and the ubiquity of longtime Cassandras such as George Soros, Martin Wolf of the Financial Times and Nouriel “Dr Doom” Roubini was more than enough to give anyone a 19th nervous breakdown.
Davos 2012: IMF issues austerity warning
Inappropriate spending cuts could “strangle” growth prospects, the head of the IMF has warned.
(BBC) Austerity programmes must be tailored to each economy, Christine Lagarde said, and not be “across the board”.
The International Monetary Fund has been one of those stressing the need for countries to cut their debts, but some fear this could hit growth.
The correct response to the eurozone debt crisis has been a major debate at World Economic Forum in Davos.
Davos Leaders Urge Europe to Fix Crisis Risking World Economy
(Bloomberg) Policy makers from Hong Kong to Canada used the last full day of the World Economic Forum to push euro-region counterparts to boost their bailout cashpile to protect Italy and Spain. They also pressed Greece and its creditors to strike a credible agreement to cut the nation’s debt.
Failure to deliver home-grown solutions would cost Europe any chance of further outside support and undermine the International Monetary Fund’s push for more crisis-fighting resources of its own, officials said. The concern tempered optimism from earlier in the week when delegates expressed hope that Europe had succeeded in calming markets after two years of turmoil.
Developing a new world model
As the Eurozone plunges into deeper crisis, what next for Europe and the global economy?
(Al Jazeera) This week the world’s leaders and policy makers convene in Davos, Switzerland. The focus of their meeting this year is how to develop a new world model. As the Eurozone plunges into deeper crisis with a Greek default almost inevitable now, what next for Europe and the global economy?
UN report projects moderate economic growth
Governments must act quickly to address economic weaknesses such as sovereign debt overload and unstable banking system if the world economy is to grow by anything more than 0.5% in 2012, according to the latest United Nations World Economic Situation and Prospects report. The new version of this annual report projects an average economic growth of 2.6% for the year and 3.2% for 2013 as long as major economic crises can be avoided. Reuters (1/17)
Michael Spence: Mind over Market
(Project Syndicate) We live in a world of largely decentralized networks of increasing complexity: electronic networks, networks of supply chains and trade, financial networks that link the balance sheets of disparate entities. Market incentives cause actors to operate or modify parts of the network in ways that maximize efficiency locally. But the presumption – often an article of faith – that the whole remains stable and resilient has no theoretical or empirical support. Indeed, it seems inaccurate.
For example, it has been known for some time that networks that are efficient are often not resilient, because resilient networks have inefficient redundancies. Resilience is a public good, created by the right kind of redundancy.
In a decentralized structure, redundancy tends to be undersupplied in the process of local optimization. That is why the tsunami that hit Japan last year disrupted many global supply chains: they were (and still are) too efficient from the standpoint of withstanding shocks.
In financial markets, local optimization seems to lead to excessive leverage and other forms of risk-taking that undermine the stability of the system. Much research is needed to understand which interventions or restrictions on individual choice are needed to make certain kinds of market e
(Foreign Policy Jan/Feb 2012) Debt-ridden and hidebound, Europe may be on the verge of a painful breakup. America is still reeling from the 2008 financial crisis. Even China and India — the new engines of global growth — seem to be sputtering these days. Worse yet, the usual wonkish prescriptions don’t seem to be working anymore. So we asked 13 of the smartest people we know to give us their one out-of-the-box idea for fixing the global economy. Here’s what they recommend
The FP Survey: Follow the Money
What’s wrong with the world economy? We asked top experts to fill in the blanks — and they had a lot to tell us. Among the questions and responses, these should give pause for (serious reflection)
ECONOMISTS SHOULD BE PAYING MORE ATTENTION TO …
How political barriers against better policies can be overcome. —Daron Acemoglu • How people actually behave rather than how they are idealized to behave. —Abhijit Banerjee • The shortcomings of the central banks. —David Beckworth • The massive benefits of open borders. —Bryan Caplan • Corporate governance. —Peter Diamond • The fact that macroeconomic theory went up a blind alley some 20 years ago. —Jeffrey Frankel • The importance of women for strong economies. —Adam Hersh • Trade in medical services. —Dean Baker • Creeping protectionism across the global economy. —Gary Hufbauer • The possibility that America and Europe could suffer a prolonged, Japanese-style post-bubble stagnation. —Philippe Legrain • The impediments to job creation for young people. —Valerie Ramey • China’s vulnerable shadow financial system. —David Smick • Reality. —James D. Hamilton
Joseph Stiglitz: The Perils of 2012
(Project Syndicate) … long-term problems – including climate change and other environmental threats, and increasing inequality in most countries around the world – have not gone away. Some have grown more severe. For example, high unemployment has depressed wages and increased poverty.
The good news is that addressing these long-term problems would actually help to solve the short-term problems. Increased investment to retrofit the economy for global warming would help to stimulate economic activity, growth, and job creation. More progressive taxation, in effect redistributing income from the top to the middle and bottom, would simultaneously reduce inequality and increase employment by boosting total demand. Higher taxes at the top could generate revenues to finance needed public investment, and to provide some social protection for those at the bottom, including the unemployed.
Even without widening the fiscal deficit, such “balanced budget” increases in taxes and spending would lower unemployment and increase output. The worry, however, is that politics and ideology on both sides of the Atlantic, but especially in the US, will not allow any of this to occur.
Peter Foster: Another Swiss miss [Mr. Foster does not hold the WEF in high regard]
(Financial Post) The WEF, whose annual Davos networkfest is due to start in two weeks, is a fount of monstrous pretension hiding behind Orwellian globaldegook, a nest of Malthusian global governors who appear incapable of being embarrassed by their failures.
Nevertheless, if there is one art at which the forum excels, it is apocalyptic fretting. Its latest report, Global Risks 2012, is beyond parody as a compendium of worry. The study was developed to “map, measure, monitor, manage and mitigate global risks.” Full marks for alliteration, but its analysis and recommendations are despicable, deplorable and doorknob dumb.
The WEF has always been a promoter of the European social democratic model that now lies in tatters; a champion of catastrophic man-made climate change, which has now disappeared from the policy agenda; a perpetual bleater about resource depletion even as the oil industry is developing shale gas and oil that promise a centuries-long hydrocarbon bonanza. Although the NGO storm troopers that the WEF has perpetually cheered on secured a major victory last year over the Keystone XL pipeline, and are set to try to talk the Northern Gateway proposal to death, these examples of WEF-style “success” prove that the institution is much better at destroying jobs than creating them.
Economic and Social Turmoil Risk Reversing the Gains of Globalization, Report Warns
(WEF News Release) London, United Kingdom, 11 January 2012 – The world’s vulnerability to further economic shocks and social upheaval risk undermining the progress that globalization has brought, warns the World Economic Forum in its Global Risks 2012 report, the seventh edition, published today.
Chronic fiscal imbalances and severe income disparity are the risks seen as most prevalent over the next 10 years. These risks in tandem threaten global growth as they are drivers of nationalism, populism and protectionism at a time when the world remains vulnerable to systemic financial shocks, as well as possible food and water crises. These are the findings of a survey of 469 experts and industry leaders, indicating a shift of concern from environmental risks to socioeconomic risks compared to a year ago.
Read the Global Risks 2012 report in full