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from MacroScope:

Hard-working Greeks

At the epicenter of Europe’s financial crisis, Greece has taken a lot of heat for setting off the panic that now threatens to engulf the rest of the continent. One common story line is that inefficient Southern European states are dragging down a more industrious North, a theme we have previously questioned on this blog.

A research note from Marc Chandler, head of currency strategy at Brown Brothers Harriman, highlights the disconnect between a negative perception of Greek workers with actual readings of hours worked from the Organization for Economic Cooperation and Development.

We’ll start with the picture, which pretty much tells the story:

Chandler suggests prejudice has gotten in the way of sound economic analysis:

The conventional narrative about the European debt crisis largely accepts the contention that the periphery of Europe have different work habits and these account to a large extent the economic and financial problems. Yet often time the discussion takes on such ethnocentric dimensions that sometimes it is difficult to see what is real.

The most recent data from the OECD covers 2008 and shows that in that year, Greek workers on average worked 48% more than their industrious German neighbors. The OECD data shows the average Greek worker spent 2120 hours at work compared with 1429 hours in Germany. Moreover, Greece is one of the only OECD countries in which workers were working longer in 2008 than in 1998. With 1802 hours at work, the average Italian employee spent more than 25% more time at work than the average German worker.

While many will be initially surprised by the data, on reflection it makes intuitive sense.   In crude terms, wealthier countries typically work smarter--more capital intensively--than poor countries, not longer. Contrary to conventional wisdom, the lack of Greek competitiveness, for example, does not seem to lie in hours working but with the combination of productivity and wages/benefits (unit labor costs).

from Breakingviews:

Taiwan voters should focus on growth, not China

By Wayne Arnold The author is a Reuters Breakingviews columnist. The opinions expressed are his own 

Taiwan’s economy should be the winner if the ruling party clinches this weekend’s presidential and legislative elections. A big issue is how fast the island should build trade and financial ties with China. President Ma Ying-jeou wants to go full steam ahead; the opposition would ease the pace. But growth is the more immediate issue. Ma’s party, the Kuomintang, is more likely than his rivals to give Taiwan’s flagging economy the jolt of fiscal stimulus it needs.

Links with China have grown under Ma, though democratically governed Taiwan still rejects its neighbour’s claim to sovereignty over the island. The opposition Democratic Progressive Party doesn’t endorse a one-China policy, but is unlikely to roll back ties. Its candidate, Tsai Ing-wen, has nonetheless tapped voter fears that opening to China has helped the rich but hurt the poor.

Ma’s economic record is mixed. He deserves credit for passing a $5.6 billion spending plan to offset the global financial crisis and for sealing a landmark deal in 2010 that eases trade and investment barriers with China. But he has failed to reduce Taiwan’s dependence on exports.

Now, Taiwan’s vital electronics exports are succumbing to slowing global demand. Interest rates are already so low – 1.9 percent – that cutting them would do little to boost investment. The most expedient remedy is to spend on infrastructure and domestic services. That’s more likely under Ma’s party. In the past, DPP governments have proved more fiscally conservative than the Kuomintang. Tsai has vowed to create jobs but also cut government debt in half – equivalent to 17 percent of GDP – in just four years.

Taiwan can afford some stimulus. Despite a perennial budget deficit, its debt is below 40 percent of GDP and it borrows more cheaply than the United States. It can’t afford, though, to stagnate. The worst outcome would be that Ma wins, but the coalition through which he controls the legislature loses its majority. Ma has only a slim edge in polls, maybe because of Tsai’s populist inequality agenda. If that costs Ma a decisive victory, Taiwan’s economy faces a tough four years.

from Breakingviews:

Women are still winning the U.S. jobs game

By Agnes T. Crane The author is a Reuters Breakingviews columnist. The opinions expressed are her own. The sluggish economic recovery hasn’t been kind to the female population in the U.S. workforce. They’ve nabbed only 43,000 of the 1.4 million net new nonfarm jobs created since June 2009. Though painful, this gender rebalancing makes some sense. Men disproportionately suffered the worst of the post-crisis mega-bust - so much so, in fact, that the high incidence of unemployment was given its own awkward moniker: “Mancession.”

Moreover, female-dominated work areas are still in the dumps. Government jobs are a case in point. Tough talk and action to tighten belts at the federal, state and local levels have been hard on women, who accounted for nearly two-thirds of the job cuts, even though they represented only 57 percent of the bureaucratic staffers.

The matter has generated some undue handwringing after the National Women’s Law Center gave Friday’s latest data dump from the Labor Department some attention. The kerfuffle over the lack of recent new jobs for women in America masks the gains they have chalked up over the last decade. In the last decade, the female ranks of the U.S. labor force increased by 2.8 percent while the number of men shrank by about 1 percent.

The shift isn’t surprising given the XX stamp on higher education. According to the U.S. Census Bureau’s 2010 tally of the working population, slightly more working women held a bachelor’s degree - or more - compared with men. More telling for the future, however, is for those aged 25-29. More than a third of women in that bracket completed four years or more at a university or college compared with only a little more than a quarter of their young male counterparts.

If these trends persist, men won’t sustain their current edge finding jobs. The Mancession left women temporarily with the majority of U.S. jobs in early 2010. It should only be a matter of time before they reclaim the mantle - and widen the gap.

from MacroScope:

Fed-bots: Goldman models central bankers

Forecasting hard data can be difficult enough. Estimating the forecasts of individual Federal Reserve policymakers is even tougher. But, in advance of the Fed’s latest effort at policy transparency, that’s just what Goldman Sachs economists have attempted to do.

The Fed announced last week it would begin publishing policymakers’ own forecasts for the path of interest rates, in addition to the growth, inflation and employment projections they already release on a quarterly basis. Goldman uses the Taylor rule of monetary policy, which governs the relationship between economic slack and inflation, to estimate when individual policymakers would likely perceive the timing of an eventual interest rate hike.

The findings are interesting, particularly because they find that, contrary to the view chronicled in this post, the publication of Fed officials’ forecasts might actually have the effect of tightening financial market conditions.

Given a broad range of economic forecasts, the range of participants’ funds rate projections is likely to be wide. Our estimates – which rely on participants’ economic forecasts and our Taylor rule – suggest that the central tendency (the range of forecasts by all 17 participants minus the highest and lowest three) might span from zero to 2.75 percent at end-2014, with a mid-point of 1.5 percent. These estimates point to the danger that financial conditions could tighten with the publication of such forecast ranges, as the market is currently pricing only around 75 basis points of rate hikes by the end of 2014.

To counter this potential consequence, the Fed could choose to offer clarity on participants’ expectations for additional bond purchases. By highlighting the fact that some officials still see the need for further monetary stimulus, the central bank would shift the perceived mid-point of market expectations for official rates.

It will be difficult for the FOMC to ease financial conditions significantly by publishing participants’ funds rate projections. But if sufficient detail is provided—including the distribution of funds rate projections and an indication that several participants are in favor of additional asset purchases—a modest boost to financial conditions appears likely.

from Africa News blog:

100 years and going strong; But has the ANC-led government done enough for its people?

By Isaac Esipisu

Although the role of political parties in Africa has changed dramatically since the sweeping reintroduction of multi-party politics in the early 1990s, Africa’s political parties remain deficient in many ways, particularly their organizational capacity, programmatic profiles and inner-party democracy.

The third wave of democratization that hit the shores of Africa 20 years ago has undoubtedly produced mixed results as regards to the democratic quality of the over 48 countries south of the Sahara. However, one finding can hardly be denied: the role of political parties has evidently changed dramatically.

Notwithstanding few exceptions such as Eritrea , Swaziland and Somalia , in almost all sub-Saharan countries, governments legally allow multi-party politics. This is in stark contrast to the single-party regimes and military oligarchies that prevailed before 1990.

After years of marginalization during autocratic rule, many African political parties have regained their key role in democratic politics by mediating between politics and society. Multi-partyism paved the way for genuine parliamentary opposition and the strengthening of parliaments in decision-making. However, several shortcomings still remain: many African political parties suffer from low organizational capacity and a lack of internal democracy.

Dominated by individual leaders, often times lifelong chairpersons and “Big Men”, youth and women remain marginalized within party structures.

from The Great Debate UK:

Hungary: The Greece of Eastern Europe

By Kathleen Brooks. The opinions expressed are her own.

It used to be Greece that was the canary in the coal mine, these days it's Hungary. The new year got off to a bad start for the Eastern European nation after it experienced a failed bond auction, causing its bond yields to surge.

This caused major jitters across global financial markets and once again a small, relatively unknown economy is dominating the headlines and causing a massive headache for the European authorities.

But while there are many similarities, the reasons for the panic in Hungary’s debt markets are different from Greece’s problems. Athens borrowed too much and public spending spiralled out of control. However, Hungary’s problems were not based on the size of its budget deficit, which was a fairly manageable 4.2 percent of GDP at the end of 2010, but the amount of debt in its public and private sector that was denominated in foreign-currency.

While the post-Communist era in Hungary helped to modernise the state, its capital markets did not keep up to date. Borrowing costs were lower in the euro zone and other parts of Europe where banks were willing to lend relatively cheaply across the Eastern European bloc, especially to Hungary. While the Hungarian forint was strong it was fine to have liabilities in euro and Swiss franc, however, since the start of 2011 the forint has deteriorated at a rapid pace. Since August alone the forint has lost more than 17 percent of its value against the euro.

Here is the problem: when your liabilities are in euro but you earn forint, all of a sudden servicing your debts becomes much more expensive and bad debts start to rise.

That’s where the similarities with Greece start. If bad debts start to rise then Austria and Italy could be on the hook. Austrian banks hold a whopping $40 billion of Hungarian liabilities, while Italian banks have a slightly more manageable $20 billion.

from MacroScope:

Two cheers for financial innovation

Protests against Wall Street and the U.S. financial system are hanging over an annual gathering of economists and social scientists in Chicago. Yale economist Robert Shiller offered two cheers for capitalist finance, saying that while the U.S. free market system has contributed to higher living standards, the vehemence of the recent public outcry points to a need for greater democratization. This is how he put it in a speech:

Occupy Wall Street … was something that in some sense you could see coming. I think we have increasing concerns about inequality, which is getting worse, about the distribution of power.

But rather than throw the financial system out, Shiller called for tinkering. Financial institutions and structures such as insurance or mortgage securitization have a role in improving social and human welfare, Shiller argued. U.S. economic success is due to a financial system that has evolved over centuries and helped improve the quality of life, he added.  A shortcoming of the Occupy Wall Street movement is that it doesn’t accept those contributions, he said.

Changes in financial structures could make the financial system more responsive to people’s needs, said Shiller. For example, a new type of corporate entity that is allowed in six U.S. states – the “benefit corporation” -- could provide incentives for firms to link success more closely to improvements in social welfare. This charter allows the for-profit companies to explicitly pursue a social purpose as well as its business goal. By law, regular corporations have a fiduciary responsibility to their shareholders to be profitable, while a benefit corporation also has some accountability, overseen by a third party, to perform a public good.

Shiller also wonders why there can’t be a mortgage that has automatic work-out provisions built in. Such a mortgage could require changes to terms and conditions if the borrower experienced job loss or other financial strains. The lender would price in the possibility of such losses at the beginning and cautious borrowers might be willing to pay a higher price for the insurance, Shiller said. In effect, a 30-year fixed rate mortgage is a similar instrument, since it allows lenders to pay a higher interest rate for a long-term loan that that they can refinance.

To contain income disparity, there could be a tax indexed to inequality, the Yale professor suggested. When the income of the top 1 percent of U.S. wage earners exceeds a certain multiple of the nation's median income, the tax would kick in. In 2006, that multiple was 36, up from 12.5 in 1980, he said.

Shiller was not subject to the “mic check” interruption that the Occupy movement uses to disrupt some public officials’ speeches. But some thought he was taking too rosy a view of the benefits of the financial system and the public’s willingness to view financial executives sympathetically. Reynold Nesiba, an economics professor at Augustana College in Sioux Falls, South Dakota, said:

from India Insight:

India’s busy Auto Expo and the risk of an industry believing its own publicity

After fighting through the sea of camera-wielding car enthusiasts clutching their bags filled with corporate gifts to meet with Anand Mahindra, vice-chairman of the Mahindra group, it was difficult to argue with his rosy view of India’s car industry.

“Just look at all these people,” said Mahindra. “If these crowds translate into market appetite, it’s not much of a slowdown,” he added, shaking his head at the view from a glass-walled office high above the teeming masses at the India Auto Expo on Friday.

Mahindra has reason to be cheerful. Sales of cars by his group's autos arm have remained strong this year. But he wasn’t the only executive shrugging off a slump in India’s car industry with glib comments about the sharp elbows of hundreds of thousands of excited punters that thronged the India Auto Expo this weekend.

The data is much less encouraging. Come April, the same executives could likely be digesting a year that saw sales volumes fall. Just a year previously, they were toasting 30 percent growth. But the Auto Show, held every two years in the capital, didn’t give the impression of an industry filled with ideas to tackle the slide.

SUVs, green technology vehicles and cutting-edge concept cars stole the headlines and drew in the crowds, aside from the free calendars and the chance to catch a glimpse of a Bollywood star or two.

But conspicuous by its absence amongst a sea of oversized SUVs was a new offering for the low-cost compact space, the segment that has accounted for most of the sales slump, as first-time buyers and those requiring financing baulk at high interest rates and rising fuel costs.

from MacroScope:

Is regulation really impeding employment?

It has become a common refrain in both politics and finance: intrusive regulations, an overreaction to Wall Street’s 2008 crisis, are generating uncertainty and preventing employment from bouncing back. Some top Federal Reserve officials have joined the chorus. Dallas Fed President Richard Fisher made the argument to business executives in Austin, Texas last month to justify his lack of support for additional monetary stimulus.

I maintain that no matter how much cash you have on your balance sheet, or how compliant your banker might be, or how cheap the cost of money, you will not commit substantial capital to expanding your payroll or investing significant amounts to expand plant and equipment until you know what it will cost you to run your business; until you know how much you will be taxed; until you know how federal spending will impact your customer base; until you know the cost of employee health insurance; until you are reassured that regulations that affect your business will be structured so as to incentivize rather than discourage expansion; until you have concrete assurance that the fiscal “fix” the nation so desperately needs will be crafted to stimulate the economy rather than depress it and incentivize job creation rather than discourage it.

Jeffrey Lacker, head of the Richmond Fed, also gives credence to the view that regulations are a burden on hiring:

Another impediment to growth cited by a wide range of observers is the array of changes in tax and regulatory policy, both actual and anticipated. The list of significant recent and prospective policy changes includes the enactment of far-reaching health care and financial reform bills in the last 2-½ years, as well as significant shifts in environmental and labor regulations over that period. While it is inherently difficult to model and estimate such effects with any confidence, we continue to receive widespread and persistent anecdotal reports from our Fifth Federal Reserve District contacts about how uncertainty about regulatory policy changes is discouraging firms from making new hiring or investment commitments. It seems plausible to me that such effects could be having a noticeable effect on measured growth rates.

There’s only one problem with that thesis, says economist Dean Baker in his most recent book – it’s not true. Baker, co-director of the liberal Center for Economic and Policy Research in Washington, cites the following intriguing evidence:

We hear over and over again the claim that uncertainty about tax or regulatory policy is impeding hiring and causing continued economic weakness. If this were true, we would expect to see firms increasing average hours per worker and/or hiring more temporary workers to meet demand. Through these strategies, firms could get more labor without making the commitment to hiring new permanent employees.

Yet there is no evidence of either trend in the economy. While average weekly hours have risen slightly from their low point of the downturn (from 33.7 hours per week in June 2009 to 34.4 in June 2011), the average work week is still below its pre-recession peak of 34.7 hours per week. The uptick in average weekly hours thus far has been fairly typical of what would be expected in a recovery. The same applies to the hiring of temporary employees. Temporary employment fell by more than 30 percent at the start of the downturn, as firms reduced the number of temporary workers by more than 800,000. Less than 500,000 of these workers have been rehired thus fain the upturn, leaving temporary employment almost 13 percent below its pre-recession level.

Moreover, if uncertainty about regulations and taxes were a major factor impeding hiring, then its impact should be uneven between sectors with high and low turnover. In sectors with high turnover, like retail and restaurants, it is difficult to see how regulatory uncertainty could be an issue, since firms could quickly get back to their desired employment level through attrition. This would mean that, if the economy were fine and the problem was regulation, we should expect to see high-turnover sectors growing rapidly, while sectors with low turnover, like manufacturing, would have very slow employment growth. There is no evidence of this sort of shift in job gains in the recovery, providing yet another reason for rejecting the argument that uncertainty about the future is a serious factor slowing employment growth.

Note to self: run those items by Fisher or Lacker next time there’s a scrum.

from Breakingviews:

1912ers would find the world strangely familiar

By Martin Hutchinson and Edward Hadas The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

After a century-long nap, I awoke in 2012. The world is changed, but not utterly.

Much happened between 1912 and my new now. The fragile European peace I remembered was broken by huge wars and then restored, but the can-do spirit of my earlier era is hardly present in Europe and - this really surprised me - is in decline in the United States.

In some ways, though, the world feels familiar. Passports are not necessary for travel in much of Europe, and capital movements are almost entirely free. Foreign investment takes up a comparable share of GDP (a useful measure that we did not have in my old life). And while the great powers have changed, I find it easier to understand the multiple competing blocs than the nap-time arrangements of Cold War stasis and unipolar dominance.

I’m delighted with all the new technology, but not too surprised (I used to read what is now called science fiction). Modern pharmaceuticals, computers and the Internet all surpass my pre-sleep dreams. But I have to admit to some disappointments: planets are not colonized and people still rarely live past 100 years.

One thing really bothers me - the expansion of governments. This whole “welfare state” business may sound good, better welfare than warfare and all that, but states are expected to do much too much. I’m not surprised that governments don’t seem to manage very well, either their operations or their finances.

Maybe that judgment reflects my training as a banker; I love sound money and strong markets. And that’s another thing I don’t like about the new world order - the financial system. Why on earth did they abandon the Gold Standard? With governments in total control of the monetary system, inflation and financial crises are inevitable.