The Great Debate UK

from Nicholas Wapshott:

No, austerity did not work

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There have been a lot of sighs of relief in Europe lately, where countries like Britain and Spain, long in recession, have finally started to grow. Not by much, nor for long. But such is the political imperative to suggest that all the misery of fiscally tight economic policies was worth the pain that there are tentative claims the worst is now over and, ipso facto, austerity worked.

Hold on a minute. Growth is good. Growth is what allows countries to pay down their national debt by increasing economic activity, putting the unemployed to work and making people prosperous enough to pay taxes. But gross domestic product growth alone is not enough to provide adequate sustained prosperity if it does not also lead to significant job growth.

Take Spain, which has just emerged from two years of recession by posting a third quarter growth rate of 0.1 percent. Technically the Spanish slump is over. But a glance at their job figures shows the country has a long way to go before it can genuinely say it has escaped the diminishing effects of austerity -- in the form of tight fiscal policies, public spending cuts and labor and entitlement reforms -- imposed indirectly by Germany through the European Union.

In Spain, unemployment remains stubbornly high at 26 percent; half of those age 25 and under are still without jobs. More than half those age 25 and under in Greece and Croatia are also unemployed. In Europe, only in Germany and Austria is youth unemployment under 10 percent. Greece and Spain lead the sorry list of European countries with more than 25 percent unemployed, and 13 more are enduring joblessness at more than 10 percent.

from The Great Debate:

Will a minimum wage destroy German jobs?

Germany has once again become the world’s favorite whipping boy, roundly criticized over the past few days by the U.S. Treasury, a top International Monetary Fund official and the European Commission president, among others, for running record trade and current account surpluses that are supposedly detrimental to the European and global economy.

The arguments continue, with the Germans themselves saying that the surpluses are simply the happy result of the nation’s industrial competitiveness and don’t hurt anyone else. Lost in the debate, however, is what’s happening in Berlin right now. As Chancellor Angela Merkel seeks to form a new coalition government, she appears to be on the verge of throwing out some of the very policies that underpin the export boom of the past decade.

from The Great Debate:

Should we believe more in Big Data or in magic?

One year I spent a lot of time with professional magicians. A few showed me the secrets to their tricks. Whenever they did, the skill and dexterity required for sleight-of-hand struck me as far more impressive than the idea that magic had been performed. It reminded me of my own experience with statistics.

Data analysis is very similar to performing magic. With great skill you can pull things together and create the perception of surprising relationships. Often the magic is getting people to look at one thing, when they should be seeing another. Similarly with statistics, it’s often not the correlation that’s interesting but what you did to find it.

from The Great Debate:

Why the U.S. must lead on Disabilities Treaty

In an HIV clinic in Africa, a man born deaf holds a single sheet of paper with a plus sign. He looks for help, but no one at the clinic speaks sign language. In fact, the staff doesn’t seem interested in helping him at all.

He returns to his plus sign. These are his test results. They dictate he should start antiretroviral drugs immediately and should also make changes in his sexual habits. But he doesn’t know this. He leaves the clinic concluding that the plus sign must mean he’s okay, that everything is just fine.

What the new normal looks like

After a crisis the most unusual thing can be that things remain the same. For example, apart from media stories of doom and gloom, by and large if you managed to keep your job then the bankruptcy of Lehman Brothers and ensuing financial crisis may not have affected you acutely and life may have, more or less, gone on in the same fashion albeit with a bit more banker bashing than before.

Change as a result of a crisis can take years to manifest itself into a tangible difference. But five years after the financial crisis, and three years after European sovereign debt implosion, some of the long-term market and psychological effects are finally starting to be felt. Here are a few examples:

from Breakingviews:

Blueprint for new BoE could start with rebrand

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By Dominic Elliott and Christopher Hughes
The authors are Reuters Breakingviews columnists. The opinions expressed are his own.


Bank of England Governor Mark Carney has hired McKinsey and Deloitte to advise on strategy. Breakingviews imagines what the consultancies might recommend.

from The Great Debate:

Apple: ‘Early adopter’ as fashionista

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To much fanfare, Apple announced Tuesday that Angela Ahrendts is resigning as chief executive officer of Burberry and joining the inner circle in Cupertino, California. “Apple-polishing” has become the headline du jour. Picturing the soignée Ahrendts surrounded by geeks in jeans and hoodies, we might be forgiven for wondering why Apple feels in need of a fashionista buff-up. After all, there is hardly a product line more shiny-bright than Apple’s -- or one with less affinity to the cold exclusivity of the world’s great fashion houses.

But the extraordinary affection that iPhones inspire is different from the anxious ostentation surrounding high fashion.

from The Great Debate:

Foreign investment in France thrives despite gripes — for now

In France these days, every new industrial investment is welcomed with open arms, so when the Japanese machine-tools manufacturer Amada announced in mid-September that it was putting an additional $50 million into its existing production facilities, no fewer than two government ministers showed up for the signing ceremony. Much to their embarrassment, however, the chief executive officer of Amada, Mitsuo Okamoto, gave an interview that morning to a national French daily in which he castigated the national business climate, and said that if the company hadn’t already been in France for 40 years, “we would think twice about investing here for the first time.”

Chalk it up, one more time, to France’s investment paradox. Okamoto is just the latest example of a foreign CEO who moans and groans about the difficulties of doing business in France, even as he pours in money, in the form of fresh investment.

Apple attempts to become fashionable

The UK lost one of only three female CEOs on the FTSE 100 on Tuesday, as Burberry CEO Angela Ahrendts quit. My concerns about females at the top aside, the interesting thing about Apple’s new hire is the link between Apple and fashion and what it tells us about the evolution of the tech industry.

Ahrendts is a smart choice to become the head of retail and online stores for Apple. Firstly, her marketing skills are second to none. During her tenure at Burberry she has completely transformed the consumer experience at the iconic British brand. The stores are beautiful. The central London branches are styled just as well as the brand’s catwalk stars; they look more like a high-end boutique hotel in Paris or Milan than a high street shop.

from The Great Debate:

How the Nobel economists changed investing forever

The 2013 Nobel Prize for economics celebrates that financial markets work, but cautions how little we know. One theme unifies the work of all three winners: Eugene Fama, Robert Shiller and Lars Hansen -- risk. (A disclosure: until August I worked at Dimensional Fund Advisors, where Fama is a director and consultant.) Risk is unpredictable, but can be very profitable. That sounds simple enough, but it has profound implications -- not only for the lords of high finance, but households, too. Risk teaches humility, to overconfident investors and also policymakers. That humility was notably absent at the IMF/World Bank meetings last week. Policymakers should take special note of the prize this year; it reveals how little we really understand about financial markets.

Fama’s work showed that prices incorporate all available information; this is known as the efficient market hypothesis. The implication is that you cannot systematically outperform the market, unless you have information other people don’t or can access part of the market others can’t. But that doesn’t mean you can’t make money. Over time you can expect, but are not guaranteed, that riskier assets generate higher returns. Stocks, on average, return more than bonds because they are riskier. The stock of smaller companies is riskier than larger ones, so they typically generate more returns. It’s a straightforward concept, but often poorly understood. Even many sophisticated investors get it wrong.

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