Archive for January, 2014

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The triumph of Vladimir Putin

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Inflation may help determine how fast labour markets recover from recession

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IT IS something of a mystery, and not as happy a one as it sounds. In both America and Britain, the unemployment rate has fallen far faster over the past year than the tepid recoveries in both countries seem to justify. The pace of the decline has already caused difficulties for Mark Carney, the newish governor of the Bank of England, and will soon do so for Janet Yellen, who on February 1st takes over as head of America’s Federal Reserve. Both central banks gave “forward guidance” about when they might consider raising interest rates tied to levels of unemployment that will now be reached much sooner than either expected. Understanding the surprisingly quick fall and responding to it appropriately may be the pivotal task of the two central bankers’ tenure.

On the face of things, …

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Our interactive overview of European GDP, debt and jobs

Europe’s economies

CurrencyEconomyGDP per personUnemploymentYouth unemploymentDebtPublic debtBudget balancePrimary balanceGrowthLatest GDP change2013 GDP forecast2014 GDP forecast

Source: The Economist

Source: Eurostat

Source: Eurostat

*15- to 24-year-olds

Source: Eurostat

Source: European Commission

Source: European Commission

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THE world of journalism has been in a constant state of flux since early in the internet era. In the past year, however, there has been a new and intense eruption of activity. A series of name-brand media stars have been given or have gone off to create their own platforms. Nate Silver, the once-independent statistician-blogger who was retained by the New York Times for coverage of the 2012 election, left that venerable publication to launch a site under the ESPN-ABC umbrella. The Times moved to fill the vacuum left by Mr Silver with an internal venture led by David Leonhardt, previously an economics journalist and Washington bureau chief for the paper. Just last week, the media world was stunned to learn that Ezra Klein, founder of the Washington Post’s influential Wonkblog, would be leaving that paper to launch his own media venture.These moves have prompted a broad conversation about the economics of the journalism business in this new media world. I don’t have much to add to that conversation, not least because it is very early days and the business models aren’t entirely clear. But there is another aspect of this mini-revolution that does deserve more discussion.Each of these ventures has generated its own labour demand; Mr Klein’s new site has already attracted Melissa Bell and Dylan Matthews away from the Washington Post and economics writer Matthew …

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China loses its allure

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Why some people are more cautious with their finances than others

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RISK has always had a bit of an image problem. It is associated in the popular mind with gamblers, skydivers and, more recently, the overpaid bankers who crippled the global economy. Yet long-term economic growth would be impossible without people willing to wager all they have by starting a business, expanding an existing one or trying to invent a better mousetrap. Such risk-taking has been disturbingly scarce in America of late: the number of self-employed workers, job-creation at start-ups and the sums invested in businesses have been low.
Though changing appetites for risk are central to booms and busts, economists have found it hard to explain their determinants. Instead, they tend to cite John Maynard Keynes’s catchy but uncrunchy talk of “animal spirits”. Recent advances in behavioural …

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TODAY Britain’s Office of National Statistics released a new set of labour-market statistics. The numbers reinforce that what has become known as Britain’s “productivity puzzle” has not gone away. The economy added roughly 450,000 new jobs in the year to November of last year, sending employment to a new all-time high. But output has yet to recover its pre-crisis level. Correspondingly, output per hour—productivity—is below the pre-recession level and actually ticked down from the second quarter of last year to the third.Britain’s workers are ever less productive, and firms are snapping up ever more of them. That could only make sense in a world of falling wages. Nominal wages have grown steadily over the last decade, at a pace between 1-2% per year. But prices have risen much faster, leading to a steady erosion in real pay.In a 2012 paper Bill Martin and Robert Rowthorn argued that falling real wages are the critical detail—the key to unlocking this puzzle. They suggest that wage moderation led directly to the labour-intensive nature of the British recovery in three ways. First, it kept firm income higher than it would have been, preventing some firms from going out of business. Second, it made labour hoarding more attractive. And third, at some margin, it led to some substitution of labour for capital in production, or some displacement of production from …

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WITH a string of talks and op-ed columns, Larry Summers has revived discussion in the “secular stagnation” hypothesis. Income has become concentrated in the hands of groups, like reserve-accumulating foreign governments and the rich, with low propensities to consume, the thinking goes. That has generated excess saving and pushed down real interest rates until they are substantially negative at many durations. That, in turn, has made life very difficult for central banks, which have struggled to stoke up adequate demand with nominal interest rates wedged up against zero.Mr Summers identifies three broad solutions to the problem. One is to do nothing, or not much anyway, on the demand side. This is not a particularly attractive solution, as it implies a very long slump in which incomes are lower than they need to be, unemployment is higher, and the economy’s potential is eroding. Another is to raise inflation expectations in order to reduce real, or inflation-adjusted, interest rates until demand is where we’d like it to be. This policy is not without its downsides, says Mr Summers. In an interview with Ezra Klein, he noted:First, there are the questions of just how productive will be the investments that are not attractive at a negative real rate but only become attractive at a more negative real rate, and how much incremental investment will be stimulated. Most observers …

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Eastern Kentucky is a place known as the poster child of the War on Poverty. When NPR’s Pam Fessler traveled there to report, she was warned that people would be reluctant to talk because they were tired of being depicted as poor. Instead, she got an earful.

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