Archive for September, 2016

This week “The Economist explains” is given over to economics. For each of six days until Saturday this blog will publish a short explainer on a seminal idea.WHEN Barack Obama sought to boost America's ailing economy with a fiscal stimulus package worth more than $800 billion in the wake of the financial crisis of 2008, a fierce debate ensued. Some economists reckoned the spending would do little to help the economy. Others suggested it could add much more than $800 billion to GDP. These arguments centred on the value of the Keynesian multiplier, which determines by how much output changes in response to a change in government borrowing. (With a multiplier of two, for example, GDP rises by $2 when the deficit increases by $1.) The Keynesian multiplier is one of the fundamental, and most controversial concepts in macroeconomics. Where did it come from and why is there so much disagreement about it?The multiplier emerged from arguments in the 1920s and 1930s over how governments should respond to economic slumps. John Maynard Keynes, one of history's most important economists, described the role of the multiplier in detail in his seminal book, “The General Theory of Employment, Interest and Money”. Conventional wisdom had it that government borrowing raises interest rates and uses resources which might otherwise have been spent by private firms or households. Keynes …

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Business this week

Posted: September 2, 2016 in economy
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The European Commission found that the tax advantages offered by Ireland to Apple broke EU rules on state aid and ordered it to recover €13 billion ($14.5 billion) in taxes from the company, by far the highest penalty the commission has imposed in its crackdown on corporate tax avoidance. But the decision was criticised for intervening in an arrangement struck with Irish authorities 25 years ago, and which the government still supports. Tim Cook, Apple’s chief executive, said the company had never sought any special favours from Ireland, and is being asked to pay taxes to a government that insists it is not owed any money. See here and here. 

Activist shareholders in Germany claimed a rare victory in toppling the chairman of Stada, a drug company. Active Ownership Capital, an investment firm, said Stada was being managed mostly by pharmacists and doctors with little global ambition. It ran a campaign to install a new slate of shareholder representatives on the supervisory board made up of executives who have worked in some of Germany’s biggest corporations. See article. 
In the crosshairs
The argument over sharp rises …

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Australia’s economy

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Girder on you, too

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Australia has weathered the China slowdown and commodities slump well. What has it done right?

Girder on you, too

THE last time Australia was in recession, Mikhail Gorbachev led the Soviet Union and Donald Trump had filed for Chapter 11 only once. Barring unforeseen catastrophe, late next year Australia will pass the Netherlands’ modern record of 26 years of consecutive growth—despite the slowdown of its biggest trading partner, China. Unlike most of the rich world, it sailed through the global financial crisis, and unlike most commodity exporters, it has weathered the raw-materials price slump. Its GDP growth rate of 3.1% dwarfs that of America and the euro zone.
Australia is often called “the lucky country”, and luck, particularly in geology and geography, has played a …

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German budget surpluses are bad for the global economy

ON AUGUST 24th Germans received news to warm any Teutonic heart. Figures revealed a larger-than-expected budget surplus in the first half of 2016, and put Germany on track for its third year in a row in the black. To many such excess seems harmless enough—admirable even. Were Greece half as fiscally responsible as Germany, it might not be facing its eighth year of economic contraction in a decade. Yet German saving and Greek suffering are two sides of the same coin. Seemingly prudent budgeting in economies like Germany’s produce dangerous strains globally. The pressure may yet be the undoing of the euro area.
German frugality and economic woes elsewhere are linked through global trade and capital flows. In recent years, as Germany’s budget balance flipped from red to black, its current-account surplus—which reflects net cross-border flows of goods, services and investment—has soared, to nearly 9% of German …

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Brazil

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The new president takes over a country in crisis

THE street vendors who set up around Brazil’s congress must have been disappointed. Police had expected thousands to gather for the closing stages of the impeachment trial of Dilma Rousseff, Brazil’s president. But when the senate voted by 61 to 20 to remove her from office on August 31st, the esplanade, bisected by a fence to prevent clashes between her foes and her supporters, was eerily empty. Her former vice-president, Michel Temer, who has been interim president since May, was sworn in hours later to serve out the remaining 28 months of her term.
It was a muted end to a remarkable era. For the past 13 years Ms Rousseff’s left-wing Workers’ Party (PT) has dominated politics. The party broke barriers. Luiz Inácio Lula da Silva, Ms …

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