Public and private austerity takes its toll on health-care workers
RUNAWAY health-care spending has one silver lining: it generates millions of jobs for doctors, nurses and medical orderlies. Employment at doctors’ offices, nursing homes and hospitals grew steadily throughout the recession even as it cratered everywhere else (see chart 1).
But a few years ago health spending began to slow and now, with a lag, so have the jobs. Health-care employment grew only 1.8% in the past 12 months, including a bump up in May. Pay has also suffered: hourly health-care wages rose just 1.2% in the year through May, barely half as fast as total private-sector wages (see chart 2). Last year health care was the second leading source of layoff announcements, after finance. The Cleveland Clinic cut hundreds of unfilled jobs and offered early retirement to 700 workers. Read the rest of this entry »
A radical proposal for making finance safer resurfaces
WHEN Franklin Roosevelt took office in 1933, his first order of business was to arrest the banking collapse that was plunging America ever deeper into depression. As part of the plan for doing so, he signed into law the first federal insurance scheme for deposits, reshaping American finance.
Roosevelt did so at the behest of Congress, but had deep reservations. He worried that deposit insurance would “make the United States government liable for the mistakes and errors of individual banks, and put a premium on unsound banking in the future.” He was right to worry. As intended, deposit insurance made banks less prone to runs (depositors trying to withdraw their money before everyone else does). But it also reduced depositors’ incentive to monitor banks’ behaviour. With less market discipline, a heavy-handed system of regulation evolved. Read the rest of this entry »
In many industries, blue-collar wages are on the upswing
FOUR years ago construction was still deep in recession. When Baker Triangle, a drywalling firm, put out word that it was hiring, applicants would be lining up outside the door the next day. Now it has to place an ad, and “I’m lucky if I get two or three people in the door,” moans Mike Sireno, a manager. He once looked for ten years’ experience; now, two or three years’ is a triumph, and he will happily hire workers “right out of high school with no experience whatsoever”. Read the rest of this entry »
May 22nd 2014, 18:15 by G.I. | WASHINGTON, D.C.
The most notable thing in the financial markets today is the absence of anything notable: volatility has collapsed to near-historic lows. Take a look at the accompanying chart from Bianco Research. It shows that Vix, a measure of how volatile stocks are expected to be based on options prices, has dropped to its lowest since 2007. Bond volatility is creeping closer to the historic lows reached a year ago, just before the taper tantrum. And foreign exchange volatility is also back to the lows of 2007.
Before we discuss the implications, let’s examine why asset prices are so stable. A decade ago economists proclaimed that, since 1982, the rich world, and America in particular, had entered the “Great Moderation”: an era of infrequent, shallow recessions, low and stable inflation, and limited quarter-to-quarter volatility. That talk came to an end with the crisis and recession. But as our article in this week’s issue shows, the Great Moderation seems to be back. Judged by quarter-to-quarter swings in GDP growth and month-to-month variation in job growth, the economy has been as stable since 2009 as it was in the years before the crisis, which were the least volatile of the post-war era.
Since the macroeconomy is the primary driver of asset prices, a low-vol economy, all else equal, produces low-vol markets. But there’s more going on. Before 2007, economists attributed much of the great moderation to judicious monetary policy: central banks had been quicker to ease in the face of economic weakness, and quicker to tighten to head off incipient inflation. The resulting swings in interest rates would have raised market volatility, offsetting some of the impact of stable economic output. So, for example, when the Fed started tightening in 1987 to head off inflation, the stock market crashed. But then the Fed eased, so the crash did not derail the economy. Read the rest of this entry »
Volatility has disappeared from the economy and markets. That could be a problem
May 24th 2014 | WASHINGTON, DC | From the print edition
A DECADE ago, the business cycle was an endangered species. Recessions in the rich world had become rare, shallow and short; inflation was predictably low and boring. Economists dubbed this the “Great Moderation” and gave credit for it to deft macroeconomic management by central banks. Such talk, naturally, ended abruptly with the financial crisis.
But obituaries of the Great Moderation may have been premature. Since America emerged from recession in 2009, its growth, although low, has been as stable as during the Great Moderation’s heyday, from the early 1980s to 2007, judging by the volatility of quarterly gross domestic product (see chart) and monthly job creation. That, in turn, has pushed the gyrations of stock and bond prices to their lowest levels since 2007. The trend is less pronounced outside America, but economists at Goldman Sachs nonetheless find that pre-crisis levels of tranquillity have returned in Germany, Japan and Britain. Read the rest of this entry »
Central banks’ swollen balance-sheets have their uses
May 17th 2014 | WASHINGTON, DC | From the print edition
AMONG the many questions surrounding the Federal Reserve’s programme of quantitative easing (QE) is what will happen to the vast stockpile of bonds it has accumulated in its efforts to lower interest rates. Officials at the bank have never been comfortable with their gargantuan balance-sheet. Since 2011 they have maintained that once QE has achieved its aims, the Fed would shrink back to its former size. As its bonds mature, the story goes, they will disappear from its balance-sheet, along with the money the Fed created to pay for them. A new paper by two former advisers to the central bank, however, suggests a potential plot twist. Read the rest of this entry »