Archive for July 2012
Cutting spending down to size will be hard for a President Romney; boosting it any further will be hard for a re-elected President Obama
Jul 28th 2012 | WASHINGTON, DC | from the print edition
[Greg Ip] TO SAY that public schools, roads and bridges helped make America rich would ordinarily arouse no more controversy than to say that a dog is a man’s best friend. The exception is when Barack Obama clumsily tries to make the point during a presidential race, in an instant distilling the campaign down to a single question: what is the role of government?
On a campaign stop at a fire station in Virginia on July 13th, Mr Obama said: “If you were successful, somebody along the line gave you some help…Somebody invested in roads and bridges. If you’ve got a business—you didn’t build that. Somebody else made that happen.”
In the days since then, Republicans have taken that last sentence and turned it into an attack ad to bolster their message that Mr Obama likes government more than business. It reveals “an ideology that somehow says it’s the collective and government that we need to celebrate,” declared Mitt Romney, the challenger. And the row goes on. New T-shirts are being printed, fresh denunciations penned.
At first glance, Mr Obama’s critics have ample ammunition. Federal spending during his term was the highest relative to GDP since the end of the second world war. A record number of the population now gets federal entitlements such as Medicaid and food stamps. The federal government backs 90% of new mortgages, up from half before the financial crisis, as well as a growing share of student loans. Staffing levels at regulatory agencies have ballooned, and they churn out more and costlier rules than their predecessors.
A sticky spell for the emerging world carries warnings for its long-term growth
Jul 21st 2012 | from the print edition
IN THE past decade emerging markets have established themselves as the world’s best sprinters. As serial crises tripped up America and then Europe, China barely broke stride. Other big developing nations paused for breath only briefly. Investors bet heavily that rapid growth in emerging markets was the new normal, while leaders from Beijing to Brasília lectured the world on the virtues of their state-centric economic models.
Lately, though, the sprinters have started to wheeze. Last week China reported its slowest growth in three years (see article). India recently recorded its weakest performance since 2004. Brazil has virtually stalled. This week the International Monetary Fund sharply cut its growth forecast for three of the four so-called BRICs; only Russia was spared (and even there growth is vulnerable to falling energy prices). Some investors darkly recall the developing world’s crisis-prone history and wonder whether the worst is yet to come.
No crisis looms, but serious concern is justified, for the emerging world faces two distinct risks: a cyclical slowdown and a longer-term erosion of potential growth. The first should be reasonably easy to deal with. The second will not.
Revival of the fittest
By rich-world standards, the emerging markets are still doing exceedingly well. The IMF still reckons developing economies will grow by 5.6% this year. Moreover, this deceleration is partly intentional. When the global financial crisis struck, emerging economies responded energetically: China launched a huge stimulus, Brazil’s state-owned banks lavished credit, interest rates were slashed. They succeeded so well that by 2010 they were forced to reverse course. To squash price pressures they raised interest rates, curbed speculation and allowed their currencies to appreciate. With a lag, that tightening has had the predicted result. Read the rest of this entry »
Jul 18th 2012, 20:59 by G.I. | WASHINGTON
Many academics count things that proxy for uncertainty, such as mentions of the word in news articles. That’s one of the components in the uncertainty index developed by Scott R. Baker, Nicholas Bloom, and Steven J. Davis whose work we wrote about it here; it links heightened policy uncertainty to weaker growth. It’s also used by Jonathan Brogaard and Andrew Detzel here; they find increased policy uncertainty leads to lower stock prices and private investment.
Establishing causality is tricky. A weak economy or a traumatic event like a financial crisis or terrorist attacks will both raise uncertainty and provoke a policy response, but it’s the economic event, not the policy, that raises uncertainty and hurts growth.
I have my own back-of-the-envelope exercise. I count mentions of the word “uncertainty” in the Federal Reserve’s “beige book.” As my nearby chart shows, uncertainty has shot up in the last month. (Some months are blank because no beige book was released then.) Read the rest of this entry »
Amid the gloom there are unexpected signs of boom, especially in energy
Jul 14th 2012 | HAHNVILLE, LOUISIANA, SHANGHAI AND WASHINGTON, DC | from the print edition
THE half-finished Shanghai Tower is a hulking concrete wedding cake, rising out of a dusty building site in the central business district. But when it is finished in 2015 the glittering spiral tower will be China’s tallest building and one of its most striking, with two exterior glass skins enclosing nine different climate zones. It will, the developer boasts, “symbolise the dynamic emergence of modern China.”
Less obviously, it also symbolises modern America. The tower owes its design to an American firm of architects, Gensler. Its structural engineer is another American firm, Thornton Tomasetti. Indeed, American companies have left their mark all over Shanghai’s skyline. Ray Yu, a local supervisor for Thornton Tomasetti, points to the nearby Jin Mao tower and then to the Shanghai World Financial Centre across the street, rattling off the names of their architects and structural engineers. All are American.
China has no shortage of architects and engineers; foreign firms are required to partner them. But they have less experience with super-size high-rise towers, says Mr Yu: “We solve problems for them.” China also solves problems for the Americans. Two decades ago, foreign fees were just a sliver of Thornton Tomasetti’s business; now they make up 15-20%, and are dominated by Asia, a vital source of growth at a time when the market at home and in Europe is moribund.
This is a microcosm of a much larger picture. Read the rest of this entry »
America’s economy is once again reinventing itself
Jul 14th 2012 | from the print edition
ALMOST the only thing on which Barack Obama and Mitt Romney, his Republican challenger, agree is that the economy is in a bad way. Unemployment is stuck above 8% and growth probably slipped below an annualised 2% in the first half of this year. Ahead lie the threats of a euro break-up, a slowdown in China and the “fiscal cliff”, a withering year-end combination of tax increases and spending cuts. Mr Obama and Mr Romney disagree only on what would make things worse: re-electing a left-wing president who has regulated to death a private sector he neither likes nor understands; or swapping him for a rapacious private-equity man bent on enriching the very people who caused the mess.
America’s economy is certainly in a tender state. But the pessimism of the presidential slanging-match misses something vital. Led by its inventive private sector, the economy is remaking itself (see article). Old weaknesses are being remedied and new strengths discovered, with an agility that has much to teach stagnant Europe and dirigiste Asia. Read the rest of this entry »