If you think you’re worse off now, you’re right and not alone

From CBPP

I put this article from yesterday’s NYTimes in the comments section of my thread yesterday. I’m not sure every one read it so I thought I’d front page it. It’s on the increasing poverty and median income declines in the U.S. as reported by the Center on Budget and Policy Priorities (CBPP) and the Census Bureau. The depressing reality of The Great Recession and the Dubya years has set in and there’s several obvious trends. First, the the nation’s poverty rate climbed from 12.5 percent in 2007 to 13.2 percent in 2008. This is the highest level since 1960 and the highest rate since 1997. The number of people in poverty is 39.8 million. Second, there’s been decline in employer-provided health insurance coverage for adults. It would’ve been bad for children and the poor too, but the increased participation in SCHIP and MEDICAID offset that. (You’re probably aware that I support de-linking employment and health insurance coverage since this is happening any way and switching to means-tested payments with basic plan provision for all.) Third, median income declined.

In another sign of both the recession and the long-term stagnation of middle-class wages, median family incomes in 2008 fell to $50,300, compared with $52,200 the year before. This wiped out the income gains of the previous three years, the report said.

Adjusted for inflation, in fact, median family incomes were lower in 2008 than a decade earlier.

“This is the largest decline in the first year of a recession we’ve seen since the Census Bureau started collecting data after World War II,” said Lawrence Katz, an economist at Harvard University, referring to household incomes. “We’ve seen a lost decade for the typical American family.”

The share of American residents who said they lacked health insurance throughout the entire year remained steady, at 15.4 percent, or 46.3 million people. But the total masked some more worrisome trends that are helping to drive the debate over a national health care overhaul.

Continuing an eight-year trend, the number of people with private or employer-sponsored insurance declined, while the number of people relying on government insurance programs including Medicare, Medicaid, the children’s insurance program and military insurance rose.

The Markets sell the Governator Short

I was looking for just the right twist of irony sprinkled over my reality today. Bloomberg.com served it to me shaken, not stirred, with a delightful, tangy twist. Do you remember our discussions of those not so obscure derivatives called Credit Default Swaps? They’re basically the Wall Street version of a side bet. Some sucker agrees to provide a form of “insurance” that makes some entity is a better risk and some one else bets against them thinking nothing will make that entity worthwhile?

In most instances, the bet is against the holder of the entity’s bond. The holder, at some point, invested in the bond because they thought it a good investment. The investor may who holds the bond may want a little extra assurance so they enter into a swap agreement. If the bond defaults, they get a payment. However, in a lot of instances, the swap may be ’synthetic’. That means some folks don’t actually hold the bonds or intend to buy or sell the bonds. They want to place a bet on which way the risk premium will move and pocket the difference. (That’s the extra cost associated with the bond if the market deems the bond to be risky or junk.) Okay, hopefully, that’s enough to get you situated but if you want to learn a little more here’s some information on Naked CDS from The Atlantic.

Okay, so now I want to move towards the punch line, if you will. There’s still a huge market for these things. Remember, it’s actually much bigger than the equities markets despite recent events. Here’s the fun headline from Bloomberg: Russia Beats California as Default Swaps Favor BRICs . Gosh, don’t you just hate it when you really have to explain a joke? So, BRIC is short for Brazil, Russia, India and China. So, that mean’s that the bonds of those countries are considered less likely to default than those of California. Grok on that a minute with some special consideration to Russia who defaulted not all that long ago.

Dismal Economists: Getting Real on those Green Shoots

I’ve been concerned about the lack of real evidence for the administration’s green shoot hypothesis. It seems that I’m not the only one. A new Wall Street Journal Poll shows that Americans are increasingly ‘wary’ of the deficit and Obama’s economic intervention as Obama’s poll number’s slip.

But the poll suggests Mr. Obama faces challenges on multiple fronts, including growing concerns about government spending and the bailout of auto companies. A majority of people also disapprove of his decision to close the military prison at Guantanamo Bay, Cuba.

Nearly seven in 10 survey respondents said they had concerns about federal interventions into the economy, including Mr. Obama’s decision to take an ownership stake in General Motors Corp., limits on executive compensation and the prospect of more government involvement in health care. The negative feeling toward the GM rescue was reflected elsewhere in the survey as well.

A solid majority — 58% — said that the president and Congress should focus on keeping the budget deficit down, even if takes longer for the economy to recover.

Laura Zamora, 40, of Orange, Calif., voted for Mr. Obama but says she is frustrated by the economy and finds her support for the president waning. She says she’s facing a possible layoff as a local government worker in California.

“He’s bailing out the private sector. He’s putting all kinds of money into the private sector,” says Mrs. Zamora. “The money should be going to social programs, not to bailing out banks and GM. It should go to people who are unemployed.”

The survey of 1,008 adults, conducted Friday to Monday, had a margin of error of plus or minus 3.1 percentage points for the full sample.

The poll shows as the economy really worsens, people are becoming more reality-based. Speaking of reality based, let’s get back to numbers that show the public’s concerns are much warranted. You will not want to miss this VOXEU study showing what two economists have found when comparing the Great Depression with the current Great Recession. They’ve charted the numbers back-t0-back and are even going as far as saying that we are in a Global economic Depression. You really need to check the graphs and the analysis out in “A Tale of Two Depressions”. Dr. Barry Eichengreen and Dr. Kevin O’Rourke are both research/historical economists and bring the stylized facts home.

This is an update of the authors’ 6 April 2009 column comparing today’s global crisis to the Great Depression. World industrial production, trade, and stock markets are diving faster now than during 1929-30. Fortunately, the policy response to date is much better. The update shows that trade and stock markets have shown some improvement without reversing the overall conclusion — today’s crisis is at least as bad as the Great Depression.

New findings:

• World industrial production continues to track closely the 1930s fall, with no clear signs of ‘green shoots’.
• World stock markets have rebounded a bit since March, and world trade has stabilised, but these are still following paths far below the ones they followed in the Great Depression.
• There are new charts for individual nations’ industrial output. The big-4 EU nations divide north-south; today’s German and British industrial output are closely tracking their rate of fall in the 1930s, while Italy and France are doing much worse.
• The North Americans (US & Canada) continue to see their industrial output fall approximately in line with what happened in the 1929 crisis, with no clear signs of a turn around.
• Japan’s industrial output in February was 25 percentage points lower than at the equivalent stage in the Great Depression. There was however a sharp rebound in March.

Should Markets Respect Societal Bounds?

As you know, I frequently rely on the British press for news and political analysis.  I was delighted to find a link on Dr. Mark Thoma’s Economist’s View to the BBC’s broadcasts of the Riech Lectures for 2009.   Dr. Michael Sandel, Harvard Professor of Government,  delivers four lectures on the prospects of a new politics of the common good in this series.   Dr Sandel argues that we need  “a politics oriented less to the pursuit of individual self-interest and more to the pursuit of the common good”.  I was most intrigued by the series on financial community norms (as pointed to by Dr. Thoma) and the idea that even in markets, “norms matter”.

The series is presented and chaired by Sue Lawley.

Sandel considers the expansion of markets and how we determine their moral limits. Should immigrants, for example, pay for citizenship? Should we pay schoolchildren for good test results, or even to read a book? He calls for a more robust public debate about such questions, as part of a ‘new citizenship’.

US Secretary of State Hillary Clinton receives Nobel laureate Prof Muhammad Yunus at her US State Department office in Washington DC Wednesday.

I have worked with and studied under one of the foremost authorities on Islamic Banking which are finiancial institutions developed with the idea of a “common good” so I know that in some areas of the world, this is possible.  Again, in Dr. Hussan’s Bangledesh and other countries respecting Islamic law, banks do not charge interest because the Q’uran forbids usury.  This is also true of  the banking system used by Orthodox Jews. This is viewed as a financial system that works for the common good in lieu of exploitation of one side of the market.  The banks are frequently mutually owned. Again, one of the best development vehicles in poorer countries is the microfinance banking community that developed with the inspiration from Bangledeshi Economist,  Muhammad Yunus, who won the Noble Peace prize for his role in developing the idea of microcredit and the Grameen Bank.  (This means of course, I have to make a shameless plug for Kiva my favorite place to invest in  humanity’s future where I place money as dakinikat@aol.com).  I know from this work that it is possible to create market driven systems where something other than over-the-top profits can motivate a market.

So, I’m going to return to Dr. Sandel’s exposition on what it means to have markets which value a poltics of common good. I’ve bolded the areas that I highlighted while reading the speech.  (Yes, I know, old university habits die hard.)

A new politics of the common good isn’t only about finding more scrupulous politicians. It also requires a more demanding idea of what it means to be a citizen, and it requires a more robust public discourse – one that engages more directly with moral and even spiritual questions. And so in the course of these lectures, I’ll explore the prospect of a new citizenship and I’ll be asking what a more morally engaged public life might be like.

If we’re to reinvigorate public discourse, if we’re to focus on big questions that matter, questions of moral significance, one of the first subjects we need to address is the role of markets, and in particular the moral limits of markets. Which brings me to the topic of this first lecture. We’re living with the economic fallout of the financial crisis and we’re struggling to make sense of it. One way of understanding what’s happened is to see that we’re at the end of an era, an era of market triumphalism. The last three decades were a heady, reckless time of market mania and deregulation. We had the free market fundamentalism of the Reagan-Thatcher years and then we had the market friendly Neo-Liberalism of the Clinton and Blair years, which moderated but also consolidated the faith that markets are the primary mechanism for achieving the public good. Today that faith is in doubt. Market triumphalism has given way to a new market scepticism. Almost everybody agrees that we need to improve regulation, but this moment is about more than devising new regulations. It’s also a time, or so it seems to me, to rethink the role of markets in achieving the public good. There’s now a widespread sense that markets have become detached from fundamental values, that we need to reconnect markets and values. But how? Well it depends on what you think has gone wrong. Some say the problem is greed, which led to irresponsible risk taking. If this is right, the challenge is to rein in greed, to shore up values of responsibility and trust, integrity and fair dealing; to appeal, in short, to personal virtues as a remedy to market values run amuck.

Narro Math?

I never thought about math much until I found out, some where around 12 or so, that girls weren’t supposed to be good at it.  Ever the tomboy,  I just had to prove them wrong and I’ve frequently been the only woman (and definitely the only American woman) in advanced math classes at university.  Both my daughters excel at math.  However, the old stereotype has been out there for my mother and grandmothers as well as my daughters and me.  Ask current Obama economic adviser Larry Summers who stirred up women scientists every where with this gem during his tenure as Harvard’s president.

This was the point that most angered some of the listeners, several of whom said Summers said that women do not have the same ”innate ability” or ”natural ability” as men in some fields.

Asked about this, Summers said, ”It’s possible I made some reference to innate differences. . . I did say that you have to be careful in attributing things to socialization. . . That’s what we would prefer to believe, but these are things that need to be studied.”

Summers said cutting-edge research has shown that genetics are more important than previously thought, compared with environment or upbringing. As an example, he mentioned autism, once believed to be a result of parenting but now widely seen to have a genetic basis.

In his talk, according to several participants, Summers also used as an example one of his daughters, who as a child was given two trucks in an effort at gender-neutral parenting. Yet she treated them almost like dolls, naming one of them ”daddy truck,” and one ”baby truck.”

It was during his comments on ability that Hopkins, sitting only 10 feet from Summers, closed her computer, put on her coat, and walked out. ”It is so upsetting that all these brilliant young women [at Harvard] are being led by a man who views them this way,” she said later in an interview.

More and more evidence demonstrates just the opposite of the stereotype.  Girls can and do kick ass at math.  It’s not that they lack they aptitude, they lack they opportunity and environment to do so.  Science Daily reports that study after study now show that it’s  Culture, Not Biology, Underpins Math Gender Gap.  Both Riverdaughter and I live the nightmare that comes with being woman practitioners of a field that requires heavy math.  She is a research chemist doing work on drugs.  I am an economist who relies heavily on econometrics and models that borrow heavy from physics models.  One of my colleagues, another woman economist from Finland who absolutely kicks ass when it comes to high level mathematical models on trade, has similar stories.  One friend I’ve had the longest has taught university level math for nearly 30 years now. At various times,  I’ve had to adopt some kind of charade to make my numeracy less threatening to colleagues, bosses, and institutions. It adds a completely different dimension to how you do your work.  You can do it, you can kick ass at it, but you have to make sure that you’re deferential enough not to make the boys pee their pants and vote you off their islands.  It’s a strange, demented and twisted kabuki dance.

Women and the Great Recession

Nataliya is a single mother with two children. She runs a small business selling flowers in downtown Uzhgorod, Ukraine.

A colleague of mine sent me a link to the Levy Economics Institute of Bard College where they do a lot of research on Gender Equality and Economic Issues. The Institute’s Rania Antonopoulos has just released a very interesting study on The Current Economic and Financial Crisis:
A Gender Perspective. It is an interesting addition to a growing field that finds that “widespread economic recessions and protracted financial crises have been documented as setting back gender equality and other development goals”.   Problems with development goals include food insecurity, poverty and increasing inequality.

I learned that women’s economic and social role in an economy is one of the primary indicators of when and if a country will every creep its way off the bottom of Human Development index when I began to study development economics way back in the late 70s and early 1980s.  Development economics spends a lot of time on institutions these days. I do a lot of my research into the depth and effectiveness of financial institutions. There are also legal institutions (like lack of government corruption and presence of an effective justice system) that make an important difference too.  But, overlying all of these institutional institutions is the society’s treatment of women.  Women’s access to education, birth control, and economic-self determination are essential to a country’s overall development.  This is especially true for developing nations but it holds true for industrialized ones as well.

Antonopoulos poses an interesting question for those of us interested in both eliminating poverty and achieving gender equality throughout the world.  She asks “what macroeconomic conditions must prevail for gender-equality processes to take root?”  and argues that women’s rights can only be achieved if economic development is “broadly  shared”.    I was particularly awed by her treatment of women in her study.

Hence, women in this analysis are not featured as passive recipients of gender-equality policies, but rather as full citizens participating at all levels of economic, political, and social life. As active members of the community, women have a stake in putting forward comprehensive, coherent, and consistent proposals instead of being content with a piecemeal agenda that targets the “poor” and “women.”

I like this definition of equality as ‘full participation’ in all aspects of a community although I would add that as stake holders women (and indeed GLBT and other minorities kept in an inequality gulag) not only should achieve full participation but also full rewards for that participation.

One of the most compelling arguments that she makes for Gender Awareness is that frequently women’s most important roles in the local economy are in nonpaying jobs.  She argues that you really can’t take any policy into full account unless you study the impact on all of women’s contributions to the economy.  That includes work that does not entail monetary compensation but is welfare-enhancing.

While the former (paid work) in the private and public sectors (under formal contracts or informal arrangement) is largely recognized, unpaid work, which includes unpaid family work contributions, subsistence production, collection of free goods from common lands and volunteer work, household maintenance, and unpaid care work for family members and communities, still remains hidden and, hence, outside policy consideration.

These contributions are still the dominant areas for women in traditional societies.  It has been shown that women who

Mrs. Som Neang, age 53, is married and lives with her two children in Phnom Penh, Cambodia. She and her husband, Mr. Ban Boeun, 59, have a small business selling eggs and a variety of vegetables in a busy market.

understand health and nutrition issues as well as women who are educated and value education contribute a lot to an economy when they serve in these traditional capacities.  Educated women contribute through their children who are healthier and go on to achieve better outcomes in life.

There is also impact, however, on women who work outside the homes and women are concentrated in jobs that tend to suffer greatly during bad economic times.  Any time energy or food prices increase, development goals and gender equality goals suffer setbacks. Antonopolous forwards some broad areas where women tend to suffer most from any economic crisis.

“Among the emerging challenges of the current crisis, we now turn to the turbulence in the world of women’s work in four key areas: paid work (especially in textiles and agriculture); informal work; unpaid work; and fluctuations in remittances, including those from women migrant workers.”

Employment is always one of the slowest things to recovery from a macroeconomic downturn.  The last set of recessions resulting from the Asian Financial crisis as well as other country-specific downturns showed that employment recovery has been even more slow than recovery from recessions earlier in the post world war 2 years.  Current data is rich in information on how this impacts women’s equality goals.

Heaven has Fjords

When ever I hear folks rant and rave on the evils of European Social Democracies and how horrid they are, I always ask them to name the country that comes up consistently with the highest literacy rates in the world, lowest infant mortality, and much higher the the USA GDP per capita, and at the same time has  what you would probably call the world’s most complete cradle-to-grave welfare state.  Of course, no one knows the answer because so many folks here have been brainwashed into thinking productivity, budget surpluses, high standards of living, and great education and health care are not possible in socialist states.  Well, they are really wrong.

Without a doubt, the best country to live in the world these days going strictly by the statistics (and not the weather) is Norway.  Take a look at the CIA fact book for all the good stuff on Norway then take a look at  the United States.  Norway has bested the USA fn standard of living for quite some time.  The United States keeps dropping on all lists and just in GDP per capita is now sitting at number 10.  Norway is ranked first on the Human Development index of 177 countries, so essentially they are number one country for living the good life.  It is second, only to Luxembourg, for GDP per capita.

Today’s New York Times covers the little country that can and its stellar economic performance in today’s global economic crisis.    A lot of credit is goes to Norway’s socialist finance minister Kristin Halvorsen.  She’s in charge of Norway’s $300 billion sovereign wealth fund that has been steadily buying stocks since March and is used to build a decent standard of living for every one in that country.  Norway likes its government and its government works well. The Times article contrasts the economics of the U.S. and Norway and the U.S. comes up way short.

A Short Treatise on Economic Development and the Role of Culture

Another little essay from my bag of tricks, hopefully this one is easier to grok than the last

Recently, economic development literature has stopped presupposing the existence of formal institutions like property rights and rule of law.  It now examines the norms or social values that promote exchange, savings, and investment.  This new line of research argues there is a cultural dimension to economic behavior. It is difficult to precisely define culture, but this line of research identifies cultural influences as “the informal shared values, norms, meanings, and behaviors that characterize human societies” (Fukuyama, 2001).

Traditional neoclassical economics downplays the role of specific societal norms in economic choice.  The first simplifying assumption in most models is that Homo Economus is a rational utility maximizing agent. This assumption underlies the simplest microeconomic model to the more complex macroeconomic and trade models.  This means that human behavior is invariant across human societies.  Culture, religion, tradition, and all other forms of societal identification are some residual factor accounted for within the white noise of random variation.  Most sociologists will argue that cultural norms pervade economic choices and that an economy cannot be completely understood without understanding these cultural factors (Granovetter, 1985).  Economists tend to presuppose shared norms.  One of the reasons we see this is that cultural factors are methodologically very difficult to quantify, measure, and disentangle from other factors.

Economic historian Douglas North was one of the first economists to revive culturalist interpretations of economic development in the 1980s and 1990s.  Institutionalists began to recognize the importance of norms in economic choices.  North (1990) argued that institutions that are run by either formal or informal rules are critical in reducing transaction costs.  This makes them essential to promoting economic efficiency.  If a society, for example, cannot agree on property rights, there would be no incentive for innovators to take risks or make investments.  Institutional economists like North, began to pay attention to more than just the rational, maximizing behaviors of agents (including households and business) and became interested in studying the importance of factors like history, culture, tradition and what is now known as ‘path dependent’ variables that have  a role in shaping economic behavior and choices.

Besides a renewed interest in these things by institutionalists, it also became more apparent that traditional approaches to economic development were having mixed success depending on which continent you were studying. The same factors examined in countries that were part of the Asian Tigers or Asian Miracle showed differing levels of importance when compared to the transition economies of the old Soviet successor states.  Many Eastern European countries had to set up formal market institutions as well as judicial and political systems.  It became evident that countries like Poland, Hungary, and the Czech Republic were experiencing relatively smooth transitions from centrally-planned economies.  Russia and the Ukraine were experiencing many more troubles.  Their institutions were generally weak and the levels of corruption were astounding.

As a result of these and the many challenges still presenting themselves in the Middle East and Africa, the World Bank and the IMF began to more closely examine cultural variables in their traditional development models.  They begin to find that some uniquely Asian cultural characteristics were at play in the Asian Tiger countries. As a result, we now have a large amount of literature that studies culture factors and economic and financial development.

There are basically four channels that have become the focus of this line of literature.  The first is the impact of cultural institutions on organization and production.  The second is cultural factors that influence attitudes towards work and consumption. The third factor is how culture impacts the ability to create and then manage institutions.  The last is the creation of social networks.  Let’s look at each of these a bit more in depth.