Category: International

Is the United States the Best Place for Women?

Women in the United States have the best quality of life of any developed nation, according to the Better Life Index recently released by the Organization for Economic Cooperation and Development.

The index combines eleven different measures of wellbeing, including health, education, income, and life satisfaction. Australia gets top honors for overall wellbeing, but U.S. women top the rankings (women in red, men in black; you’ll probably have to click to read this chart):

Any such index rests on many assumptions and value judgements, of course. So kudos to the OECD for providing a completely interactive version of the index. If you don’t like the way they combine the eleven factors, you can roll your own index and see what happens.

Among other things, that allows you to drill down on each of the individual factors the OECD considers. The “life satisfaction” element reveals that the United States is an outlier in another way: the disparity between women’s life satisfaction and men’s:

Korea has the largest gap, with women reporting much higher satisfaction than men. The United States has the second largest gap, with women noticeably more satisfied than men. (But do note that by this metric alone, the United States is not the best place for women–several countries are higher.)

If you like data, interactive graphics, and international comparisons, you’ll probably enjoy putting the OECD’s Better Life Index through its paces.

The Most Important Economic Chart of the Year

Ezra Klein surveyed 18 economists for their charts of the year. Here’s my candidate, courtesy of Spiegel Online:

This chart illustrates the end of euro complacency. Investors once acted as though the euro eliminated not just currency risk but sovereign credit risk. All nations–from Greece to Germany–could borrow at the same low rates. No longer. As the financial crisis enters its fifth year, markets are again distinguishing between strong nations and weak.

I subsequently discovered that I am not alone in choosing this chart. The BBC has a version of this as the first entry in its survey of top graphs of the year (with commentary by Vicky Pryce of FTI Consulting), and Desmond Lachman of the American Enterprise Institute included it in Derek Thompson’s survey of top graphs over at the Atlantic.

P.S. For the United States, I think Brad DeLong is right: behold the shortfall in nominal U.S. GDP.

North Korea’s Economic Failure in a Second Picture

North Korea isn’t just dark. If you look at the nation’s per capita income, it’s clear that the economic situation has gotten darker.

Over at the Washington Post Wonkblog, Brad Plumer crunches the data on per capita income in South and North Korea since the 1970s. Stunning divergence:

Note that Kim Jong Il took power in 1994.

P.S. Data about North Korea’s economy are, of course, spotty and incomplete. That’s why the line for North Korea is so flat; in many years, reported GDP per capita doesn’t change. So take the specifics with a grain of salt. But the overall picture remains the same.

North Korea’s Economic Failure in One Picture

North Korea is notoriously secretive. But it can’t hide from satellites. Here are nighttime images showing the amount of light coming from the Korean peninsula.

As Donald Rumsfeld once said, “North Korea is dark”:

This image comes from “Measuring Economic Growth from Outer Space” by J. Vernon Henderson, Adam Storeygard, and David N. Weil, who demonstrate how light can be used as a proxy for measuring economic growth in places with poor economic data.

For other versions of this image, just google north south korea at night.

The Rising Risk of Social Unrest

The risk of social unrest is on the rise around much of the world, according to polling data summarized in the International Labour Organization’s latest World of Work Report (ht: Tortsen Slok).

The ILO estimates that the risk of unrest has risen the most in advanced economies over the past five years, followed by the Middle East & North Africa and South Asia:

With people in the streets from Athens to Oakland, the ILO clearly has a point about the advanced economies.

And what factors contribute to a rising risk of unrest? The ILO pegs six, all of which sound familiar:

• Income inequality and perception of injustice: Perception of economic and social disparities, and increasing social exclusion, is said to have a negative impact on social cohesion and tends to lead to social unrest (Easterly and Levine, 1997).

• Fiscal consolidation and budget cuts: Austerity measures have led to politically moti- vated protests and social instability. This has been the case in Europe for many years, from the end of the Weimar Republic in the 1930s to today’s anti-government demonstrations in Greece (Ponticelli and Voth, 2011), but has also been a feature in developing countries, especially in over-urbanized zones, where protests have arisen following the implementation of austerity programmes imposed by the International Monetary Fund or the World Bank (Walton and Ragin, 1990). Meanwhile, societies that are more indebted tend to have higher levels of social unrest (Woo, 2003).

• Higher food prices: In addition to collective frustrations regarding the democratic process, rising food prices were also central to the developments associated with the Arab Spring (Bellemare, 2011).

• Heavy-handedness of the State: In countries where the State has resorted to excessive use of force (police and military) to tackle social upheavals instead of focusing on the actual causes of unrest, such actions have often exacerbated the situation (Justino, 2007).

• Presence of educated but dissatisfied populace: Countries with large populations of young, educated people with limited employment prospects tend to experience unrest in the form protests (Jenkins, 1983; Jenkins and Wallace, 1996). This has been the case recently in many southern European countries, such Greece and Spain.

• Prevalence of mass media: Past studies have highlighted the impact of radio on the organization of demonstrations, and clearly the use of the Internet (e.g. through the use of Facebook and Twitter) have played a role in recent incidences of unrest.

Some Economics of Somali Piracy

Jeffrey Gettleman has penned a fascinating piece about the 388-day ordeal of two British sailors taken hostage by Somali pirates. Writing in the New York Times Magazine, he recounts how Paul and Rachel Chandler sailed off course between the Seychelles and Tanzania and found their sailboat boarded by ten pirates.

Their first order of business? Eating the Chandler’s cookies and using their shower. Piracy is not a glamorous occupation.

In addition to documenting the personal travails the Chandlers endured during their captivity, Gettleman also reports on the economics of the hostage-taking business. The payoffs, if any, come after months and months of negotiation. So pirates need credits and investors to cover operating costs:

In recent years, as ransoms have climbed, thousands of destitute, uneducated Somali youth have jumped into the hijacking business, and all anyone in Adado knew was that a young upstart named Buggas had taken the Chandlers to a desiccated smudge of a town called Amara, near the coast, and that Amara locals were backing him up. Local support is crucial, because holding hostages — especially for a long period — can become expensive. You need to keep them fed and most important, heavily guarded — so a rival pirate gang or Islamist militia doesn’t rekidnap them. Paul figures it was costing Buggas nearly $20,000 a month to hold them hostage: with around $300 per day spent on khat; $100 a day on goats; maybe a couple hundred more for tea, sugar, powdered milk, fuel, ammunition and other supplies. Then there’s payroll— in the Chandlers’ case, cash for the pirate raiding party and their 30 henchmen who rotated as guards on shore. On top of this come the translators, who charge a hefty fee to interact with the hostages and negotiate a ransom.

Pirates tend to operate on credit — borrowing all these resources from community members or other pirates, who will then get a cut, or in Somali, a sami, once a ransom is delivered. In Amara, rumors quickly began to fly that the Chandlers were rich — possibly even British M.P.’s — and were therefore the ideal sami opportunity.

“People were saying it would take just two months for a ransom and then they would get double,” Aden remembered. “They invest $5,000, they get $10,000 back. That’s a good return, right?”

…

According to lawyers who handle piracy cases, pirate translators tend to be educated men from within the community who work for several different pirate gangs and are typically paid a flat fee, which can reach $200,000 — they are essentially white-collar pirates.

Members of the British Somali community took an active interest in the Chandler’s plight and started leaning on folks back home to release them.

But Buggas and the gang didn’t budge. They needed their money. Their operating expenses were growing daily, and by this point they had many creditors — some of them heavily armed — who were expecting to be paid back.

… [But] Buggas was not actually in charge. … “He was working for three or four investors who were making the decisions.”

In many Somali piracy cases, a committee of investors or creditors fronts the cash for the piracy mission, and it’s up to the head gunman to deliver a tidy profit. But finally it seemed to dawn on Buggas and his creditors that they weren’t going to make much of a profit on this one. Stephen and Ali were negotiating a payment under a half-million dollars, all the Chandler family could afford and, for the pirates, a humiliating fraction of what corporate shipowners typically pay.

The whole article is worth a read, particularly for the description of the key role that Somalis in Britain played. And, of course, all the usual issues about the incentives created whenever ransoms are paid.

Indebted Countries Come in Three Flavors

The IMF’s latest Fiscal Monitor includes a colorful chart of who owns the debt of six countries with well-known debt concerns:

The debt owned by foreign investors and foreign central banks are in red and yellow; the other colors represent debt owned domestically.

Based on IMF’s accounting, the six countries come in three flavors:

  • The “PIG” countries. Portugal, Ireland, and Greece owe most of their debt to foreigners.That’s a key reason their shaky finances are of international concern.
  • Japan. It owes almost all of its debt to itself (i.e., its citizens and institutions). That’s a key reason the international community isn’t freaking out about its debt levels.
  • The U.S. and U.K. The two “Uniteds” owe most of their debt to themselves (including their central banks, in orange), but also owe a substantial amount to foreigners. The yellow pie slice for foreign official holdings is, of course, notably large for the United States.

Note: Such cross-country comparisons inevitably involve accounting choices. Note, for example, that the IMF includes amounts owed to the Social Security Trust Fund in the U.S. debt measure, but does not include state and local debts. The first choice arguably understates America’s reliance on foreign borrowing, while the second arguably overstates it. 

The Latest Sovereign Debt Meme? Going Big

The developed world is awash in sovereign debt. Greece stands on the precipice of painful (and inevitable) default. Italy and Spain struggle to convince markets that their debts are good. Portugal and Ireland hope to get in the lifeboat with Italy and Spain, rather than drown with Greece. And then there’s the United States. Much further from a sovereign crisis than many Euro nations, but still on a worrisome long-term path of spiraling debt.

So what should policymakers do? Well, the dominate meme this week was clear. If you are faced with sovereign debt worries, you should go big:

  • On Tuesday, the Committee for a Responsible Federal Budget released a letter signed by a group of former government officials, budget experts, and business leaders (including me) urging the Joint Select Committee, aka the super committee, “to ‘go big’ and develop a large-scale debt reduction package sufficient to stabilize the debt as a share of the economy.” A group of 38 senators followed with a similar letter, and a host of people made this argument at the super committee’s first hearing.
  • The same day, Mario Blejer–who led Argentina’s central bank after its default–urged Greece to go big: “Greece should default, and default big. A small default is worse than a big default and also worse than no default,” he said in an interview reported by Reuters Eliana Raszewski and Camila Russo.
  • And then there was Benjamin Reitzes of BMO Nesbitt who was quoted by The Globe and Mail’s Michael Babad offering similar advice to the BRICS. Not, of course, to deal with their own debt, but with Europe’s: “Considering Chinese purchases of European peripheral debt over the past year have provided only temporary relief, a small purchase won’t likely have much impact … go big or go home.”

So there you have it. If you find yourself at a loss for words in a weekend discussion about sovereign debt, you know what to say: Go big. Or, if you are contrary sort, go small. Either way, you can keep the conversation going.

Unemployment, Small Business, Quantitative Easing, and More

The Fed’s quantitative easing programs did indeed lower interest rates, but more so for Treasuries and mortgage-backed securities than for other kinds of debt. Small businesses are overrated as job creators. Extended unemployment insurance does increase unemployment rates, but not that much.

Those are just a few of the findings from papers presented today at the Brookings Institution’s twice-yearly conference, Brookings Papers on Economic Activity.

Courtesy of a Brookings release, here are brief summaries of five papers discussed today:

In Recession and the Costs of Lost Jobs, authors Steve Davis of the University of Chicago and Til von Wachter of Columbia University find that when mass-layoffs occur in good economic times, men with 3 or more years of job tenure suffer a $65,000 loss in the lifetime value of their earnings (a fall of about 10%), relative to otherwise similar workers who retain their jobs. But in a recession, a similar shock causes workers to lose $112,000 in the lifetime value of their future earnings (or about 19%).  The authors also track worker perceptions about layoff risks, job-finding prospects, and the likelihood of wage cuts, finding a tremendous increase in worker anxieties about their labor market prospects after the financial crisis of 2008.  This heightened anxiety continues today, they find.  Davis and von Wachter also show that prior economic employment models have been unable to address the facts about the earnings losses associated with job loss, yet those earnings impacts appear to be one of the main reasons that individuals and policymakers are so concerned with recessions and unemployment.  Finally, they note that pro-growth policies may be the most efficient and cost-effective means available to policymakers to alleviate the hardships experienced by displaced workers.

In What Do Small Businesses Do authors Erik Hurst and Benjamin Wild Pugsley of the University of Chicago overturn the conventional wisdom about the role of small business, finding that they aren’t the job engine most believe them to be. Most small business owners neither expect nor desire to grow or innovate, but rather intend to provide an existing service to an existing customer base.  Analyzing new survey data, the authors find that, instead, it is non-financial reasons — such as work flexibility and the desire to be one’s own boss – that are the most common reason that entrepreneurs start their own business. Hurst and Pugsley note this behavior is consistent with the industry characteristics of the majority of small businesses, which are concentrated among skilled craftsmen, lawyers, real estate agents, doctors, small shopkeepers, and restaurateurs.  They conclude that standard theories of entrepreneurship may be misguided and result in sub-optimal public policy, suggesting that subsidies for small businesses may be better spent if they are targeted to businesses that expect to grow and innovate, rather than small businesses in general.  They laud the partnership between the US Small Business Administration and venture capital firms as an example of strong targeted public policy.

In Unemployment Insurance and Job Search in the Great Recession, Jesse Rothstein of the University of California, Berkeley finds that recent extensions to the period in which the unemployed can draw unemployment benefits had a significant but small negative effect on the probability that eligible unemployed would exit unemployment, and that the effect is mainly concentrated among the long-term unemployed. Rothstein calculates that without those extensions, the unemployment rate would have been about 0.2-0.6 percentage points lower—a much smaller impact than implied by previous analyses, and that the long-term unemployment rate would have been even lower. He finds that half or more of these impacts are due to the unemployed remaining in the labor force rather than reductions in the chances of finding employment. As a result, Rothstein suggests that a generous extension of UI benefit in deep recessions should last until the labor market is strong again, thus giving displaced workers a realistic chance of finding new employment before their benefits expire.

In The Effects of Quantitative Easing on Interest Rates, Arvind Krishnamurthy and Annette Vissing-Jorgensen of Northwestern University show that the Federal Reserve’s recent quantitative easing (QE) programs (“QE1” and “QE2”) did in fact significantly lower interest rates on Treasury securities, as well as GSE bonds and highly rated corporate bonds.  They also find that such programs affect interest rates differently depending on which assets are purchased: QE1, which involved the purchase of mortgage-backed securities (MBS) in addition to Treasury securities, significantly lowered MBS rates, whereas QE2, which focused exclusively on Treasury securities, had little effect on MBS rates.  The authors identify several channels through which QE affects interest rates: first, QE increases the premium paid for assets with low-default risk (and thus lowers rates on these assets), by reducing the supply of such assets available to investors; second, QE drives down interest rates broadly by signaling a commitment by the Federal Reserve to keep interest rates low for a long period; and third, when QE involves purchases of mortgage-related assets, it lowers rates on such assets by affecting the price of mortgage-specific risk.  Because QE does not affect all long-term interest rates equally, examining the impact of a QE policy that focuses on purchases of Treasury securities on long-term Treasury rates is likely to overstate the program’s impact on the long-term corporate and mortgage interest rates that all relevant to investment and housing demand.  Interestingly, the results about having the Fed use its communication channel alone – that is, signaling its intentions – might be having a significant impact on rates without having the Fed actually take on the risks associated with increasing its balance sheet. The authors also conclude that expected inflation increased substantially due to QE1 and modestly due to QE2, implying that reductions in real rates were larger than reductions in nominal rates. 

In Practical Monetary Policy: Examples from Sweden and the United States, Lars E.O. Svensson, the Deputy Governor of the Swedish Central Bank (Sveriges Riksbank) analyzes the actions of the U.S. Federal Reserve and the Swedish Riksbank during and after the summer of 2010, looking for evidence that perhaps central banks make mistakes. In that time period, both the Fed and Riksbank forecasts for inflation were below their target and their forecasts for unemployment were above the sustainable unemployment rate, suggesting that more expansionary policy was warranted. However, the Riksbank tightened policy while the Federal Reserve held rates steady. Although the Swedish economy developed better than expected, and the U.S. economy developed worse than anticipated, Svensson argues that these developments were the result of external factors — not, in fact, the nations’ respective monetary policies. The Riksbank benefited from higher-than-anticipated domestic and export demand, upward revisions of GDP data, and a lack of structural problems. On the other hand, the Fed had to contend with fiscal policy problems, a slower housing market recovery, and substantial downward revisions of GDP data. The author concludes that the Riksbank’s decision to tighten policy is difficult to justify, while the Federal Reserve’s decision not to tighten was appropriate, although there is also a case to be made that they should have eased more.