Is GDP An Obsolete Measure of Progress?

   Date: 30-01-2010
 Source: TIME

Since last summer the nation’s Gross Domestic Product (GDP) has gone up — indeed, it grew at a surprising 5.7% rate in the 4th quarter — seeming to confirm what we’ve been hearing: the recession is officially over. But wait — foreclosure and unemployment rates remain high, and food banks are seeing record demand. Could it be that the GDP, that gold standard of economic data, might not be the best way to gauge a nation’s relative prosperity?

Since it became the prime economic indicator during the Second World War (to monitor war production) many have criticized policy-makers’ reliance on the GDP — and proposed substitute measures. For example, there is the Human Development Index (HDI), used by the UN’s Development Programme, which considers life expectancy and literacy as well as standard of living as determined by GDP. And the Genuine Progress Indicator, which incorporates aspects of social welfare such as income equity, pollution, and access to health care. In the international community, perhaps the biggest nudge has come from French President Nicolas Sarkozy, who commissioned a report by marquee-name economists, including Nobel laureates Joseph Stiglitz and Amartya Sen, to find alternatives to what he calls „GDP fetishism“.

Robert Reich On Real Financial Reform

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The Perils of Prosperity

Date: 30-01-2010

  Source: NEWSWEEK  By Robert J. Samuelson |

 It’s that it doesn’t go bust often enough. 

We need to get the story straight. Already, a crude consensus has formed over what caused the financial crisis. We were victimized by dishonest mortgage brokers, greedy bankers, and inept regulators. Easy credit from the Federal Reserve probably made matters worse. True, debate continues over details. Fed chairman Ben Bernanke recently gave a speech denying that it had loosened credit too much, though he admitted to lax bank regulation. Just recently a congressionally created commission opened hearings on the causes of the crisis. Still, the basic consensus seems well established and highly reassuring. It suggests that if we toughen regulation, suppress outrageous avarice, and improve the Fed’s policies, we can prevent anything like this from ever occurring again. 

There’s only one problem: the consensus is wrong—or at least vastly simplified. 

Never Heard That Before

   Date: 31-01-2010
 Source: THOMAS L. FRIEDMAN, NYT

As a political barometer, the Davos World Economic Forum usually offers up some revealing indicators of the global mood, and this year is no exception. I heard of a phrase being bandied about here by non-Americans — about the United States — that I can honestly say I’ve never heard before: “political instability.”

“Political instability” was a phrase normally reserved for countries like Russia or Iran or Honduras. But now, an American businessman here remarked to me, “people ask me about ‘political instability’ in the U.S. We’ve become unpredictable to the world.”

At Davos, Bankers Are on the Run

Date: 30-01-2010
 Source: The Wall Street Journal

DAVOS, Switzerland—Not so long ago, financiers ruled the roost at the glitzy annual gathering of the global economic elite here in the Swiss Alps. At this year’s gathering of the World Economic Forum, the unofficial theme seems to be, „First, kill all the bankers.“

The ire directed at bankers from all sides is palpable, acknowledged Donald Moore, chairman of Morgan Stanley in Europe, as he stood alone reading some charts amidst the hubbub at the forum’s Global Village cafe. Asked which other groups of people have been similarly unpopular in Davos in the past, he said: „terrorists.“

This Time is Different II

 by John Mauldin, 30/01/10

I am actually buying stocks in the biotech space, even as I think we are headed for a double-dip recession and a rather sharp bear market. But now, let’s jump into today’s letter.

The Statistical Recovery Has Arrived

Before we get into the main discussion point, let me briefly comment on today’s GDP numbers, which came in at an amazingly strong 5.7% growth rate. (in European Terms and measures it is 1.4% hfk) While that is stronger than I thought it would be (I said 4-5%), there are reasons to be cautious before we sound the „all clear“ bell.

First, over 60% (3.7%) of the growth came from inventory rebuilding, as opposed to just 0.7% in the third quarter. If you examine the numbers, you find that inventories had dropped below sales, so a buildup was needed. Increasing inventories add to GDP, while, counterintuitively, sales from inventory decrease GDP. Businesses are just adjusting to the New Normal level of sales. I expect further inventory build-up in the next two quarters, although not at this level, and then we level off the latter half of the year.

National Saving Rates Across Europe: Diverse

 Rebecca Wilder Jan 25, 2010 12:11AM

Greece – it’s the Eurozone’s black sheep. If this isn’t a Hail Mary, I don’t know what is: Greece Plans Bond Issue Soon. From the Wall Street Journal: Greece said Friday that it plans to syndicate a five-year benchmark bond next week to address renewed market jitters over its ability to finance its giant budget deficit, even as yields on Greek debt hit a new high. The bond, long awaited by market participants and seen as a key test of Greece’s ability to attract investors, will raise between€3 billion and €5 billion, the head of the country’s debt agency said. But Greece is in good company – the so-called PIIGS (Portugal, Italy, Ireland, Greece, and Spain). In fact, the low saving is broad-based, with net national saving – net national saving is an aggregate measure of saving, including private and public sectors – being the lowest in Portugal, –6.9% of gross disposable income on average spanning 2007-2008, and highest in Switzerland, +13.9% over the same period. This differential of saving patterns across Europe, i.e., Germany saves and Portugal does not, stalls any sort of bailout talk – technically, the Maastricht Treaty prohibits inter-government bailouts. However, if Greece’s Hail Mary bond issuance doesn’t work, something’s got to give. Marshall Auerback offers an interesting solution. Greece is simply the first in a long line of European (worldwide, actually) countries that face fiscal consolidation (see two FT articles by Martin Wolf, here and here). So we wait and see.

Hungary isn’t another Greece……..Now is it?

Edward Hugh

Jan 22, 2010 1:25PM

I couldn’t help being struck earlier this week by the following statement in an interview the Financial Times had with Hungarian Finance Minister, Peter Oszkó:

„Structural reforms of the pension and social welfare systems, plus a rebalancing of the tax system, should allow the government to report a 3.9 per cent budget deficit in 2009, on a par with the preceding year and in line with IMF requirements“. 

Is the “Volcker Rule” More than a Marketing Slogan?

Simon Johnson

Jan 24, 2010 11:43PM

At the broadest level, Thursday’s announcement from the White House was encouraging – for the first time, the president endorsed potential new constraints on the scale and scope of our largest banks, and said he was ready for “a fight”.  After a long tough argument, Paul Volcker appeared to have finally persuaded President Obama that the unconditional bailouts of 2008-2009 planted the seeds for another major economic crisis. 

Clearly this is Their First Rodeo

Mark Thoma

Jan 22, 2010 12:48PM

Economics of Contempt has A Few Assorted Thoughts on Financial Reform. I wish I could disagree with his contention that the reform proposals from the administration represent little more than „a fairly transparent political stunt.“ Maybe I’ll be pleasantly surprised, and I hope I am, but it’s hard to be optimistic (and things like this don’t help):