May 26, 2017

Monetary Policy: Q. and A. With Eric Rosengren: The Danger of Low Unemployment

We spoke on the sidelines of a Boston Fed conference devoted to the many economic puzzles confronting policy makers. I began with the most immediate: Is the economy strong enough for the Fed to resume hiking interest rates?


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Q. In your statement explaining your September dissent, you said the progress of the economic recovery “might, by itself, be sufficient to justify” a rate hike.

A. We’re at 5 percent unemployment. By many people’s estimates that’s full employment. My own number is a little below that, so I would like to see the unemployment rate come down a little bit more. And if you look at the inflation rate, the core rate is 1.7 percent. It’s not at all unusual to have an inflation rate half a percent higher or lower than what you’re expecting. It says that we’re relatively close on both full employment and on where our inflation target is, and we have an interest rate that is well below what we think the interest rate will be in the long run. Roughly around 3 percent is where people think the Fed funds rate is going to settle, and we’re well below that. So if you think you’re near both elements of the dual mandate, and the policy rate is well below where you think it’s going to be in the long run, I think there is some justification for taking action on that basis.

Q. Your main argument for raising rates, however, is a little more complicated. You’re basically worried the Fed is on track to help too many people find jobs.

A. That is the actual rub. I actually would like to run the economy a little bit hot, and I view a 4.7 percent unemployment rate as running the economy a little bit hot. We would be actually probing how low full unemployment is. But our own forecasting model is expecting that there is going to be enough growth in the economy going forward that it’s quite likely that we’ll be below 4.7 percent and, depending on what the path of interest rates is, potentially well below 4.7 percent, and that would concern me.

Q. Low unemployment sounds like a good thing.

A. During periods when the unemployment rate has gotten to the low 4s, we haven’t stayed there for a real long time. And that’s because we do start seeing wages picking up, and we do see prices start picking up, and we do see asset prices picking up. In that environment we start to tighten and when we tighten we’re not so good at getting it exactly right.

The problem is the dynamics of how firms and individuals start thinking about the tightening process. Those dynamics make it very hard to calibrate the monetary policy process. People understand tightening. But convincing them of how much you’re going to tighten and that you’re going to hit it exactly right — particularly given that you haven’t hit it exactly right in the past, it’s pretty tough to convince people of that. Not surprisingly, they start worrying about: “Well, they’re starting to tighten, they may tighten too much. What do I do? I start pulling in in terms of my own spending.” Firms start pulling in, saying, “We want to be prepared in case they don’t get this quite right.” Those kinds of actions — which are very hard to predict, and individually everyone behaves a little differently — in aggregate, cause a problem where we sometimes slow down the economy more than we intend.

So you don’t see instances where we go from 4.2 percent to 4.7 or 5 percent and level off. What you actually see is when we start tightening we end up with a recession.

Q. How do you avoid that by tightening sooner?

A. Ideally, what I’d like to see is us staying around full employment. The argument I was making is we want to make sure we have as long a recovery as possible. I am concerned that if we wait too long we will end up tightening more quickly and possibly more over all. The result may be that the recovery we are trying to maintain would actually be much harder to maintain with a policy that waits much longer and then tightens versus tightening at a more gradual pace. You can’t wait too long to start if you want to make sure it’s going to be gradual. If we wait too long to start raising rates, I don’t think we will have the luxury of moving as gradually as I would like.


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Q. In her speech here on Friday, Janet Yellen said that driving down unemployment could have benefits. Do you think she overstated those benefits?

A. I would view it more in terms of risks. Our own forecast would have us fall below the sustainable level of unemployment by 2018, and probably by enough that I would be concerned. I view that as a risk. I don’t know if that’s going to happen. But that risk is sufficiently large that I would take some insurance out against it and make sure that we’re going to settle in around full employment and not go well below it. And it’s not that there aren’t benefits. I think there are benefits from running hot and there’s some benefits from running real hot. The problem is when you run real hot you get to the point where it will presumably show up as inflation or asset prices, and we will end up reacting to that and it’s not so easy to calibrate that reaction.

Eric Rosengren at the Boston Fed in 2013. Credit Jessica Rinaldi for The Boston Globe, via Getty Images

Q. A number of the academics at this conference said they don’t think you should be trying to raise rates. What do you make of their hesitations?

A. We haven’t hit 2 percent inflation for a while. Some of them have argued that we should in effect be price-level targeting, which is to say that the misses that we’ve had in the past ought to be made up in the future. So they have a different model than we actually are using for monetary policy. We have an inflation target right now. If we wanted to move to price-level targeting, as was advocated by a number of the academics at the conference, we should have that discussion. We should announce it publicly. I don’t think we should do it without telling the public.

I think also the inability of so many central banks to hit their 2 percent inflation target has caused some people to say, “I want to actually see evidence that you can hit 2 percent, and since we’ve just seen the consequences of hitting the zero lower bound, I want to take out some insurance against hitting the zero lower bound more quickly.” I think both concerns are credible. My concern with those arguments would be that the very scenario that causes the next recession might be that we overshoot.

Q. You pointed to some evidence of asset bubbles, but you didn’t mention it in your September statement. How worried are you?

A. It’s a concern. For stock prices, there’s evidence it’s a little bit elevated. It’s not widespread in asset markets. I do think commercial real estate is one of the asset markets where I would say there is more evidence that there is a building up of momentum, that relative to history it’s a little bit unusual. So both the 10-year Treasury and the commercial real estate capitalization rate are low by historical standards, and we should think about why is that and what do we think would happen if that unwound quickly. We have had commercial real estate problems in the past, both domestically and globally. It’s not like there’s no history of commercial real estate causing problems in the past. Why some people are more sanguine than I am is that it’s distributed more widely among financial institutions and nonfinancial institutions. It’s not concentrated only in the largest institutions. But when we had the problems in New England, it was mostly small and medium-sized banks that failed in that period, and I think it had a real impact on the economy at that time.

Q. Are you concerned the presidential election could be economically disruptive?

A. Our internal model does not have an election dummy in it. It’s saying that we’re not necessarily expecting that our long-term forecast is going to be affected by this election. That may be right or may be wrong.


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We had an instance with Brexit where a vote went very differently than people anticipated. It’s a little bit different than what we’re experiencing now. People are already voting now, and so far it doesn’t look like we’re going to get an outcome dramatically different than what people are expecting. And so I’m not expecting it to have a big impact on the overall economy. I could be wrong, and if conditions change then we’ll have to factor that into our model.

Q. There is a widespread belief that the Fed will not raise rates at its next meeting in November, yet the Fed continues to insist every meeting is live. Why bother?

A. I can imagine that there would be people who would at least consider dissenting at this meeting. I don’t know what the economic conditions will be or what I’ll actually be voting on when it comes to the next meeting. But I could imagine conditions under which it would make sense to do it. I was willing to do it three weeks ago. The difference between September and November is not dramatically different.

Now that argument also holds in the other direction. Right now the market has a pretty high probability for December. And the difference is only six weeks. No econometric model would say that time span would make that much of a difference.

I don’t think the fact that we’re actually having an election — if that election were to change the way we’re modeling the economy or thinking about the progress of the economy, that’s something that should play a role. If we don’t think the election is going to materially impact our forecast going forward, then it shouldn’t play a large role. We should be doing it on the economic fundamentals. Now, some people may argue that the risk around that election is sufficient that it will affect economic fundamentals and it should be taken into account. We’ll have to see as we get closer whether that seems like a likely outcome.

Q. So you might vote to raise rates in November?

A. I’m open-minded. We’ll see how the data comes in. We’ll see exactly what the recommendation is that we’re considering at the time. And I’ll listen to my colleagues and what their views are. I have no idea what the political conditions will be. I’m not predetermined on what I would do or wouldn’t do. I can imagine a situation where I would dissent and a situation where I wouldn’t dissent.

Q. This conference has posed a lot of good questions about our understanding of the economy. Not a lot of good answers. In introducing Ms. Yellen, you said it was a great time to be an academic, but a difficult time to be a policy maker.

A. Our whole conference has been about anomalies. Some of those anomalies are pretty fundamental. Why has G.D.P. growth been slow? Why has the labor force participation rate come down so much? Why haven’t we hit 2 percent inflation more quickly? Those are all really interesting questions for an academic. For a policy maker you actually have to make a determination with imperfect information about what the answers to those questions are. So an academic gets to work on exciting ideas and there’s not much cost to being wrong. Anybody who’s in a policy-making role knows there is cost and so that makes it more challenging.

Q. One conclusion I often hear is that fiscal policy makers should be doing more. Do you think the Fed should be making that case more forcefully?


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A. There are times where the chair of the Fed does talk about fiscal policy. You need to tread lightly on that because we have a different set of responsibilities than they do. There can be costs to being too vocal about what other people should be doing when it’s their responsibility. So I don’t think we should get too engaged in discussions, and that’s particularly true if it’s of a very partisan nature. One of the most valuable features of the Federal Reserve is that it’s a nonpartisan organization. We’re trying to do what makes sense given the fiscal policy that we’re given. And fiscal policy obviously isn’t done that way. We have a partisan electoral process. I think in broad brush, saying that the monetary-fiscal policy mix may not be exactly right is probably appropriate. But we have to take fiscal policy as it is.

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Economic Trends: How Did Walmart Get Cleaner Stores and Higher Sales? It Paid Its People More

But in early 2015, Walmart announced it would actually pay its workers more.

That set in motion the biggest test imaginable of a basic argument that has consumed ivory-tower economists, union-hall organizers and corporate executives for years on end: What if paying workers more, training them better and offering better opportunities for advancement can actually make a company more profitable, rather than less?


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It is an idea that flies in the face of the prevailing ethos on Wall Street and in many executive suites the last few decades. But there is sound economic theory behind the idea. “Efficiency wages” is the term that economists — who excel at giving complex names to obvious ideas — use for the notion that employers who pay workers more than the going rate will get more loyal, harder-working, more productive employees in return.

Walmart’s experiment holds some surprising lessons for the American economy as a whole. Productivity gains have been slow for years; could fatter paychecks reverse that? Demand for goods and services has remained stubbornly low ever since the 2008 economic crisis. If companies paid people more, would it bring out more shoppers — benefiting workers and shareholders alike?

Deep in a warren of windowless offices here, executives in early 2015 sketched out a plan to spend more money on increased wages and training, and offer more predictable scheduling. They refer to this plan as “the investments.”

The results are promising. By early 2016, the proportion of stores hitting their targeted customer-service ratings had rebounded to 75 percent. Sales are rising again.

That said, the immediate impact on earnings and the company’s stock price have been less rosy.

The question for Walmart is ultimately whether that short-run hit makes the company a stronger competitor in the long run. Will the investments turn out to be the beginning of a change in how Walmart and other giant companies think about their workers, or just a one-off experiment to be reversed when the next recession rolls around?

The future health of the United States economy, and the well-being of its workers, may well depend on the answer.

Pressure From Investors

On the morning of Feb. 19, 2015, Walmart’s 1.2 million employees across the United States gathered — many in front of their stores’ vast walls of televisions for sale — to watch a video feed by their chief executive. Doug McMillon, wearing a sweater and sitting in the office once occupied by the company founder Sam Walton, more or less acknowledged that Walmart had made a mistake. It had gone too far in trying to cut payroll costs to the bone.

“Sometimes we don’t get it all right,” Mr. McMillon said in the video. “Sometimes we make policy changes or other decisions and they don’t result in what we thought they were going to. And when we don’t get it right, we adjust.”


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What most store employees probably didn’t know was that Mr. McMillon and his executive team, who had been promoted into their jobs a year earlier, were under extraordinary pressure from investors. They needed to reverse a slide in business and fight off threats in all directions — dollar discounters on the low end, Amazon online, direct competitors like Target and countless rivals specializing in one slice of Walmart’s business, from grocery chains to home-improvement warehouses.

People were shopping more — at Walmart’s rivals.

The company offers its millions of shoppers a simple way to make their dissatisfaction known. On the back of sales receipts is a message, “Tell us about your visit today,” along with instructions to log on to a website and answer questions about the store: Was it clean? Were they able to get what they came for quickly? Were employees friendly?

In early 2015, the answers that poured into Walmart’s global headquarters were, in a word, awful. The people paid to analyze the company tended to agree, too. A report by analysts at Wolfe Research in 2014 included photographs from a visit to Walmart of a sad-looking display of nearly empty bins of oranges and lemons and disorganized shelves of crackers.

“Walmart U.S.’s relentless focus on costs does seem to have taken some toll on in-store conditions and stock levels,” they wrote. The analysts wryly added: “If an item is not on the shelf, you cannot sell it.”

The company had been busy raising profits by cutting labor costs. The number of employees in the United States fell by 7 percent from early 2008 to early 2013, for example, a span in which the square footage of stores rose 13 percent.

Some of that reflects technological advances, like self-checkout kiosks. But when Mr. McMillon and a new team came in to reverse the slide starting in early 2014, they diagnosed the problem as having taken the cost-cutting logic too far.

From store managers nationwide, they heard that years of cost-cutting meant Walmart had become viewed as a last-ditch option for employment — not the place that ambitious people might want to work. They were under such pressure to keep labor costs low that the employees they hired showed little loyalty or career-building devotion to their jobs.

“We realized quickly that wages are only one part of it, that what also matters are the schedules we give people, the hours that they work, the training we give them, the opportunities you provide them,” said Judith McKenna, who became chief operating officer in late 2014, in a recent interview. “What you’ve got to do is not just fix one part, but get all of these things moving together.”


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That is how Walmart decided to build 200 training centers to offer a clearer path for hourly employees who want to get on the higher-paying management track. And it said it would raise its hourly pay to a minimum of $10 for workers who complete a training course and raise department manager pay to $15 an hour, from $12. It said it would offer more flexible and predictable schedules to hourly workers.

The news from Bentonville made headlines worldwide. The federal minimum wage had been $7.25 since 2009, and the labor market had awarded meager pay gains for people at the lower end of the spectrum for decade, facts that helped increase Walmart’s bottom line. Now, the United States’ largest private employer — Walmart has about 2.3 million workers around the world — was signaling it was about to gingerly try a different approach, putting $2.7 billion where its mouth was.

Walmart says its average pay for a full-time nonmanagerial employee is now $13.69 an hour, up 16 percent since early 2014. In the same span, consumer prices have risen 2.1 percent.

Back to the Classroom

On a Thursday morning in late summer, at a Walmart Supercenter No. 359 in Fayetteville, Walmart trainees followed instructors around to learn what this particular store was doing right, and wrong, on this particular day. Teresa Rasberry praised a display of University of Arkansas tailgating equipment — coolers, grills and folding chairs — complemented by a fluttering effect created by putting electric fans beneath overhead banners for Razorbacks football.

Teresa Rasberry, an instructor, teaches Walmart employees how to make attractive displays, like lining up bottles so they make vertical stripes of color. Credit Melissa Lukenbaugh for The New York Times

“See how it pulls the eye?” she asked the trainees. “Step back and think about how the customer sees it.”

Not so good was an end display of Mr. Clean, in which the various colors of the cleaning solution were jumbled together. Lining up the bottles so they make vertical stripes of color pulls more buyers in, she said.

“It may sound silly,” Ms. Rasberry said, “but it works! I’ve tested it myself!”

Back in a classroom, Walmart department managers discussed why a $15.86 bottle of Clairol hair coloring might be a bad fit for a store located in a place with an $80,000 average income. Women in that income bracket are more likely to get their hair colored at a salon, an instructor, Amanda Forslund, explained.

This is one of the first of Walmart’s planned 200 training academies. New department managers will come in for two weeks of training covering general retail principles (customer service, inventory management) as well as specialized training for their specific area (the bakery or electronics, for example).


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Walmart’s pay increases got most of the attention. But the new training and prospect of better career paths for hourly staff members could be more significant in the long term.

It’s not that the retail industry doesn’t offer potential paths to good incomes. Starting pay for an assistant store manager at Walmart is $48,500, and the manager of one of its large stores can make comfortably above $100,000.

The problem — described by Walmart managers and people outside the company who study labor markets — is that there is no clear path for an entry-level worker to get there. Much training is impromptu, and chains have tended to view their hourly workers as interchangeable cogs rather than resources worth investing in.

That reputation has been particularly strong at Walmart.

“I didn’t used to think this would be something I would want to do, to work at Walmart,” said Garrett Watts, a 22-year-old newly promoted customer service manager at a store in Fayetteville. “There’s a stigma with it. It used to be, if you worked at a Walmart, it was the equivalent of a fast-food restaurant.”

Garrett Watts runs customer services for a Walmart in Fayettville, Ark. He was hired at $9 an hour and now makes $13. He is setting his sights on an assistant store manager job. Credit Melissa Lukenbaugh for The New York Times

He had gone to college for two years, suspended his education and was working as a desk clerk at a hotel when he switched to Walmart this year, lured not by the starting wage but by what he had heard from a friend about the potential to rise within a giant company. He was soon promoted to department manager and runs customer services for the store. He was hired at $9 an hour and now makes $13.

“I wanted something that wasn’t a stopgap, but could be a real career,” Mr. Watts said. He is starting to set his sights on one of those $48,000-a-year assistant store manager jobs.

‘Step in the Right Direction’

Walmart’s announcement of what it refers to as “the investments,” made during the all-staff videoconference in 2015, became something of a Rorschach test. To macroeconomists, it suggested that a falling unemployment rate was finally creating the response that theory suggests it should: employers raising wages to attract the workers they need.

To labor activists, it was a sign that political campaigns to raise the minimum wage were paying off. To Wall Street analysts, it was the company owning up to the weaknesses long apparent in customer surveys and sales numbers.


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And in the company’s own framing, it was about doing the right thing. “It’s clear to me that one of the highest priorities today must be an investment in you, our associates,” Mr. McMillon said in the video.

It was all of these things, Ms. McKenna acknowledged.

The improving economy made it harder for Walmart to get good workers without paying more. Political momentum toward a higher minimum wage meant that entry-level pay would soon be rising in many places anyway. And executives really had concluded that customer service woes and slumping sales were because of underinvestment in employees.

To some critics, though, it still amounted to a half-measure, and one framed to maximize public attention. “In our minds this is certainly a step in the right direction, but it’s typical Walmart in that it’s minimal and there’s a lot of spin on top of what’s really happening,” said Daniel Schlademan, a founder of the labor group Our Walmart, which wants the company to have a starting wage of $15 an hour.

In particular, new hires typically do not receive the $10 minimum wage until they finish a training program that is supposed to take six months but frequently stretches longer. And a promised increase in the predictability and flexibility of hourly workers’ schedules is being tested in only 650 smaller “neighborhood market” stores. It has not been rolled out to the full 4,500 Walmarts.

“The economic reality is that they put a great deal of pressure on managers to keep labor costs and hours down,” Mr. Schlademan said.

And the actions fall well short of what Zeynep Ton, an associate professor of operations at the Sloan School of Business at M.I.T., calls a “good jobs strategy,” in which a retailer builds its entire operating philosophy around better-compensated staff members who are empowered to make decisions. Companies like Costco and the grocer Wegman’s have a base pay closer to that of what the retail activists seek and are successful by many measures. (Costco pays entry-level workers at least $13 an hour, with hourly pay reaching up to $22.50).

But while Walmart’s changes aren’t as extensive as advocates would prefer, the company has shifted, in relative terms, up the industry’s pay scale. In early 2014, Walmart’s self-reported average full-time pay was 3.7 percent higher than the average hourly earnings for nonmanagerial workers at general merchandise stores calculated by the Labor Department. Now, it is 13.7 percent higher.

“It’s about being competitive in the market and making sure the talent pool of applicants was the right talent pool,” Ms. McKenna said.


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That sounds an awful lot like a reference to the concept of an “efficiency wage.”

Above the Market Rate

The idea is that, sometimes, it is in an employer’s best interest to pay more than necessary to get a worker into a job. The 18th-century economic thinker Adam Smith described the need to pay a goldsmith particularly well to dissuade him from stealing from you. More recently, economists (including Janet L. Yellen, the Federal Reserve chairwoman, who worked on these topics as an academic economist in the 1980s) have found evidence that people are more productive when they are paid above the market rate.

An employee making more than the market rate, after all, is likely to work harder and show greater loyalty. Workers who see opportunities to get promoted have an incentive not to mess up, compared with people who feel they are in a dead-end job. A person has more incentive to work hard, even when the boss isn’t watching, when the job pays better than what you could make down the street.

Economists have found evidence of this in practice in many real-world settings. Higher pay at New Jersey police departments, for example, led to better rates of clearing cases. At the San Francisco airport, higher pay led to shorter lines for passengers. Among British home care providers, higher pay meant less oversight was needed.

What is interesting about this is that, if you look at what’s ailing the broader United States economy, it looks a lot like what you would expect if employers were, en masse, failing to understand the possibility of efficiency wages.

Employers have succeeded at holding down labor costs. The “labor share” of national income — the portion of the national economic pie that goes to workers’ pay, as opposed to corporate profits and elsewhere — has fallen. And average pay for nonmanagerial workers has grown more slowly than the overall economy.

This has coincided with disappointing results for the economy. Worker productivity has been rising slowly for the last decade, and prime working-age Americans are staying out of the work force in droves. This implies that plenty of people don’t see jobs out there that offer sufficient pay or opportunity to make the jobs worth doing.

Individually, employers may think they are making rational decisions to pay people as little as possible. But that may be collectively shortsighted, if the unintended result is less demand for the goods and services they are all trying to sell to these same people.

Just maybe, in other words, employers across the country are pushing down labor costs like Walmart, circa 2014 — and this is one of the major culprits behind disappointing economic results since the start of the 21st century.


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“The management philosophy that became popular in the 1980s that led companies to cut pay for low-wage workers, fight unions and contract out work may have been profitable for the companies that practiced it in the short run,” said Alan Krueger, a Princeton economist and leading scholar of labor markets. “But in the long run it has raised inequality, reduced aggregate consumption and hurt overall business profitability.”

Customer Surveys Improve

If you buy that theory — and, to be clear, it is more theory than settled fact — it means that the results of the Walmart experiment matter a great deal. That implies that if large companies were to spend more to pay and train their workers, it could create gains for the economy as a whole. And it would ultimately be better for those same businesses.

Kimberly Cook is an instructor for employees of Walmart, which plans 200 training academies. Credit Melissa Lukenbaugh for The New York Times

So, 19 months in, what is Walmart finding?

Those customer surveys that were so terrible at the start of 2015 have improved, with “clean, fast, friendly scores” rising for 90 consecutive weeks. Surveys by outside groups, like the investment banker Cowen Company, point to more satisfied customers as well.

That seems to have done the trick in reversing the sales slump. At stores open at least a year, sales were up 1.6 percent over a year earlier in the most recent quarter. That’s better than it sounds. Overall sales at general merchandise retailers are down 0.4 percent this year compared with last, according to census data.

The profit landscape is less sunny. Operating income for Walmart’s United States stores was down 6 percent in the most recent quarter, reflecting higher labor costs and other new investments. The company’s stock has underperformed the overall United States stock market and an index of major retailers since the program was announced, suggesting investors are not convinced that these investments will pay a lucrative return anytime soon.

Walmart Stock Has Lagged 

The retailer’s share price has underperformed the market since announcing investments in worker pay and training.

But at the store level, managers describe a big shift in the kind of workers they can bring in by offering $10 an hour with a solid path to $15 an hour. “We’re attracting a different type of associate,” said Tina Budnaitis, the manager of Walmart No. 5260 in Rogers. “We get more people coming in who want a career instead of a job.”

Senior executives speak in the language you might expect from a manager worried about paying an efficiency wage. “Our associates are an asset,” said Ms. McKenna, the chief operating officer. “You don’t try to have the very lowest cost of an asset. You try to have the right asset. So rather than thinking about the lowest cost, the question is how do you get the best productivity.”

The question for Walmart, and perhaps the economy as a whole, is whether these changes turn out to be one-off, or part of a shifting philosophy of how work and compensation should work in a 21st-century megacorporation.


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“Out of the gate, they’ve seen some improvement, but I think that’s because they were doing Retail 101 so poorly,” said Brian Yarbrough, a retail analyst at Edward Jones Company. “The better question is what happens next year and the following year. The low-hanging fruit has been harvested.”

Ms. McKenna declined to be specific about what might come next. And of course in a volatile corporate world, an unexpected recession or management change, or rise of a new competitor, could upend any plans. But she suggests that the company’s changes should not be viewed as a one-time event.

“This is a journey,” she said.

In the short term, the Walmart experiment shows pretty clearly that paying people better improves both the work force and the shoppers’ experience, but not profitability, at least not yet.

Still, here is one other nugget the company has found. The extra wages it is paying its workers don’t all go out the door on payday, executives said. Spending at the stores by employees has risen — offering a possible metaphor for what those efficiency-wage economists argue might happen across the economy, if wages were to climb.

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U.S. Economy, Showing Resilience, Added 156,000 Jobs Last Month

“It was solid, not spectacular,” said Diane Swonk, an independent economist in Chicago. “The good news is that participation went up, even though the unemployment rate did, too. Regaining that ground is very important.”


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Before the report was released, economists on Wall Street looked for the economy to add 172,000 jobs in September. Revisions for July and August showed that 7,000 fewer jobs were created in those months than the Labor Department first estimated.

Given the latest figures, the Federal Reserve is still expected to delay raising interest rates until late this year, and there was little in the report to suggest that the job gains might lead to significantly higher inflation.

“There are still plenty of unemployed people out there, enough for employers to continue to hire at a substantial pace,” said Michael Gapen, chief United States economist at Barclays.

“The expansion will end before you run out of labor,” added Mr. Gapen, who estimates that the unemployment rate could drop to 4 percent by the end of 2017. The overall participation rate inched up to 62.9 percent, above the low point of 62.4 percent last September, but well below the most recent peak of 66.4 percent in early 2007.

With many prime-age workers still available to be hired — what economists and policy makers at the Federal Reserve blandly term “labor market slack” — the current pace of hiring should be able to continue with little threat of overheating the economy.

A chocolate maker in Brooklyn. Hiring in the United States was very robust late last year and reasonably strong for most of this year. Credit Spencer Platt/Getty Images

Moreover, the labor force itself jumped by nearly half a million, a bright spot in an otherwise steady picture of the economy.

The nation has added an average of 178,000 jobs a month this year, less robust than the average monthly gain of 229,000 in 2015 but still a healthy reading given the longevity of the recovery and the slowdown in population growth among adults of working age.

Mr. Gapen attributed most of September’s dip in job creation, which was below the consensus forecast and the annual average, to an unexpected 11,000 drop in government payrolls.


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The public sector added more than 50,000 positions in July and August, and Mr. Gapen said the private sector’s relative strength was what counted, not a slowdown in government hiring.

“It’s not a negative signal,” he said. “We see the miss as mainly a one-off government issue.”

Despite the robust hiring in the last couple of years, tens of millions of workers have barely felt the benefits of the recovery, and notable pockets of economic weakness remain more than seven years after it began.

Those two contrasting realities — healthy hiring and falling unemployment on the one hand, millions of economically sidelined Americans on the other — sustain the narrative of the two main presidential candidates, Hillary Clinton and Donald J. Trump.

Both candidates’ critiques of the economy contain kernels of truth. Friday’s report, while generally strong, contained fodder for both.

The jump in participation, and healthy gains in higher-paying professional services fields, bolster Mrs. Clinton’s case that the economy is growing steadily and creating decent-paying jobs. The drop in manufacturing jobs by 13,000 will underscore fears among blue-collar voters that their livelihoods are imperiled, a main factor in Mr. Trump’s appeal.

In addition to strong gains in services, the closely watched construction industry added 23,000 jobs. The housing market has been booming in many parts of the country, and like manufacturing, construction remains an important source of middle-class jobs for workers with just high school diplomas.

“I’m heartened to see that we have an unmistakable trend toward good-quality jobs,” said Labor Secretary Thomas E. Perez. “I know there’s a doom and gloom caucus out there, but they’re on a collision course with the facts.”

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Economic View: Sending Potatoes to Idaho? How the Free Market Can Fight Poverty

Until 2005, Feeding America distributed food and other goods in a straightforward way. New donations went to the food bank that had been waiting for new supplies the longest.


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This seemed fair, but food frequently ended up in the wrong places. Professor Prendergast said the director of a food bank in Idaho would “roll his eyes when they’d keep offering him potatoes, even though he had warehouses full of them.” And Susannah Morgan, director of the Oregon food bank, said that when she was working for a food bank in Alaska, she had frustrations like this one: “picking up the phone one day and being told I’d been given a truckload of peanut butter — in Louisiana.” Moving peanut butter across the country was suddenly her responsibility.

These problems provided textbook examples of gross inefficiency in allocating scarce resources, with an eerie resemblance to the pervasive shortages and misdirected resources of central planning in the old Soviet Union.

Free markets are, of course, another way of distributing resources, but they may seem ill suited for food banks, where the goal is to get food to the neediest cases, not the richest.

In a free housing market, for example, big houses generally do not go to those who need them most but to those willing and able to pay the most. Poor families with children often must squeeze into tiny apartments, while rich single people may enjoy spacious homes.

But it turns out that when you analyze objections to free markets on these grounds, they contain two basic issues: First, goods go to the highest bidder; second, bidders possess different amounts of wealth. Disentangling these two factors is important. When markets produce outcomes that seem unfair, it is usually the second factor — the wealth disparity — that is to blame.

Place bidders on an equal footing and the superior efficiency of the market becomes evident. When two similarly well-off families vie for a large house, for example, the family that places the greater value on the property will outbid the other one.

This insight has been put into practice in many settings. In some universities, for example, students bid on courses using “points,” not dollars. This bidding process can be fair and efficient when universities allocate the points equitably. It would be a very different matter if the richer students invariably received entry to the best classes.

A task force at Feeding America — which included Professor Prendergast, Ms. Morgan and others — adopted this approach. They embraced a bidding system using a virtual currency. Crucially, food banks with the greatest need received the most currency and so could place the highest bids, harnessing the benefits of a free market with fairness in the distribution of the underlying wealth.

The new system started in 2005 and quickly proved successful, sometimes in unexpected ways.

For example, donations seemed to fall into two categories. Food banks sought some items, like diapers, that “sold” at relatively high prices. Some food banks focused on bidding on these items, which had the effect of lowering the prices of staples, like produce. The neediest food banks were able to obtain these staples at bargain prices. This was the kind of positive-sum situation that ideal markets allow: Everyone was a winner.


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In another unexpected turn of events, some food banks began to sell their excess stores. The Idaho food bank, with warehouses full of potatoes, sold some of them and bought other commodities with the proceeds. Soon, these transactions accounted for more than 12 million pounds of food redistributed among the food banks each year.

Most noticeably, everything ran more smoothly. Donations in the old system were laboriously offered to individual food banks in succession until a taker could be found. Donations were sometimes not accepted. Imagine how this made donors feel. Why give when what you offer is not wanted?

In the seven months after the new, more efficient system went into action, food donations increased by 50 million pounds, Professor Prendergast’s data indicates. Cause and effect is difficult to demonstrate, but the greater efficiency in making use of donations may have led to more donations.

What’s more, the food bank market didn’t just allocate scarce resources; it also made it possible to use “knowledge not given to anyone in its totality,” as Friedrich A. Hayek, the Nobel laureate, once wrote. In this case, each food bank director knew a part of the puzzle — what the local neighborhood needed, where food donations were available and so on. The more efficient internal market put together all of these pieces.

Markets report such dispersed information in the form of prices. Feeding America, for example, was surprised to see pasta at one point trading for 116 times the price of fresh vegetables. That was revealing data. In hindsight, it made sense: Vegetables spoil rapidly, which is why food companies donated them freely; pasta, with its longer shelf life, was a rarer commodity, as far as donations go. But none of this was obvious until the bidding market sprang up. Feeding America began to use this new information to decide which donations to seek most aggressively.

Though the market eventually flourished, getting it started was not easy. John Arnold, a director of a food bank in western Michigan who died in 2012, at first rejected the new approach: “I am a socialist,” he said. “That’s why I run a food bank. I don’t believe in markets.” But he came around, because he believed that the market system was better for the people his food bank served.

Feeding America’s experience demonstrates the power of markets when they are used as a tool for fulfilling people’s needs fairly and equitably.

This is an important point: Many economics textbooks separate efficiency from equity, but perceptions of the two are intertwined. The efficiency of the Feeding America market was intimately tied to its equity.


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Political discourse these days often assumes that free market principles must be associated with inequality. Some free market advocates not only extol market virtues but also caution against interfering with the wealth distributions that untrammeled markets frequently create, elevating the market from a tool to an ideology.

This is a mistake. We could all learn from Mr. Arnold. Despite his initial objections, he became a champion of basic market reforms and continued to innovate, pioneering “free market” inventions like allowing food bank clients to choose their own food instead of making everyone accept the same basket.

He understood that you can use the market as a tool without embracing an entire ideology.

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The 2016 Race: How Trump and Clinton Can Interpret This Jobs Report

Workers assembling a truck at a new Ford truck plant in Louisville, Ky., last month. Credit Bryan Woolston/Reuters

Most of the time, the release of monthly employment numbers is important because the figures tell us something about Americans’ prospects for finding a job, whether the economy is slowing down or speeding up, and perhaps what the Federal Reserve is likely to do at coming meetings.

But with the election a month away, the jobs report takes on extra significance, as a piece of major economic news that might shape how people vote for president. So looking at the data through a political lens makes perfect sense.

And the new results — that the unemployment rate ticked up to 5 percent as the nation added 156,000 jobs in September — point to an economy that is on a steady course. The numbers are good enough that Hillary Clinton can argue that the economy continues to improve: The number of people in the labor force rose by 444,000, a good sign that some of the people who left the job market in recent years have returned. Average hourly wages are up a solid 2.6 percent over a year ago.

Yet the results are still soft enough that Donald J. Trump has plenty of ground for attack on the state of the economy as the Obama administration nears its end: There is that uptick in the unemployment rate, the 156,000 jobs added are no great shakes, a broader measure of unemployment remains at 9.7 percent, and the ratio of Americans working remains significantly lower than eight years ago.


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But while it’s easy enough to tick through the bullish and bearish case on the state of the economy, what’s particularly striking is how little this election has focused on the economy — or at least the cyclical state of it. Consider this: In the first presidential debate, the word “unemployment” was not mentioned once. By contrast, in the first 2012 debate between President Obama and Mitt Romney, Mr. Romney assailed the president for what his health plan would do to jobs and on the continued high jobless rate at that time.

One reason is probably that President Obama is not on the ballot, and so debating his economic record is less relevant. But the bigger one is surely that the state of the economy isn’t really the focus of this race because the economy is largely, finally, healed from the 2008 recession. Consider that the 5 percent September unemployment rate is the second lowest for a September before a presidential election in nearly five decades. Since the 1968 election, only the 2000 race featured a lower pre-election jobless rate.

Unemployment and Elections: The Recent Track Record

The September jobless rate is the second lowest at this point in a presidential election cycle in recent decades.

Much of what people frame as a debate over “the economy” in the 2016 election cycle is not about the cyclical state of the economy, which was a first-order issue in 2008, 2012 and, to some degree, 2004. Rather, it is about long-simmering shifts, some of which are barely about economics at all.

Sure, slow-growing wages for middle- and working-class Americans have been an underlying fact going back decades, and there is surely an economic dimension to polling data that shows many people believe America’s best days are in the past.

But there’s evidence that much of the atmosphere of economic discontent right now isn’t really about economics in a narrow sense — or at least not the way technocrats usually view it. As the former Fed chairman Ben Bernanke has observed, there is an odd disconnect in polling lately. When people are asked about their personal finances, and whether they are improving or worsening, people are as happy as they have been in many years.

In other words, the evidence we see in things like the new jobs report, that unemployment is low and wages are rising — fits what people see in their own lives.

But when asked about, as Gallup does, “the way things are going” more broadly, the results are much more negative. It seems that when asked about how things are going over all, Americans aren’t really making an observation about their personal financial situation, but more a stylized observation about whether they are optimistic or pessimistic about the state of the world. The Trump phenomenon seems to be driven by that pessimistic impulse.

Because Election Day falls on the late end this year, there will be one more jobs report the Friday before the Nov. 8 voting, along with a second-quarter G.D.P. report and a Fed policy meeting. But this is the last big economic headline to take place before early voting begins most places, and the conditions that will shape voters’ perception of the state of the world are pretty well baked into the economic cake by now.

Yet the evidence suggests that, whether those announcements point to good news or bad, they won’t matter much in shaping how people think about the world heading into the voting booth.

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Europe May Finally End Its Painful Embrace of Austerity

The development comes after Britain’s stunning vote to abandon the European Union, an angry rebuke of the economic elite within struggling communities, and as populist, anti-immigrant movements across the Continent gain traction.


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Above all, the change could be an antidote to years of dogmatic European policies, replacing a failed effort to generate economic growth through cutting spending with a focus on bolstering investment.

“Austerity is out of the discussion in a way,” said the Italian finance minister, Pier Carlo Padoan, during a recent interview in Rome. “We need to bring more growth and more jobs to Europe.”

The most obvious place the new dynamic is unfolding is in Britain.

What’s Next for Business After ‘Brexit’?

Several months on, little is clear. Britain’s trading relationship with the E.U. looks to be in limbo. Companies are reassessing their long-term investments in Britain. Here’s what’s happened so far.

Before the June 23 vote for “Brexit,” the man in charge of the budget, the chancellor of the Exchequer, George Osborne, was publicly pursuing the aim of delivering a budget surplus by 2020. The target required cuts.

But as the political class absorbed the ballot result, interpreting it as a demand for redress from communities reeling from high unemployment and wage stagnation, Mr. Osborne acknowledged that his goal could no longer be achieved.

His successor, Philip Hammond, has raised the ante.

In a speech at an annual gathering of the governing Conservative Party on Monday, the new chancellor declared that the government would borrow more to finance new infrastructure projects — presumably creating construction and manufacturing jobs.

Budget cutting has given way to fresh spending in large part because of fears of the economic consequences of Britain’s potentially tortuous European divorce proceedings. Investment is expected to slow, reflecting grave uncertainty. British exports could be threatened. High-paying finance jobs could shift from Britain to other countries in Europe.

But any fair conversation about austerity must reckon with a complex reality: There are great divergences between the rhetoric of policy-making and the actual spending of money.

In Britain, Mr. Osborne presented himself as a courageous guardian of the treasury, intent on making cuts to balance the books. At the same time, he ran budget deficits that were proportionately larger than those in France, where a Socialist government, supposedly intent on handing out loot unencumbered by arithmetic, was in power.


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In the United States, the Obama administration responded to the Great Recession with a $787 billion fiscal stimulus bill — a mixture of tax cuts and increased government spending. Its economy proceeded to recover more vigorously than Europe’s, giving rise to the notion that stimulus was at work on the American side of the Atlantic, while austerity prevailed across the water.

That story, however, is overly simplistic.

In Washington, bickering over the size and duration of many social programs — emergency unemployment benefits, food stamps and housing supports — effectively curtailed the scope of these efforts. In Europe, a vastly more generous social safety net limited the impacts of joblessness.

Any alteration to European economic policy inevitably involves Germany. The region’s largest economy, it wields outsize influence over the levers of economic policy.

The European Union maintains rules limiting budget deficits and public debt burdens. Countries that exceed the limits are subject to negotiations over the consequences.

To Germany, those rules are immutable (unless Germany is the one asking for some slack). The German economic view, analysts say, is dominated by moralistic judgments and a grave fear of inflation. Deficits reflect weakness of will and undermine the value of money. Prosperity comes from discipline and sacrifice.

German voters have expressed alarm at any possibility that their abundant savings might be used to rescue reckless borrowers on the Mediterranean. This trait has been most on display as Germany has demanded sharp cuts in government spending as a condition for successive bailouts of Greece by European authorities. But it has similarly colored German demands for strict adherence to the limits on deficit spending by Spain, Portugal and other crisis-assailed European nations. (And never mind, critics charge, that most troubled European economies landed there not because of too much public spending, but because of disastrous private borrowing — often extended by German banks.)

Germany, economists say, is effectively combating a phantom: The real threat is not inflation, but the opposite — deflation, or falling prices. When prices are dropping, that means demand for goods and services is weak, and that reduces the incentive for businesses to expand and hire.

Faced with such a downward spiral, the traditional economic playbook calls for government to step in and spend money, even if that entails running deficits. Construction projects, for example, put cash into the pockets of construction workers, who then spread their wages through the economy.

Spain and Portugal experienced veritable depressions during the worst of the crisis. Both have been eager for relief from the strictures of these spending caps. Both are running budget deficits well above the limit — 3 percent of gross domestic product. Yet in July, European authorities chose not to fine either country, instead giving them additional time to bring their deficits under the cap.


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“On the merits, Spain, Italy and France should be ganging up on the Germans and outvoting them and strong-arming them,” said Adam S. Posen, a former member of the rate-setting committee at the Bank of England, and now president of the Peterson Institute for International Economics in Washington. “For whatever reason, they don’t get there, and I genuinely don’t understand it.”

Italy is now making a run at it.

Last month, its prime minister, Matteo Renzi, accused Germany of putting European interests at risk by refusing to allow more government spending.

“Stressing austerity means destroying Europe,” Mr. Renzi declared at the Council on Foreign Relations in New York. ”Which is the only country which receives an advantage from this strategy? The one which exports the most: Germany.”

In a series of recent interviews in Rome, top Italian officials outlined intentions to liberate Europe from austerity.

“If you want to close this divide and you want to persuade your citizens that there is opportunity in the internationalization of the economy and innovation, you need to invest a lot,” said the Italian minister of economic development, Carlo Calenda. “The question is whether you do it within the European rule or whether you break the European rule. What we are trying to do is to stay within the European rule.”

But not forever, Mr. Calenda added. Greece confronted Germany loudly and directly as it submitted to wrenching cuts as a condition of the bailouts. Italy is mounting a quieter challenge, operating within the rules while finding favorable interpretations that allow greater spending.

“We do think there is space to maneuver in order to change the European rule,” he said. “If we will be in a situation where we need to act in a stronger way, especially on fiscal space, then we will take that into consideration.”

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Common Sense: Deutsche Bank as Next Lehman Brothers: Far-Fetched but Not Unthinkable

Professor Scott defines “contagion” as “an indiscriminate run by short-term creditors of financial institutions that can render otherwise solvent institutions insolvent because of the fire sale of assets that are necessary to fund withdrawals and the resulting decline in asset prices triggered by such sales.” He calls such contagion “the most virulent and systemic risk still facing the financial system today.”


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The latest spasm in global markets began last month when The Wall Street Journal reported that the Justice Department was demanding $14 billion to resolve accusations of fraud in Deutsche Bank’s packaging and sale of mortgage-backed securities before the financial crisis.

Deutsche Bank issued a statement confirming the $14 billion figure but stated it had no intention of paying such a large sum. Renee Calabro, a spokeswoman for Deutsche Bank, declined to comment further.

But the unexpectedly large number, coupled with other outstanding potential liabilities and what many investors view as a weak balance sheet, set off a chain reaction that brought back memories of the dark days before Lehman Brothers collapsed in September 2008.

Deutsche Bank shares dropped over 8 percent the day the news broke, and shares in other European banks, many with even more fragile balance sheets, also plunged.

Deutsche Bank shares were trading in New York at over $30 a year ago. By the end of September, they had dropped below $12 before recovering slightly. In an ominous reminder of the loss of confidence that plagued Lehman Brothers before its demise, some hedge funds pulled billions in assets from the bank and moved their trading activities to rivals. (The bank noted that this represented a tiny fraction of its more than 20 million clients.)

John Cryan, Deutsche Bank’s chief executive, issued one of his “dear colleagues” letters — never a good sign — warning that the bank was the victim of rampant “speculation.” “Trust is the foundation of banking,” he wrote. “Some forces in the markets are currently trying to damage this trust.”

It didn’t help that widespread investor skepticism remained about the health of the European banking system, where many banks are still exposed to high concentrations of sovereign debt from Europe’s weakest economies, or that Deutsche Bank is just the first of several large European banks facing a day of reckoning with the Justice Department.

Barclays, Credit Suisse, Royal Bank of Scotland, UBS and HSBC are all awaiting their turn.

For United States banks, the problems are largely behind them: They have paid over $56 billion since 2010 to settle similar suits.

John Cryan, chief executive of Deutsche Bank, has warned that the bank was the victim of rampant “speculation.”

Credit Michael Probst/Associated Press

In his letter, Mr. Cryan emphasized that the bank’s balance sheet was more “stable” than it had been “in decades,” and pointed to the bank’s liquidity reserves of 215 billion euros, about $241 billion. Deutsche Bank has already set aside €5.5 billion for potential settlements and is expected to add a billion or more from the proceeds of sales of the British insurer Abbey Life and its stake in a large Chinese bank.

JPMorgan Chase analysts issued a report concluding that Deutsche Bank could absorb a fine of up to $4 billion without raising concerns about its capital position. Despite the department’s tough opening offer, a fine of under $4 billion doesn’t seem all that outlandish. Citibank paid a fine of $4 billion to settle similar accusations by the Justice Department, and Morgan Stanley paid just $2.6 billion. Citibank and Deutsche Bank had similar market shares in the mortgage-backed securities market, while Morgan Stanley’s was nearly twice as large. Other factors in setting a fine include how much Deutsche Bank has cooperated in the investigation, and how egregious the conduct may have been, facts known only by the bank and the government.


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Even if the Justice Department has an exceptionally strong case, it would surely pause before demanding a fine that imperils the viability of Deutsche Bank, let alone the fragile European banking system, which would surely spill over into global markets and the United States economy. Deutsche Bank is far larger and more systemically important than Lehman Brothers was.

“The goal really shouldn’t be to destroy financial institutions,” said Brandon L. Garrett, a law professor at the University of Virginia and author of “Too Big to Jail.” “It should be to reform them. The proper way to punish corporations is to hold the individuals and executives responsible. Huge fines just punish the shareholders even more and won’t stop the recidivism we’ve seen at Deutsche Bank.”

(Deutsche Bank has already paid more than $9 billion in fines since the onset of the financial crisis.)

The Justice Department has not said whether it is looking at potential individual defendants at Deutsche Bank in connection with the mortgage-backed securities cases, but it did charge two former traders at the bank with manipulating the benchmark London interbank offered rate, or Libor. Another former Deutsche Bank executive pleaded guilty and is cooperating with prosecutors.

“I think the Justice Department could afford to be a little more lenient with the fine as long as individuals are held accountable,” Mr. Garrett said.

A spokesman for the Justice Department declined to comment.

Even if the United States maintains an aggressive posture, few think the German government would allow Deutsche Bank to fail, even though it has ruled out any bailout.

“I agree it may be too fragile” to withstand a huge fine, Professor Scott said. “Does the Justice Department understand the risk of contagion? It reminds me of Arthur Andersen,” the defunct accounting firm. “No one thought an enforcement action would force it into bankruptcy.”


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Should Deutsche Bank precipitate a financial crisis, it’s not clear how it would be resolved. It’s a European bank, so the Federal Reserve’s powers would be limited.

“I hope there’s a global game plan,” Professor Scott said, “because that’s what it would take. If Deutsche Bank set off contagion, it would start in Europe. Who would be next? This would require global coordination.”

Should such a crisis spread to American nonbank institutions, like money market funds, the government has even fewer tools at its disposal than it did after Lehman Brothers failed, thanks to congressional efforts to limit future bailouts. In his book, Professor Scott argues that Congress should give the Fed and other regulators more — not less — power to stop runs at banks and nonbanks alike by coming to their assistance and extending deposit guarantees, if necessary, as they did after Lehman Brothers.

Despite widespread nervousness about Deutsche Bank’s ultimate fate, nothing so dire seems imminent — yet.

“I don’t think this will develop into anything serious,” Professor Scott said, “but we need a deal for Deutsche Bank that’s $5 billion or less and not $14 billion, and we need this to happen within a short time frame. The longer this goes on, the more uncertainty there is, and the more nervous the markets get.”

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Oil Glut? Here Comes Some More!

In addition, some of those experts say demand for oil will never fully recover because of the emergence of electric cars and conservation measures.

Oil Prices: What’s Behind the Volatility? Simple Economics

The oil industry, with its history of booms and busts, has been in its deepest downturn since the 1990s, if not earlier.

“In today’s energy world, there is a distinctive clash between those who are pushing forward technologies to keep oil and gas squarely under the ground and those who are deploying capital to ensure that there is enough oil and gas if we stay with the internal combustion engine that we have today,” said Amy Myers Jaffe, director for energy and sustainability at the University of California, Davis.

“In the short term,” she said, “both sides are going to have victories but, in a long time scale, my belief is we will transition away from oil and gas.”

The new discoveries now fall into the center of that debate. On Tuesday, Caelus Energy announced it had found a field in the shallow waters off the North Slope in Alaska that could produce as much as 2.4 billion barrels of oil, more than half the reserves of Ecuador, an OPEC producer.

A few weeks earlier, Apache Corporation said a long-overlooked field in West Texas contained at least three billion barrels of oil and 75 trillion cubic feet of gas.

Together, the discoveries are relatively modest compared with the new-field production earlier in the decade from shale fields opened up by hydraulic fracturing — the high-pressure mix of water, sand and chemicals that blasts hard oil-bearing rocks. But some analysts say they could well be precursors to more discoveries in West Texas and Arctic Alaska.

Both companies began plowing money into exploring their prospects before the price of oil collapsed, and their new fields may have economic advantages lacking in other places. They have ample existing pipeline networks to take products to market, for example.


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The Caelus find is in Alaska state waters, giving the state government a strong incentive to encourage drilling to earn royalty and tax benefits and to aid the state’s slumping economy. Under Alaska law, new oil production does not have to begin to pay taxes until North Slope oil prices reach $73 a barrel — more than $20 above current prices.

Caelus Energy’s chief executive, James C. Musselman. Credit Caelus Energy

Apache took advantage of the low oil prices to quietly buy 350,000 acres of drilling rights for as little as $1,300 an acre in an area that is adjacent to the giant Permian Basin oil fields but has long been overlooked. Acreage in the Permian Basin can cost nearly 40 times that much.

Apache explored its new find, called the Alpine High, at a time when it was cutting back investments in exploration and production elsewhere and selling off assets to raise cash.

“Our discovery is a testament to American ingenuity,” said John J. Christmann IV, Apache’s chief executive. “Through technology and innovation, the oil and gas industry continues to innovate and find opportunities even in mature areas like the Permian Basin.”

Caelus, a private firm backed by the private equity fund Apollo Global Management, reported that it based its resource claim on two exploration wells and 126 square miles of three-dimensional seismic testing. It said that the field could produce 200,000 barrels a day of oil, more than 60 percent of what Alaska’s giant Prudhoe Bay field currently produces.

The discovery has particular significance for Alaska, whose production has declined steadily since 1988, when Prudhoe Bay’s 1.6 million barrels a day of production was the backbone of the American oil industry. Alaska missed out on the doubling of national oil production between 2006 and 2014, a rise that resulted mostly from a drilling frenzy in shale fields in other states.

“This discovery could be really exciting for the state of Alaska,” Caelus’s chief executive, James C. Musselman, said in a statement. “It has the size and scale to play a meaningful role in sustaining the Alaskan oil business over the next three or four decades.”

The new discoveries have also reinforced the confidence within the industry that the United States will remain a major oil power — capable of producing substantial amounts for itself and exporting major quantities around the world.

Caelus Energy’s new Alaskan discovery is in state waters, giving Alaska a strong incentive to encourage drilling. Credit Caelus Energy

“I definitely believe that finding a lot of oil is going to give us national security,” said Melvin Moran, manager of Moran Oil Enterprises in Oklahoma. “We’re not going to turn back.’’


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Meaningful amounts of oil will probably not be produced from the two fields for at least several years. Caelus has said that it needs to build a 125-mile pipeline, at a cost of $800 million, to attach production from its new find to existing pipelines.

Still, the two finds are good news during hard times for the industry.

Last year, American petroleum producers wrote down $177 billion in assets, according to a recent report by IHS Energy, a leading consulting firm. A new report by the international law firm Haynes and Boone noted that 102 American and Canadian oil and gas producers have filed for bankruptcy since the beginning of 2015, involving more than $50 billion in debts. As of Sept. 7, 58 producers had filed for bankruptcy this year.

The price of crude has risen in recent days, after last week’s tentative agreement among countries belonging to the Organization of the Petroleum Exporting Countries to cut output modestly later in the year.

Industry executives express skepticism that the countries will succeed in getting commitments from individual members to cut production. They add that even if there is a final agreement, cheating by many countries can be expected.

Already there are signs that Libyan exports are growing, and there is little hope that Iran will curb its production and exports now that nuclear sanctions have been lifted.

But oil executives also note that with the industry cutting investment in exploration and production by $250 billion last year, and $70 billion more this year, it is only a matter of time before demand outstrips supplies and prices rise again significantly, although not until 2018 to 2020 at the earliest. That is when more oil will need to be available, from Texas, Alaska and other places.

“You do need new discoveries to feed the supply system,” said Scott D. Sheffield, chief executive of Pioneer Natural Resources, a major Texas producer. “We have very little supply coming on.”

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Obama Hails Enforcement on Trade Deals to Win Support for T.P.P.

Since Mr. Obama took office in 2009, his trade office has lodged 23 challenges at the World Trade Organization and won or settled favorably all 16 cases decided so far. Fourteen of the 23 cases have been against China, three against India and others have involved the European Union, Argentina, the Philippines and Indonesia.

What Is the Trans-Pacific Partnership?

“In previous administrations, the enforcement record was basically miserable,” Representative Sander M. Levin, a Michigan Democrat who opposes the Pacific pact, told the Council on Foreign Relations last week. “Now I think there’s been an improvement in enforcement,” he added, “except it isn’t nearly enough.”

Thea Lee, deputy chief of staff at the A.F.L.-C.I.O., said she saw “a mixed record.” She praised administration efforts against maneuvers by other nations to underprice their manufacturers’ exports, which have harmed American manufacturing. But she criticized the record on enforcing labor rights and on combating nations that hold down the value of their currencies to lower the cost of their exports.

“On certain issues like antidumping and subsidies, and some of the issues dealing directly with China, the administration has done a good job, has been aggressive in bringing cases, winning cases and getting relief for workers and businesses that have been affected by unfair trade practices,” Ms. Lee said.

“But,” she added, “I think the failure to enforce has been egregious with respect to workers’ rights and currency.”

In their first debate, Mr. Trump initially had Hillary Clinton, the Democratic nominee, on the defensive about trade, as he questioned her sincerity in opposing the Pacific agreement. Mrs. Clinton restated her opposition and added a promise that as president she would name “a special prosecutor” for trade.

“We’re going to enforce the trade deals we have, and we’re going to hold people accountable,” she said.

The Trans-Pacific Partnership, Explained

The trade deal has become a flashpoint American politics, opposed by the presidential nominees of both major parties as a symbol of failed globalism and the loss of United States jobs overseas.

Vice President Joseph R. Biden Jr., stumping for the agreement at the port of San Diego in July, said the administration had been enforcing trade pacts “more aggressively than any administration in the past.” He added, however, “One of the reasons so many Americans are upset about trade is because we have not adequately enforced them” over time.


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A desire for vigorous enforcement is perhaps the one thing that unites trade skeptics and pro-trade business groups.

John G. Murphy, senior vice president for international policy at the U.S. Chamber of Commerce, said he often speaks to state and local chambers, “and when I say that the agreements we sign aren’t worth the paper they’re written on if they aren’t enforced, I regularly get applause.”

The administration has “a strong record,” Mr. Murphy said, and he criticized trade opponents who favor tough enforcement but oppose the trade agreements that established the policing regimes.

In mid-September, the president took the unusual step of personally announcing the administration’s newest complaint to the W.T.O. against China — the country Mr. Trump has excoriated most — rather than leaving it to his trade representative, Michael B. Froman. The United States alleged that China excessively subsidizes rice, wheat and corn, encouraging farmers to grow more and distorting world markets.

“We have to ensure America plays a leading role in setting the highest standards for the rest of the world to follow,” Mr. Obama said, before adding, “That’s what the Trans-Pacific Partnership, or T.P.P., is all about.”

A man protesting the Transatlantic Trade and Investment Partnership (T.T.I.P.), a trade deal being negotiated between the United States and the European Union, during a demonstration last month in Berlin. Credit Clemens Bilan/Getty Images

As part of the promotion, Mr. Froman and Tom Vilsack, the agriculture secretary, wrote a column for an Iowa newspaper last month. Mr. Vilsack is the state’s former governor, and its congressional delegation includes Senator Charles E. Grassley, a senior Republican on the panel responsible for trade. The column’s headline: “Protecting Iowa’s Access to International Markets.”

In the same week, the United States and a dozen other nations united in a campaign to ban government subsidies blamed for overfishing. China is considered a main culprit. That announcement, too, included a plug for the Pacific accord — for “including the first enforceable prohibitions on harmful fishing subsidies” in a trade pact and eliminating foreign taxes on American fish exports.

The W.T.O. also handed the administration two victories that it was quick to broadcast.

First, an appellate panel of the trade organization upheld a ruling that backed America’s complaint against India’s ban on imports of solar-power parts. The prohibition was blamed for a sharp drop in American exports of such products. The administration seized the moment to laud the potential benefits of the Pacific trade agreement for American exporters of clean energy products.


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In the second decision, the W.T.O. ruled against European nations’ subsidies of Airbus, the aircraft manufacturer, finding that they had cost billions in sales for the American rival Boeing.

Such actions against other countries’ subsidies, dumping and market barriers, however, do not address two big concerns of trade skeptics: currency manipulation and workers’ rights.

Currency practices are tricky to police; other nations could counter with complaints about the monetary policies of the independent Federal Reserve, which affect the value of the dollar. Instead of writing mandates into the Pacific accord, negotiators attached a side agreement spelling out disclosure requirements and a consultation process for disputes between nations.

On workers’ rights, Ms. Lee of the A.F.L.-C.I.O. said, “People’s lives are at stake.”

The administration did require Colombia to change its labor practices before the United States-Colombia trade pact could be approved, but Ms. Lee said improvements have come slowly or not at all. In Guatemala, where union organizers have suffered violence and assassinations, she said a case filed by the A.F.L.-C.I.O. and local unions was ignored in the George W. Bush administration and, despite some attention, has languished under Mr. Obama.

The Pacific agreement includes concessions from Vietnam, Malaysia and Brunei on labor and human rights. But, Ms. Lee asked, “Can we stop and figure out how to get that piece of it right before we take the leap of tying our economies together permanently?”

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I.M.F. Warns of Anti-Trade Sentiment Amid Weak Global Growth


I.M.F. Lowers Growth Forecast

“We have not done a great job in the advanced countries of paying attention to those who lose from trade,” said Maurice Obstfeld, the fund’s chief economist.

By CNBC on Publish Date October 4, 2016. Photo by CNBC. Watch in Times Video »

WASHINGTON — The International Monetary Fund has warned that sluggish economic growth throughout the world could bolster an anti-trade backlash that has become a feature of politics in both the United States and Europe.

As part of the release of its October World Economic Report at the fund’s semiannual meetings here, the fund forecast global growth to be 3.1 percent this year, rising to 3.4 percent in 2017.

“It is vitally important to defend the prospects for increasing trade integration,” said the fund’s chief economist, Maurice Obstfeld. “Turning back the clock on trade can only deepen and prolong the world economy’s current doldrums.”

Twice a year, government officials, central bankers and financiers from around the world come together for a week of official and unofficial meetings in which they ponder the state of the global economy.

The presidential election in the United States will be a talking point, but a weak global economy and the rise of anti-trade and anti-global sentiment are also expected to be popular subjects for discussion.


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The fund’s outlook for growth in developed economies was particularly gloomy, with a 1.6 percent expansion expected for this year, compared with 2.1 percent last year.

Emerging economies, expected to grow at a 4.1 percent clip, were largely driving global growth now, the fund’s economists said.

Highlighting concerns that many have about the United States economy’s ability to attain a robust level of growth, the fund slashed its forecast for economic growth in the United States to 1.6 percent this year, from 2.2 percent in July.


I.M.F. Warns of Trade Restrictions

”To restrict trade, in our view, would be an economic malpractice,” Christine Lagarde, managing director of the I.M.F. told Sara Eisen of CNBC.

By CNBC on Publish Date September 28, 2016. Photo by CNBC. Watch in Times Video »

Coming eight years after the financial crisis and after a wave of aggressive policies by central banks around the world, these growth figures were disappointing, said the fund, which highlighted an inability of global policy makers to address fundamental economic weaknesses.

In warning of deteriorating global trade figures, the report echoed sharp comments last week by Christine Lagarde, the fund’s managing director.

Ms. Lagarde gave a speech in Chicago where she took an indirect swipe at the anti-trade language that has become a central part of the presidential campaign, calling policies that discouraged trade liberalization “economic malpractice.”

In its study, the fund took note of how figures for global trade have been on the wane of late.

For example, the volume of world trade has expanded barely 3 percent a year since 2012, half of the growth it has seen over the last 30 years.

A reluctance by companies and countries to invest significant sums in this period is a main culprit, the fund concluded. But economists also pointed to a sharp increase of all types of anti-trade measures in recent years, with last year recording the largest number of restrictions.

As it always does, fund economists pushed for a globally coordinated strategy to increase output, with the focus being on open trade, economic reform and government investments.


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“Growth has been too low for too long,” Mr. Obstfeld said at a news conference on Tuesday. Mr. Obstfeld said that across all regions, economies were underperforming their “long term growth potential” and that as a result, consumers and investors were stuck in a mode of excessive caution.

In his comments, Mr. Obstfeld urged countries with the capacity to invest in large infrastructure projects to do so, a not-so-indirect reference to Germany, which has been frequently criticized by fund leadership for not doing enough to stimulate growth in Europe.

“The policy response has been unbalanced, relying too much on central banks,” he said.

Asked what the impact would be on the global economy if the Republican presidential candidate, Donald J. Trump, won the election, Mr. Obstfeld parsed his words carefully but suggested that some of Mr. Trump’s anti-trade commentary had been cause for concern.

“There has been a lot of discussion about changes to trade policies,” Mr. Obstfeld said. “This introduces an element of uncertainty to the mix, and uncertainty is not great for investors.”

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