February 26, 2020

Economix Blog: How the World Bank Makes Doing Business Easier

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Simon Johnson, former chief economist of the International Monetary Fund, is the Ronald A. Kurtz Professor of Entrepreneurship at the M.I.T. Sloan School of Management and co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.”

The World Bank is not known as a very pro-market place. It’s a big organization with a great deal of expertise at putting together top-down development projects. If the government of a relatively poor country wants a dam, a set of roads or a port, the World Bank is the place to apply for assistance. The bank also does important work helping some of the world’s poorest people, and this is a focus of the new president, Dr. Jim Yong Kim (I endorsed his appointment during the contentious discussion that followed).

Today’s Economist

Perspectives from expert contributors.

At the same time, the World Bank has some pockets of activity that are very helpful to private-sector activity and entrepreneurs, particularly in many of the more troubled economies. One of the most important efforts, the Doing Business indicators, has been under severe pressure of late. The latest indications are that the World Bank will keep these indicators in operation, but there is still a chance that World Bank management will cave in on important details to pressure from influential quarters, including China.

The Doing Business indicators measure what is involved in setting up and running a relatively small business in 185 economies around the world. There are also subnational reports available for some places, for example Italy in 2012-13.

Starting a Business,” one of the indicators, by its own description:

measures the procedures, time and cost for a small to medium-size limited liability company to start up and operate formally. To make the data comparable across 185 economies, Doing Business uses a standardized business that is 100 percent domestically owned, has start-up capital equivalent to 10 times income per capita, engages in general industrial or commercial activities and employs between 10 and 50 people within the first month of operations.

This may sound rather dry or overly specialized, but in fact this approach is highly revealing. The indicators draw on expert opinion; the methodology is based on a suite of top-notch research papers.

These data are highly informative, indicating where there are barriers to business creation and development. The cross-country comparisons are not sufficient for making big policy moves; more country-specific context is always needed to assess exactly what changes are needed and how to make them effective. But the World Bank’s Doing Business database is a very useful dashboard that indicates issues that need more attention from any policy maker who would like to make it easier to do business in his or her country.

Such details are extremely annoying or even threatening to three distinct categories of people: some high-level administrators in the World Bank, people who run cozy business cartels and officials who do not like transparency of any kind.

Some top World Bank administrators oppose the Doing Business indicators because these measures shine too much light onto exactly what is happening in particular countries. It is much easier to concoct country-by-country measures, preferably with a methodology that is not straightforward for others to replicate.

Local business oligarchs are, as you might suppose, rather unenthusiastic about the entry of new companies. They are happy when local officials, with whom they typically have a good relationship, help erect barriers to entry through creating needless red tape. Using the government to keep down the competition is a viable strategy in many parts of the world.

And officials in many countries really do not like transparency. Why draw attention to your regulations when these are not best practices? The Doing Business indicators are particularly helpful when used to compare cities or other localities within a country. Why should the red tape in one city be so much higher than in the city just up the highway? You can see why this sort of well-informed metric would not make officials happy.

A number of countries have expressed forcefully dissatisfaction with the indicators in their current form. China is the most notable critic, but some other governments are also not happy with this type of transparency.

As a result of this pressure, Dr. Kim set up an independent review panel for the indicators. Initial indications were that this review would recommend against continuing with Doing Business – and that Dr. Kim would go along with this view.

Along with some colleagues, I wrote to World Bank management urging them not to undermine the Doing Business indicators. Support for our position from across the political spectrum has been strong, at least within the United States. Michael Klein, a former vice president at the World Bank, deserves special mention for his efforts at organizing informed opinion in the United States and in many other places.

Indications last week from Dr. Kim are that the Doing Business indicators will continue, at least formally without big changes. It remains to be seen whether the quality of the indicators is compromised – for example, some countries would like to take out the detailed tax information.

International organizations sometimes think they can play games of this nature because no one is watching or no one understands the details – or what is really at stake. In this case World Bank management should be aware that outside experts are watching carefully and waiting patiently for the next moves.

The best way forward is to develop further measures that capture additional important features of regulatory reality. Better design of economic policy is easier when stronger benchmarking tools are available. The World Bank should continue to produce the Doing Business data as currently constituted and encourage ideas for useful new indicators.

Article source: http://economix.blogs.nytimes.com/2013/06/13/world-bank-on-verge-of-making-a-good-decision/?partner=rss&emc=rss

Today’s Economist: How the World Bank Makes Doing Business Easier

DESCRIPTION

Simon Johnson, former chief economist of the International Monetary Fund, is the Ronald A. Kurtz Professor of Entrepreneurship at the M.I.T. Sloan School of Management and co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.”

The World Bank is not known as a very pro-market place. It’s a big organization with a great deal of expertise at putting together top-down development projects. If the government of a relatively poor country wants a dam, a set of roads or a port, the World Bank is the place to apply for assistance. The bank also does important work helping some of the world’s poorest people, and this is a focus of the new president, Dr. Jim Yong Kim (I endorsed his appointment during the contentious discussion that followed).

Today’s Economist

Perspectives from expert contributors.

At the same time, the World Bank has some pockets of activity that are very helpful to private-sector activity and entrepreneurs, particularly in many of the more troubled economies. One of the most important efforts, the Doing Business indicators, has been under severe pressure of late. The latest indications are that the World Bank will keep these indicators in operation, but there is still a chance that World Bank management will cave in on important details to pressure from influential quarters, including China.

The Doing Business indicators measure what is involved in setting up and running a relatively small business in 185 economies around the world. There are also subnational reports available for some places, for example Italy in 2012-13.

Starting a Business,” one of the indicators, by its own description:

measures the procedures, time and cost for a small to medium-size limited liability company to start up and operate formally. To make the data comparable across 185 economies, Doing Business uses a standardized business that is 100 percent domestically owned, has start-up capital equivalent to 10 times income per capita, engages in general industrial or commercial activities and employs between 10 and 50 people within the first month of operations.

This may sound rather dry or overly specialized, but in fact this approach is highly revealing. The indicators draw on expert opinion; the methodology is based on a suite of top-notch research papers.

These data are highly informative, indicating where there are barriers to business creation and development. The cross-country comparisons are not sufficient for making big policy moves; more country-specific context is always needed to assess exactly what changes are needed and how to make them effective. But the World Bank’s Doing Business database is a very useful dashboard that indicates issues that need more attention from any policy maker who would like to make it easier to do business in his or her country.

Such details are extremely annoying or even threatening to three distinct categories of people: some high-level administrators in the World Bank, people who run cozy business cartels and officials who do not like transparency of any kind.

Some top World Bank administrators oppose the Doing Business indicators because these measures shine too much light onto exactly what is happening in particular countries. It is much easier to concoct country-by-country measures, preferably with a methodology that is not straightforward for others to replicate.

Local business oligarchs are, as you might suppose, rather unenthusiastic about the entry of new companies. They are happy when local officials, with whom they typically have a good relationship, help erect barriers to entry through creating needless red tape. Using the government to keep down the competition is a viable strategy in many parts of the world.

And officials in many countries really do not like transparency. Why draw attention to your regulations when these are not best practices? The Doing Business indicators are particularly helpful when used to compare cities or other localities within a country. Why should the red tape in one city be so much higher than in the city just up the highway? You can see why this sort of well-informed metric would not make officials happy.

A number of countries have expressed forcefully dissatisfaction with the indicators in their current form. China is the most notable critic, but some other governments are also not happy with this type of transparency.

As a result of this pressure, Dr. Kim set up an independent review panel for the indicators. Initial indications were that this review would recommend against continuing with Doing Business – and that Dr. Kim would go along with this view.

Along with some colleagues, I wrote to World Bank management urging them not to undermine the Doing Business indicators. Support for our position from across the political spectrum has been strong, at least within the United States. Michael Klein, a former vice president at the World Bank, deserves special mention for his efforts at organizing informed opinion in the United States and in many other places.

Indications last week from Dr. Kim are that the Doing Business indicators will continue, at least formally without big changes. It remains to be seen whether the quality of the indicators is compromised – for example, some countries would like to take out the detailed tax information.

International organizations sometimes think they can play games of this nature because no one is watching or no one understands the details – or what is really at stake. In this case World Bank management should be aware that outside experts are watching carefully and waiting patiently for the next moves.

The best way forward is to develop further measures that capture additional important features of regulatory reality. Better design of economic policy is easier when stronger benchmarking tools are available. The World Bank should continue to produce the Doing Business data as currently constituted and encourage ideas for useful new indicators.

Article source: http://economix.blogs.nytimes.com/2013/06/13/world-bank-on-verge-of-making-a-good-decision/?partner=rss&emc=rss

Shortcuts: Erasing the Gender Gap in Financial Knowledge

ON occasion, when my female friends and I are sitting around talking, the issue of money will come up. And generally, most will readily admit that they don’t know anywhere near as much about their family finances as they should.

I find that interesting, but not surprising. After all, so many studies and news media reports reinforce the idea that women lag men in understanding how to handle their money.

But recently, some experts in personal finance are challenging the common wisdom, saying that the differences in how men and women deal with finances have been overstated. Further, they say, it does no service to women to portray them as naïve and in need of special help.

“A lot of the industry is flat-out condescending to women,” said Helaine Olen, a financial journalist and the author of the book “Pound Foolish: Exposing the Dark Side of the Personal Finance Industry.”

The real problem, Ms. Olen said, is that women often earn less money than men yet live longer. They also tend more frequently than men to drop in and out of the labor force to stay at home with children.

“I’m afraid this niching of women is a way to get around the systemic problems” that need to be addressed through public policy, she said. Ms. Olen also said that some of the advice for women, like to cut back on shopping, is unhelpful at best and sexist at worst.

A 2011 Gallup poll showed that men spend $11 more a day than women, Ms. Olen wrote in her book.

Annamaria Lusardi, a professor of economics and accountancy at George Washington University and the academic director of the Global Financial Literacy Excellence Center, said the idea “that women spend more is a myth.”

But she said there is a clear gender difference when it comes to financial literacy, not just in this country but around the world.

Professor Lusardi was the co-author of a study of eight countries — the United States, Japan, New Zealand, Germany, the Netherlands, Sweden, Italy and Russia — that found that the overall level of financial literacy was low. According to the study, Americans had a harder time with simple calculations, but no country stood out as being particularly knowledgeable.

The study, “Financial Literacy Around the World: An Overview,” was published in 2011 in The Journal of Pension Economics and Finance.

Professor Lusardi said women in all the countries studied were less likely than men to correctly answer questions about financial literacy, particularly those that used technical terms. The more sophisticated the question and the more financial jargon that was used, the less likely women were to answer the questions correctly, she said.

But she said the take-away shouldn’t be that women were more ignorant; rather, that the results seem to stem from women’s lack of confidence.

Here’s one example: “Buying a single company’s stock usually provides a safer return than a stock mutual fund.” The answer options are true, false, do not know or refuse to answer. (The answer is false.)

In the United States, men answered correctly 57.1 percent of the time, compared with 46.8 percent of women. In Germany, both sexes picked the right answer more often than those in the United States did, but the difference between the sexes was similar, with 67.6 percent men and 56.8 percent of women scoring correctly.

But, and this is interesting, “When we took away the ‘do not know’ option, women were no less likely to choose the wrong answer,” Professor Lusardi said. “So if forced to pick an answer, women seem to know as much as men.”

When women and men were asked to self-assess their financial knowledge, men tended to give themselves high scores — even when that is not warranted by their actual knowledge — while women tended to give themselves lower scores.

“Women are aware of their lack of knowledge,” Professor Lusardi said, while “men are less willing to admit what they don’t know.”

Manisha Thakor, a financial adviser who runs MoneyZen Wealth Management and specializes in helping women, agreed that everyone struggled with financial information.

E-mail: shortcuts@nytimes.com

Article source: http://www.nytimes.com/2013/05/18/your-money/erasing-the-gender-gap-in-financial-knowledge.html?partner=rss&emc=rss

Today’s Economist: Simon Johnson: The Myth of a Perfect Orderly Liquidation Authority for Big Banks

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Simon Johnson, former chief economist of the International Monetary Fund, is the Ronald A. Kurtz Professor of Entrepreneurship at the M.I.T. Sloan School of Management and co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.”

On Tuesday, with some fanfare, the Bipartisan Policy Center in Washington rolled out a report, “Too Big to Fail: The Path to a Solution.” Focused on how to “resolve” big financial companies — a technical term for the details of handling the failure of such institutions — the report is elegantly written and nicely laid out. You can either read the very short version, the short version or the long version of the same material. Unfortunately, in all three the authors fail to persuade that the problem of too-big-to-fail is fixed or can be brought under control if only we follow their recommendations.

Today’s Economist

Perspectives from expert contributors.

Their argument has three elements. First, big financial companies can be resolved either in bankruptcy or, more likely, through using the orderly liquidation authority, or O.L.A., created by the Dodd-Frank Act of 2010. Second, the key to making O.L.A. workable is sufficient “loss-absorbing” long-term debt and equity at the holding-company level. Third, the implication is that most or all of the big banks already have sufficient “loss-absorbing” debt and equity at the holding company level to make this work.

As a result, the authors contend, we (or perhaps financial-sector executives) are in luck — no significant structural changes, like simplification or reductions in scale, are needed at megabanks.

All three parts of this argument are unconvincing — and the bottom-line policy implication, “do little, be happy,” is downright dangerous.

The first point about the workings of bankruptcy and O.L.A. may sound good on paper but is simply not plausible in the real world. We are talking about huge, complex and opaque companies — typically including hundreds of thousands of employees across more than 100 different countries, with 2,000-plus legal entities. Even well-informed investors cannot figure out where the risks really lie — and the recent London Whale experience at JPMorgan Chase raises questions about whether officials or even company managements have much more of a clue.

The exercise of having large bank holding companies draw up “living wills” to show how their failures could be handled under normal bankruptcy procedures (part of the Title I requirements under Dodd-Frank) is widely regarded as having yielded little or nothing of value. There will be a do-over later this year, but I have yet to find a well-informed person — in either the private sector or government — who is optimistic about the outcome.

In addition, the United States authorities have so far failed to designate a single nonbank as systemically important — and thus subject to additional prudential requirements (a technical term, meaning closer scrutiny and supervision), including preparation of a living will. The authors show no awareness of the painful lessons from A.I.G., Lehman Brothers and the run on money funds in September 2008. None of those entities were banks (a specific legal and regulatory term), but this report seems oblivious to the implications.

If the market questions, and it does, whether the Federal Deposit Insurance Corporation could handle the failure of a single big bank holding company (already subject to close supervision, in principle), what are the chances of persuading anyone that a significant nonbank financial institution could be resolved in an orderly fashion?

To be fair, the authors of the Bipartisan Policy Center report would like to modify the bankruptcy code — adding a new Chapter 14 (an idea that originated with the Hoover Institution). But why should the financial sector, or anyone else, get special treatment? If we are going to use bankruptcy when companies fail — and this would be my strong preference, if I thought it could be done without destroying the world economy — surely there should be one set of rules for everyone.

Once you establish special treatment and break with precedents, the entire legal process becomes murky, unpredictable and likely to spread more fear than confidence in the outcomes.

Of course, megabanks and other systemically important financial companies cannot go through bankruptcy today without generating the risk of a broader economic collapse — again, one lesson from the fall of 2008. An obvious response would be to induce these companies to change the structure, scale and nature of their activities in order that their failure could be handled by bankruptcy. This is precisely the intent of Title I in Dodd-Frank.

The authors of this report, however, prefer instead to rely on the orderly liquidation authority, including the proposed “single point of entry” for bank-holding companies. In the current version of this plan, the F.D.I.C. would take over a failing institution and force recapitalization at the holding-company level through wiping out equity holders and converting long-term subordinated debt owed by the holding company into equity, while allowing operating subsidiaries to continue in business and to pay their liabilities in full.

I fully support the F.D.I.C. in its attempt to build a workable O.L.A., and there are presumably situations in which this set of tools could help. (I’m a member of the F.D.I.C.’s Systemic Resolution Advisory Committee, but the views here are mine alone.)

But I have not heard any of the relevant responsible officials express the kind of frothy optimism for O.L.A. that bubbles through in this report.

The authors do cite a recent speech by Mary Miller, under secretary for domestic finance at the Treasury Department, in which she says that too-big-to-fail is substantially fixed by the O.L.A. and other measures. But, as John Parsons and I pointed out at the time, her speech is deeply flawed at many levels and absolutely does not represent the public views of the F.D.I.C. or the Federal Reserve.

Regarding whether she provides a realistic assessment of O.L.A., Ms. Miller’s language actually confuses liquidation — the closing of a company and the winding down of its activities — with resolution (see Page 6 of her speech). I pointed out this problem two weeks ago to the Treasury Department; unfortunately, it has made no discernible attempt to tighten the wording or issue any kind of clarification.

The second point in the Bipartisan Policy Center report’s argument completely misses the key systemic issues, including the basic mechanics of how global crises spread.

The authors do mention the issues of global resolution — handling a financial failure across borders — but only to dismiss the thorny realities as trivial. As for the report’s recommendations, regarding global resolution these amount to exhorting the F.D.I.C. to get foreign countries to cooperate (good luck) and to threatening to bring Congress back in to legislate cross-border cooperation (a legislative and diplomatic impossibility).

The authors are top experts (legal and financial), so surely they have been following the news from Europe, including a series of botched bank rescues, the debacle in Cyprus and now a row at the highest political levels about whether to protect uninsured depositors more or less than bondholders. Not surprisingly, the split is between countries where such depositors have more sway (e.g., France and Spain) and those where bondholders have a stronger voice (e.g., Britain and Denmark). Who will get what kind of support — or be forced to swallow a bail-in (i.e., take losses) in a potential crisis?

It is impossible to say with any accuracy.

Writing in The Financial Times on Monday, Wolfgang Schäuble, Germany’s finance minister, made it clear that we are a long way from having an integrated bank resolution regime in Europe. In a crisis, it’s every finance minister and central banker for himself.

This matters a great deal because, as the Federal Reserve governor Jeremy Stein pointed out in a recent speech, the costs of financial stress are felt not just when there is an outright failure but also when financial institutions suffer losses and come under pressure. In terms of macroeconomic impact, “near collapse” can be almost as damaging as actual failure, particularly amid great uncertainty about who will bear what kind of loss.

And this leads to perhaps the greatest deficiency in this report: a complete failure to discuss the importance of who holds the quasi-mythical “loss-absorbing debt” at the holding company level. If such debt is held by highly leveraged institutions, with or without obvious systemic importance themselves, then a sharp fall in the value of this debt (leading up to the forced conversion into equity) can help spread a crisis far and wide.

The same problem exists for money-market funds, which remain highly susceptible to runs. Would it be stabilizing or destabilizing if a large amount of this debt were held across borders?

And who will be allowed to insure this debt, through credit default swaps or in some other complicated way using derivatives? If Goldman Sachs insures any kind of bail-in liabilities of JPMorgan Chase (or another megabank), that should make us very worried.

Third, all roads lead to equity capital, in a way that the authors of this report fail to appreciate fully.

If the big banks really had sufficient equity to absorb likely losses, we would be discussing equity levels close to those proposed in legislation by Senators Sherrod Brown, Democrat of Ohio, and David Vitter, Republican of Louisiana. (I wrote in more detail last month on Bloomberg View about Brown-Vitter and its impact so far.)

But the Bipartisan Policy Center report takes the view that such levels of equity funding (relative to total assets) are a bad idea. The wording here seems close to that in a recent document issued by Davis Polk Wardwell, a law firm (not surprising, as one of the authors of the center’s report is a senior person at that firm). Both Davis Polk and this report are completely wrong on equity — a point that I made in this blog recently (including the misinterpretation of the pivotal new book by Anat Admati and Martin Hellwig).

At least implicitly, the report is putting great weight on long-term subordinated debt at the holding company level. How much is there?

Moody’s, the rating agency, issued a report on this question in March (“Reassessing Systemic Support in U.S. Bank Ratings – an Update and F.A.Q.”). There is more than one way to do the relevant calculations, but Moody’s entirely plausible methodology suggests that total capital subject to a bail-in (equity plus the right kind of debt at the holding company level) is 4 or 5 percent of total assets for some of our biggest banking conglomerates (see Exhibit 3 in that report).

I’m comparing bail-in capital with total assets, not risk-weighted assets – as the risk weights are wrong in every crisis. However, I would caution that Moody’s does not adjust these debt numbers according to whether they are held by bail-in creditors – i.e., entities on which the F.D.I.C. would actually be willing to impose losses.

Next, we should expect megabanks and their representatives to whine that reasonable levels of bail-in capital (e.g., 20 to 30 percent of total assets; see Pages 7 and 8 of this letter to the Fed by Sheila Bair, Professor Admati, Richard Herring and me) — and a conservative definition of bail-in creditors — will crater the real economy. We hear this assertion every time financial reforms are discussed. For example, the financial consulting firm Oliver Wyman (which is also involved in the Bipartisan Policy Center report) made this point on the Volcker Rule; see my assessment).

The Bipartisan Policy Center report depicts a pair of mythical beasts — the perfect orderly liquidation authority and its partner, the bail-in creditor. More broadly, this appears to be part of a concerted effort by megabanks and their allies to convince you, and the Board of Governors of the Federal Reserve, that the existence of these beasts will hold all other evils at bay.

Such mythical beasts do not exist in the real world.

Article source: http://economix.blogs.nytimes.com/2013/05/16/the-myth-of-a-perfect-orderly-liquidation-authority-for-big-banks/?partner=rss&emc=rss

Bucks Blog: Workers Still Uneasy About Retirement Finances

Americans remain uneasy about their retirement finances despite a brightening economic outlook — perhaps because it is dawning on them just how much they have to save, a long-running survey finds.

The percentage of workers who are confident about having enough money for a “comfortable” retirement is unchanged from the record lows of 2011, the survey from the Employee Benefit Research Institute found.

More than half express some level of confidence, but 21 percent are “not too” confident and 28 percent are “not at all” confident — the highest level of people not at all confident in the 23 years of the Retirement Confidence Survey. The survey is sponsored by the institute and Mathew Greenwald Associates, and financed by roughly two dozen businesses and nonprofit groups.

The survey was conducted in January using 20-minute telephone interviews with 1,003 adult workers and 251 retirees. The margin of sampling error is plus or minus three percentage points.

It may be that the reality of difficult savings ahead is dawning.

A “striking” number of workers cite large targets when asked how much they will need to save to ensure a financially secure retirement, the survey found. Twenty percent said they needed to save between 20 and 29 percent of their income, and nearly a fourth said they needed to save 30 percent or more. But only about half said they had tried to formally calculate how much they will need to save to retire comfortably; the rest essentially guessed.

“Aggressive as those savings targets appear to be, they may not be based on a careful analysis of their individual circumstances,” Jack VanDerhei, the institute’s research director and co-author of the report, said in a statement.

Worker savings remain “modest,” and less than half of workers appear to be taking basic steps needed to prepare for retirement, the survey found. More than half who provided financial information for the survey reported less than $25,000 in total household savings and investments, excluding the value of their home and any pension.

Americans also lack much of a financial cushion. Only about half of workers, and a comparable number of retirees, say they definitely could come up with $2,000 for an unexpected expense in the next month.

Are you able to save both for retirement and unexpected expenses?

Article source: http://bucks.blogs.nytimes.com/2013/03/21/workers-still-uneasy-about-retirement-finances/?partner=rss&emc=rss

As Men Lose Economic Ground, Clues in the Family

David H. Autor, a professor at the Massachusetts Institute of Technology, says that the difference between men and women, at least in part, may have roots in childhood. Only 63 percent of children lived in a household with two parents in 2010, down from 82 percent in 1970. The single parents raising the rest of those children are predominantly female. And there is growing evidence that sons raised by single mothers “appear to fare particularly poorly,” Professor Autor wrote in an analysis for Third Way, a center-left policy research organization.

In this telling, the economic struggles of male workers are both a cause and an effect of the breakdown of traditional households. Men who are less successful are less attractive as partners, so women are choosing to raise children by themselves, producing sons who are less successful and attractive as partners.

“A vicious cycle may ensue,” wrote Professor Autor and his co-author, Melanie Wasserman, a graduate student, “with the poor economic prospects of less educated males creating differentially large disadvantages for their sons, thus potentially reinforcing the development of the gender gap in the next generation.”

The fall of men in the workplace is widely regarded by economists as one of the nation’s most important and puzzling trends. While men, on average, still earn more than women, the gap between them has narrowed considerably, particularly among more recent entrants to the labor force.

For all Americans, it has become much harder to make a living without a college degree, for intertwined reasons including foreign competition, advancements in technology and the decline of unions. Over the same period, the earnings of college graduates have increased. Women have responded exactly as economists would have predicted, by going to college in record numbers. Men, mysteriously, have not.

Among people who were 35 years old in 2010, for example, women were 17 percent more likely to have attended college, and 23 percent more likely to hold an undergraduate degree.

“I think the greatest, most astonishing fact that I am aware of in social science right now is that women have been able to hear the labor market screaming out ‘You need more education’ and have been able to respond to that, and men have not,” said Michael Greenstone, an M.I.T. economics professor who was not involved in Professor Autor’s work. “And it’s very, very scary for economists because people should be responding to price signals. And men are not. It’s a fact in need of an explanation.”

Most economists agree that men have suffered disproportionately from economic changes like the decline of manufacturing. But careful analyses have found that such changes explain only a small part of the shrinking wage gap.

One set of supplemental explanations holds that women are easier to educate or, as the journalist Hanna Rosin wrote in “The End of Men,” because women are more adaptable. Professor Autor writes that such explanations are plausible and “intriguing,” but as yet unproven.

He disagrees entirely with the view of the conservative analyst Charles Murray, in “Coming Apart,” that men have become “less industrious.”

“We’re pretty much in agreement on most of the facts,” Professor Autor said of Mr. Murray. “But he looks at the same facts and says this is all due to the failure of government programs, eroding the commitment to working. And we’re saying, what seems much more plausible here is that the working world just has less and less use for these folks.”

Professor Autor’s own explanation builds on existing research showing that income inequality has soared, stretching the gap between rich and poor, and that a smaller share of Americans are making the climb. The children of lower-income parents are ever more likely to become, in turn, the parents of lower-income children.

Moreover, a growing share of lower-income children are raised by their mother but not their father, and research shows that those children are at a particular disadvantage.

Professor Autor said in an interview that he was intrigued by evidence suggesting the consequences were larger for boys than girls, including one study finding that single mothers spent an hour less per week with their sons than their daughters. Another study of households where the father had less education, or was absent entirely, found the female children were 10 to 14 percent more likely to complete college. A third study of single-parent homes found boys were less likely than girls to enroll in college.

“It’s very clear that kids from single-parent households fare worse in terms of years of education,” he said. “The gender difference, the idea that boys do even worse again, is less clear cut. We’re pointing this out as an important hypothesis that needs further exploration. But there’s intriguing evidence in that direction.”

Conservatives have long argued that society should encourage stable parental relationships. Liberals have tended to argue that the government should focus instead on improving economic opportunities. Jonathan Cowan, the president of Third Way, said the paper underscored that addressing social problems was a means to improve economic opportunities.

“If Democrats have as their goal being the party of the middle class, they have to come to the realization that they’re not going to be able to get there solely through their standard explanations,” said Mr. Cowan, a veteran of the Clinton administration. “We need to ask, ‘How can we get these fathers back involved in their children’s lives?’ ”

But some experts cautioned that Professor Autor’s theory did not necessarily imply that such children would benefit from the presence of their fathers.

“Single-parent families tend to emerge in places where the men already are a mess,” said Christopher Jencks, a professor of social policy at Harvard University. “You have to ask yourself, ‘Suppose the available men were getting married to the available women? Would that be an improvement?’ ”

Instead of making marriage more attractive, he said, it might be better for society to help make men more attractive.

Article source: http://www.nytimes.com/2013/03/21/business/economy/as-men-lose-economic-ground-clues-in-the-family.html?partner=rss&emc=rss

David Oliver Relin, Co-Author of ‘Three Cups of Tea,’ Dies at 49

His family said Mr. Relin “suffered from depression” and took his own life. The family, speaking through Mr. Relin’s agent, Jin Auh, was unwilling to give further details, but said a police statement would be released this week.

In the 1990s, Mr. Relin established himself as a journalist with an interest in telling “humanitarian” stories about people in need in articles about child soldiers and about his travels in Vietnam.

“He felt his causes passionately,” said Lee Kravitz, the former editor of Parade who hired Mr. Relin at various magazines over the years. “He especially cared about young people. I always assigned him to stories that would inspire people to take action to improve their lives.”

So it made sense when Viking books tapped him to write a book about Greg Mortenson, a mountain climber who had an inspiring story about building schools in Pakistan and Afghanistan.

Elizabeth Kaplan, the agent for the book, acknowledged that the relationship between the two men was difficult from the start. Mr. Mortenson, who was traveling to remote areas, could be hard to track down, and Mr. Relin spoke publicly about how Mr. Mortenson should not have been named a co-author. Still, the book was a huge success, selling more than four million copies.

Some readers, however, found details of the heartwarming tale suspicious. In 2011, the CBS News program “60 minutes” and the best-selling author Jon Krakauer in an e-book called “Three Cups of Deceit” questioned major points in the book. This included a crucial opening anecdote about Mr. Mortenson’s being rescued by the townspeople of Korphe, Pakistan, after stumbling down a mountain when he was dehydrated and exhausted. It was their care and concern, the book said, that inspired Mr. Mortenson to build schools.

The reports also said some of the schools that Mr. Mortenson’s charity, the Central Asia Institute, said it had established either did not exist or were built by others. There were also charges that the institute had been mismanaging funds and that a substantial portion of the money it raised had been used to promote the book, not for schools.

Mr. Mortenson acknowledged that some of the details in the book were wrong. Mr. Relin did not speak publicly about the charges, but he hired a lawyer to defend himself in a federal lawsuit that accused the authors and the publisher of defrauding readers. The suit was dismissed this year.

In April, the Montana Attorney General’s office announced that Mr. Mortenson had agreed to repay the charity more than $1 million in travel and other expenses used to promote the book, including “inappropriate personal charges.”

David Oliver Relin was born on Dec. 12, 1962, in Rochester to Lloyd and Marjorie Relin. His father died when he was young. Mr. Relin graduated from Vassar College in 1985, and was later awarded a fellowship at the Iowa Writers’ Workshop.

In addition to his mother, he is survived by his wife, Dawn; his stepfather, Cary Ratcliff; and his sisters Rachel Relin and Jennifer Cherelin.

Mr. Relin had completed a new book on two doctors working to cure cataract-related blindness in the developing world. It is scheduled for publication by Random House in spring 2013.

Article source: http://www.nytimes.com/2012/12/03/business/media/david-oliver-relin-co-author-of-three-cups-of-tea-dies-at-49.html?partner=rss&emc=rss

Bucks Blog: Does the Return of Lost Items Require a Reward?

Many of you have probably experienced that sinking feeling when you realize that you’ve lost your wallet, a phone, or perhaps even worse, a laptop.

If you’re lucky, a kind stranger returns your belongings to you intact, at which point you offer profuse thanks. But you may want to do something more and provide some sort of reward. At the very least, this person saved you precious time — now, there’s no need to wait in line at the Department of Motor Vehicles to get another driver’s license or call your health insurer to replace your identification cards. The stranger may have even returned a pile of cash, or a computer that contains irreplaceable artifacts from your life.

So what’s the right thing to do?

Lizzie Post, an etiquette expert, co-author of the 18th edition of “Emily Post’s Etiquette,” and a great-great-granddaughter of Emily Post, said there were no easy answers. Many people have their own beliefs about reward systems. “It is such a personal thing,” she said. “For some people, a ‘thank you’ is all they will need” because they would want someone to do the same for them.

Still, she’s not opposed to doing something more. “It’s really up to you about what kind of acknowledgment you want to make,” she said. “Cash rewards are great when you can provide them.”

If it’s an employee of an organization, say an airline, who returned your belongings, she said you may make the effort to call that person’s supervisor and heap on the praise.

A while back, my wallet mysteriously disappeared somewhere between the coffee cart outside my building and my desk on the second floor. The next day, a young man located me and said he’d found my wallet inside the subway station next to the coffee cart. If memory serves, he said he was going to the movies that night, so I went to pick up my wallet before he left. Then, I stuffed enough money into his hands — which he tried to refuse — to pay for his movie tickets. I felt it was the least I could do.

Have any of you given a reward to someone who returned your belongings? What do you think is the appropriate thing to do?

Article source: http://feeds.nytimes.com/click.phdo?i=41ec7d60eab6e8f7cf0742c93686be12

Economix: Which Is in Worse Shape, U.S. or Europe?

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Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of “13 Bankers.”

The United States and Europe seem to be competing hard this summer for the title of “biggest economic problem.” Based on the latest news coverage, Europe might seem to be experiencing something of a resurgence, as last week the euro zone agreed on a deal involving mutual support and limiting the fallout from Greece’s debt problems.

In contrast, the United States seems to be mired in a political stalemate that becomes more complex and confused at every turn.

Today’s Economist

Perspectives from expert contributors.

But rhetoric masks reality on both sides of the Atlantic. The euro zone still faces an immediate crisis: the can was kicked down the road last week, but not far. The United States, on the other hand, is in much better shape over the next decade than you might think after listening to politicians of any stripe.

American problems loom in the decades that follow 2021, so there is still plenty of time to sort these out; the bad news is that almost no one is talking about the real issues.

In a policy paper released by the Peterson Institute for International Economics on July 21, Peter Boone and I went through the details on the euro-zone crisis, including how this common currency area got itself into such deep trouble and what the likely scenarios are now (you can also see the discussion and contrasting views at the publication event).

In our assessment, the issue is lack of effective governance within the euro zone. Governments had an incentive to run reckless policy – either in terms of budget deficits (Greece), out-of-control banks (Ireland) or refusal to create an economic structure that would support growth (Portugal).

These policies were financed by loans from other countries, particularly within the euro zone, creating and sustaining the widely shared perception that if any country were to get into trouble, it would be bailed out by deep-pocketed neighbors (a phrase that in this context always means Germany).

At the heart of this system was a great deal of “moral hazard”; investors stopped doing meaningful credit analysis, so Greek or Spanish or Italian governments could borrow at just a few basis points above the rate for the German government (one basis point is a hundredth of a percentage point, 0.01 percent).

What has shocked investors’ thinking over the last three years are the realizations that Greece and some other “peripheral” countries have so much debt they may not be able to make all the contracted payments by themselves and that Germany and other northern countries have become convinced that foolish investors should suffer some losses.

Imposing losses on banks that made bad decisions is a sensible principle – but getting from here to there is not easy, particularly when the “periphery” includes Italy, with a far larger economy than Greece or Ireland or Portugal and with gross debt of nearly two trillion euros (about 120 percent of its gross domestic product).

Either Europe really ends moral hazard and widely restructures sovereign debts, or it keeps the bailouts coming, with the deep involvement of the European Central Bank, which will ultimately be inflationary. The package announced last week is a classic case of muddling through; it doesn’t really solve anything. (See the Economix Q. A. on Greece’s latest debt deal.)

If Europe and the world now experience a growth miracle, these debt problems will recede in importance, because solvency is all about debt burdens relative to G.D.P. But if near-term growth is not strong, as seems increasingly likely, market participants will soon resume their contemplation of European dominoes.

In contrast, the United States has a simple fiscal problem – as I discussed in my testimony to the House Ways and Means Committee this week. Government debt surged from 2008, not because of Greek-style profligacy but rather because of an Irish-style banking disaster. When credit collapses, so does revenue. As the economy recovers, revenue comes back.

The single most interesting point about today’s debt ceiling debate is that over the 10-year forecast horizon that frames for the entire discussion, by any conventional definition no fiscal problem exists. In 2021, the United States is likely to have a small primary surplus at the federal level – meaning that the budget, before interest payments, will no longer be in deficit. (James Kwak elaborates on this point on Baseline Scenario, the blog we run together.)

The really bad budget numbers for the United States come after 2021, but these are not the focus of anyone’s current proposals on Capitol Hill. Compared with other countries, the increase in health-care spending from 2010 to 2030 is most troublesome and what will ruin us (see Statistical Table 9 in the International Monetary Fund’s Spring 2011 Fiscal Monitor; or, if you prefer a single picture that cuts to the chase, look at where the United States falls in Figure 1 on page 9 of the I.M.F.’s recent report on how to handle “fiscal consolidation” in the Group of 20 developed economies.)

The debate in Washington is both heated and off course, because no one is grappling with the difficult issue of how to control health-care costs. The Tea Party enthusiasts are intent on near-term government spending cuts as a condition of supporting any increase in the debt ceiling.

If this version of a libertarian tax revolt carries the day, the resulting fiscal contraction will slow the economy and fewer jobs will be created. It does nothing directly to address the looming budget issues beyond 2021.

In the near term, the Europeans have the bigger problem – and this will only be compounded by slower growth in the United States (home to about one-quarter of the world economy). Over the longer haul, it remains to be seen when and how politicians in the United States will take up the real budget issues.

So far, the evidence is not encouraging.

Article source: http://feeds.nytimes.com/click.phdo?i=4d64e21252d3cdc30fae144f4e217d53

Economix: The Big Banks Fight On

Today's Economist

Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of “13 Bankers.”

The bank lobbyists have a problem. Last week, they lost a major battle on Capitol Hill, when Congress was not persuaded to suspend implementation of the new cap on debit card fees. Despite the combined efforts of big and small banks, the proposal attracted only 54 votes of the 60 needed in the Senate.

On debit cards, the retail lobby proved a surprisingly effective counterweight to the financial sector. On the next big issue — capital standards — the bankers have a different problem: this highly technical issue is more within the purview of regulators than legislators and is harder to develop a crusade about, as it’s widely regarded as boring.

As the bankers busily rallied their forces to fight on debit cards and spent a great deal of time lobbying on Capitol Hill, they were doused with a bucket of cold water by Daniel K. Tarullo, a governor of the Federal Reserve.

In a speech on June 3, Mr. Tarullo implied capital requirements for systemically important financial institutions — a category specified in the sweeping overhaul of financial regulation last year — could be as high as 14 percent, or roughly double what is required for all banks under the Basel III agreement.

Whether the Federal Reserve will go that far is not certain; a capital requirement of an additional 3 percent of equity (on top of Basel’s 7 percent) may be more likely, but that is still 3 percent more than big banks were hoping for. (These percentages are relative to risk-weighted assets.)

The big banks are likely to mount four main arguments as they press their case against the additional capital requirements, Reuters has reported:

1. “Holding capital hostage” will hurt the struggling economy because it will mean fewer loans at a time when lending is already depressed.

2. Establishing “huge” capital buffers is an admission by regulators that last year’s Dodd-Frank financial overhaul does not accomplish its goal of reducing risk.

3. If banks hold onto more capital and make fewer loans, borrowers will turn to the “shadow banking sector” – the so-called special purpose vehicles, for example — which has little or no oversight.

4. Tough standards in the United States would create a competitive disadvantage vis à vis other countries.

Each of the bankers’ arguments is wrong in interesting and informative ways.

First, capital requirements do not hold anyone or anything hostage — they merely require financial institutions to fund themselves more with equity relative to debt. Capital requirements are a restriction on the liability side of the balance sheet — they have nothing to do with the asset side (in what you invest or to whom you lend).

There is a great deal of confusion about this on Capitol Hill, and whenever bankers (or anyone else) talk about holding capital hostage, they reinforce this confusion. This is not about holding anything; it is about funding relatively less with debt and more with loss-absorbing equity. More equity means the banks can absorb more losses before they turn to the taxpayer for help. This is a good thing.

The idea that higher capital requirements will increase costs for banks or cause their balance sheets to shrink or otherwise contract credit is a hoax — and one that has been thoroughly debunked by Anat Admati and her colleagues (as this now-standard reference, which everyone in the banking debate has read, shows us).

Professor Admati is taken very seriously in top policy circles. (Let me note, too, that she is a member of the Federal Deposit Insurance Corporation’s Systemic Resolution Advisory Committee, an unpaid group of 18 experts that meets for the first time next week; I am also a member.)

In a recent public letter to the board of JPMorgan Chase, whose chief executive, Jamie Dimon, is an opponent of higher capital requirements, Professor Admati points out that these requirements would — on top of all the social benefits — be in the interests of his shareholders. The bankers cannot win this argument on its intellectual merits.

The second argument, that establishing “huge” capital buffers is an admission by regulators that last year’s Dodd-Frank financial overhaul does not accomplish its goal of reducing risk, is an attempt to rewrite history.

During the Dodd-Frank debates last year, the Treasury Department and leading voices on Capitol Hill — including bank lobbyists — said it would be a bad idea for Congress to legislate capital requirements and should leave them to be set by regulators after the Basel III negotiations were complete.

Now the time has come to do so, and Mr. Tarullo is the relevant official — he is in charge of this issue within the Federal Reserve and is one of the world’s leading experts on capital requirements.

But the banks now want to say that this is not his job as authorized by Dodd-Frank. This argument will impress only lawmakers looking for any excuse to help the big banks.

The third bankers’ argument, that borrowers will turn to the “shadow banking sector,” contains an important point — but not what the bankers want you to focus on.

The “shadow banking sector” — special purpose vehicles, for example — grew rapidly in large part because it was a popular way for very big banks to evade existing capital requirements before 2008, even though those standards were very low.

They created various kinds of off-balance-sheet entities financed with little equity and a great deal of debt, and they convinced rating agencies and regulators that these were safe structures. Many such funds collapsed in the face of losses on their housing-related assets, which turned out to be very risky — and there was not enough equity to absorb losses.

It would be a disaster if this were to happen again. It is also highly unlikely that Mr. Tarullo and his colleagues will allow these shadows to develop without significant capital requirements.

Sebastian Mallaby, who has carefully studied hedge funds and related entities, asserted correctly last week in The Financial Times that it would be straightforward to extend higher capital requirements to cover shadow banking.

The fourth bankers’ argument, that higher equity requirements in the United States would create a competitive disadvantage vis à vis other countries, is like arguing in favor of the status quo in an industry that emits a great deal of pollution, a point made by Andrew Haldane of the Bank of England.

If China, India or any other country wants to produce electricity using a technology that severely damages local health, why would the United States want to do the same? And if the financial pollution floats from others to the United States through cross-border connections, we should take steps to limit those connections.

The Basel III issues may be boring, but they are important. The incorrect, misleading and generally false arguments of bank lobbyists should be rejected by regulators and legislators alike.

Article source: http://feeds.nytimes.com/click.phdo?i=69b46752fc6c7c7ba9a3019f9f3f3f69