November 14, 2018

Euro Watch: Manufacturers Survey Points to New Downturn in Euro Zone

LONDON — Hopes the euro zone might emerge from recession soon were dealt a blow on Thursday, as surveys showed the downturn in the region’s businesses worsened unexpectedly this month — especially in France.

Economists had expected that the Markit Flash Eurozone Services PMI, a business survey and one of the earliest monthly indicators of economic activity, would add to tentative signs that a recovery is in the offing.

But the indicator fell in February to 47.3 from 48.6, marking a year below the 50 threshold for growth and confounding expectations for a rise to 49.0 from more than 30 analysts polled by Reuters, none of whom forecast such a poor reading.

Markit said the schism between Germany and France — the two biggest economies in the euro zone — was now at its widest since the survey started in 1998.

While companies in Germany sustained a healthy rate of growth, French services companies are in the midst of their worst slump since early 2009, when the financial crisis and subsequent recession were doing their worst.

“If it wasn’t for Germany, these would be really dire readings,” said Chris Williamson, chief economist at Markit. “At least the German economy is still helping to keep the euro zone afloat in some respects.”

He said the latest survey pointed to the euro zone economy shrinking 0.2 percent to 0.3 percent in the first quarter, following an estimated 0.4 percent contraction at the end of last year.

A Reuters poll of economists last week suggested the economy would merely stagnate this quarter.

By far the most worrying aspect of the data released Thursday was the dismal performance of French companies.

Mr. Williamson said the data for France were more befitting a struggling “peripheral” euro zone economy like Spain or Italy, rather than the “core” status that France traditionally shares with Germany.

By contrast, Germany has enjoyed a good start to the year. German investor morale soared to its highest level in nearly three years this month, according to the ZEW research institute, while the federal statistics office said on Tuesday that employment hit its highest level in the fourth quarter since reunification.

Still, there are limits to what German prosperity can do for the rest of the region, blighted by harsh budget austerity and rising joblessness.

The latest Markit survey suggests that the “positive contagion” noted by the European Central Bank president, Mario Draghi, in January may be more in hope than expectation.

New orders at euro zone service sector companies — which include banks, information technology companies, hotels and restaurants — declined at a faster rate this month, with the index sinking sharply to 46.0 from 48.4 in January.

The survey also dashed optimism that the slump in euro zone factories would ease further in February, as the manufacturing index barely moved, to 47.8 from 47.9 in January.

Output fell at a faster rate, although new export orders brought at least a glimmer of hope, as the index rose to 51.7 in February from 49.5 – its first above-50 reading since June 2006.

The composite index, which combines both the services and manufacturing surveys, fell to 47.3 in February from 48.6 in January.

Companies cut more jobs, although not as quickly as in January, when layoffs rose at the fastest pace in more than three years.

Article source: http://www.nytimes.com/2013/02/22/business/global/daily-euro-zone-watch.html?partner=rss&emc=rss

DealBook: After 4th-Quarter Loss, Société Générale Plans Overhaul

The headquarters of Société Générale in Paris.Jacky Naegelen/ReutersThe headquarters of Société Générale in Paris.

5:05 a.m. | Updated

PARIS — Société Générale posted a larger-than-expected fourth-quarter loss on Wednesday and said it would move to cut costs and simplify operations.

The bank reported a net loss of 476 million euros, or $640 million, compared with a profit of 100 million euros in the period a year earlier. Analysts surveyed by Reuters had expected a net loss of about 237 million euros.

Profit was hurt by a charge of 686 million euros as the bank revalued its debt, an accounting obligation because the market for those securities has improved. The company also took 380 million euro write-down of good will in its investment banking business, mostly on its Newedge Group joint venture with Crédit Agricole.

Société Générale also set aside 300 million euros as a provision against unexplained “litigation costs.” Like many of its global peers, the bank is under investigation from the authorities in a number of countries on suspicion that it conspired to manipulate the London interbank offered rate, or Libor. But bank officials declined to say whether that provision was specifically related to the investigation.

The bank said fourth-quarter net income would have been about 537 million euros excluding the one-time items. The bank’s shares fell 3.6 percent Wednesday in Paris trading.

Under Frédéric Oudéa, its chairman and chief executive, Société Générale has been working to emerge from the financial crisis as a leaner institution. It said that from mid-2011 to the end of 2012, it disposed of 16 billion euros of loan portfolio assets from the corporate and investment banking unit and an additional 19 billion euros of other assets.

The bank’s revamping, and an improvement in sentiment in the euro zone economy, has helped to restore its market standing. After a difficult 2011 that was marred by questions about Société Générale’s exposure to Greece, the bank’s shares have rallied, gaining 49 percent in the last year.

“We have achieved all our objectives” for 2012, Mr. Oudéa said in a conference call on Wednesday with analysts. He noted that the bank had sold TCW, an American asset-management unit; Geniki Bank in Greece; and National Société Générale Bank, an Egyptian lender.

In a research note to investors, Andrew Lim, a banking analyst at Espírito Santo in London, said that while “management has dealt convincingly with concerns about weak capital adequacy and liquidity in 2012, Société Générale is still struggling to convince investors that it can achieve improved returns.”

Société Générale said its Tier 1 capital ratio, a measure of the bank’s ability to withstand financial shocks, stood at 10.7 percent at the end of December, up 1.65 percentage points from a year earlier. The French firm said it expected to attain a Core Tier 1 capital target under the accounting rules known as the Basel III standard of 9 percent to 9.5 percent by the end of 2013.

The measures announced on Wednesday aim to focus the bank on three core businesses: French retail banking, international retail banking and financial services and corporate and investment banking and private banking.

The Société Générale group employs about 160,000 around the world, and it was not immediately clear whether the announcement of a reorganization, which officials said was likely to be accompanied by some branch closings, meant the bank would follow the lead of other large global institutions with a round of layoffs.

Mr. Oudéa did not provide much detail on his plans, saying in the conference call that he was committed to working with unions and employees to ensure that the reorganization went smoothly.

The French bank published its latest results a little more than five years after Jérôme Kerviel, a trader in the bank’s equity derivatives business, built unauthorized positions that led to a 4.9 billion euro loss for Société Générale.

Mr. Kerviel’s conviction on charges of breach of trust and forgery was upheld in October by the Paris Court of Appeals. He also was ordered to serve a three-year prison term, pending appeal, and to repay the bank for the full amount of the loss.

On Tuesday, Mr. Kerviel told the French radio station RTL that he was challenging the repayment order in a labor court, saying he had been ordered to pay without a third-party expert being allowed to study the damages. He added that he was suing Société Générale for an amount equivalent to the 4.9 billion euro trading loss.

Article source: http://dealbook.nytimes.com/2013/02/13/societe-generale-reports-loss-in-fourth-quarter/?partner=rss&emc=rss

Economix Blog: Rings of Unemployment

CATHERINE RAMPELL

CATHERINE RAMPELL

Dollars to doughnuts.

Four out of five Americans know relatives or family friends who were laid off during the last few years or were laid off themselves, as I reported in an article on a new report from the Heldrich Center for Workforce Development at Rutgers University.

Note: Respondents counted only once using the innermost social circle for those knowing more than one person. Those counted in outer rings did not report knowing anyone from the inner rings.Heldrich Center for Workforce Development, Rutgers University Note: Respondents counted only once using the innermost social circle for those knowing more than one person. Those counted in outer rings did not report knowing anyone from the inner rings.

In a January survey, the Heldrich Center asked Americans about their exposure to layoffs in the recession or its aftermath. A lot of respondents knew several people who had been laid off, but the researchers decided to segment responses by greatest proximity.

They found that:

  • 23 percent lost a job themselves;
  • among those not touched so far, another 11 percent said someone in their household had lost a job;
  • another 26 percent said a member of their extended family had lost a job;
  • another 13 percent said a close personal friend had lost a job;
  • if not touched by any of the conditions so far, another 5 percent said a close personal friend of someone else in the household had lost a job; and
  • the remaining 21 percent of respondents answered “no” to all these questions.

The findings were especially striking because unemployment has been unusually concentrated during the last few years, relative to previous downturns.

Usually a lot of people churn in and out of unemployment during a recession. In the wake of the recent financial crisis, however, the layoffs were large but appeared more targeted, with people being very unlikely to cycle back into a job once displaced — hence the record lengths of unemployment duration for those who did lose their jobs.

These new Heldrich data suggest that a lot more people were exposed to layoffs through friends and family. This is seen in other areas of the survey, too; for example, 4 in 10 respondents said they lent money to family or friends in the last few years. (Three in 10 said they were on the other side of this transaction, meaning they borrowed money from family or friends.)

Article source: http://economix.blogs.nytimes.com/2013/02/07/rings-of-unemployment/?partner=rss&emc=rss

DealBook: Amid Bank’s Legal Problems, Barclays Chief Gives Up Bonus

Antony Jenkins, chief of Barclays.Lucas Jackson/ReutersAntony Jenkins, chief of Barclays.

LONDON – Antony P. Jenkins, the new chief executive of Barclays, said on Friday that he would not accept a bonus as the British bank struggles to rebuild its reputation after a series of recent scandals.

The announcement comes as British regulators investigate new allegations that Barclays failed to properly disclose to shareholders a loan to a group of Qatari investors that gave the British bank a cash infusion during the financial crisis, according to a person with direct knowledge of the matter, who spoke on the condition of anonymity because he was not authorized to speak publicly.

Last year, the bank disclosed that British and American authorities were investigating the legality of the payments related to the $7.1 billion cash injection to Qatar Holding, the sovereign wealth fund.

Mr. Jenkins is dealing with a spate of legal headaches.

In June, Barclays agreed to pay a $450 million settlement with United States and British regulators over rate manipulation. The case forced a number of the bank’s top executives to resign, including the chief executive at the time, Robert. E. Diamond Jr.

The British firm has also set aside $3.2 billion to cover legal costs related to the inappropriately selling of insurance to consumers. British authorities recently told the bank that it must review the sale of certain interest-rate hedging products after 90 percent of a sample of the complex instruments were found to have been sold improperly. Analysts say the investigation may lead to millions of dollars of new legal costs.

In light of the controversy surrounding the bank, Mr. Jenkins said he did not want to be considered for a bonus that could have totaled up to $4.3 million, adding that many of the problems engulfing the bank were of its own making. The Barclays chief’s annual salary is $1.7 million.

“I think it only right that I bear an appropriate degree of accountability for those matters,” Mr. Jenkins said in a statement. “It would be wrong for me to receive a bonus for 2012.”

A spokesman for Barclays declined to comment about the investigation into potential wrongdoing connected to the loan to Qatari investors.

By forgoing his bonus, Mr. Jenkins contrasts with his predecessor. Mr. Diamond was in line for a $4.3 million bonus in deferred shares for 2011 despite criticism about his handling of the bank’s performance. Faced with mounting opposition, Mr. Diamond and Chris Lucas, the bank’s finance director, eventually agreed to receive only half of the 2011 deferred stock bonus if the British bank failed to reach a number of its financial targets.

Barclays, which will unveil a major overhaul of its operations when it reports earnings on Feb. 12, is expected to slash up to 2,000 jobs in its investment bank in an effort to reduce its exposure to risky trading activity, according to two people with direct knowledge of the matter.

As part of the changes, the British bank has hired Hector Sants, the former chief of the Financial Services Authority, the British regulator, as its new head of compliance.

Mr. Jenkins, who previously ran Barclays’ consumer banking business, told employees in January that they should leave the bank if they were not willing to help rebuild the firm’s reputation.

“My message to those people is simple,” Mr. Jenkins wrote in an internal note obtained by DealBook. “Barclays is not the place for you. The rules have changed.”


This post has been revised to reflect the following correction:

Correction: February 1, 2013

An earlier version of the article indicated that Barclays chief executive told employees earlier this month that they should leave the bank if they were not willing to help rebuild the firm’s reputation. He told them in January.

Article source: http://dealbook.nytimes.com/2013/02/01/amid-banks-legal-problems-barclays-c-e-o-gives-up-bonus/?partner=rss&emc=rss

DealBook: Amid Bank’s Legal Problems, Barclays C.E.O. Gives Up Bonus

Antony Jenkins, chief of Barclays.Lucas Jackson/ReutersAntony Jenkins, chief of Barclays.

LONDON – Antony P. Jenkins, the new chief executive of Barclays, said on Friday that he would not accept a bonus as the British bank struggles to rebuild its reputation after a series of recent scandals.

The announcement comes as British regulators investigate new allegations that Barclays failed to properly disclose to shareholders a loan to a group of Qatari investors that gave the British bank a cash infusion during the financial crisis, according to a person with direct knowledge of the matter, who spoke on the condition of anonymity because he was not authorized to speak publicly.

Last year, the bank disclosed that British and American authorities were investigating the legality of the payments related to the $7.1 billion cash injection to Qatar Holding, the sovereign wealth fund.

Mr. Jenkins is dealing with a spate of legal headaches.

In June, Barclays agreed to pay a $450 million settlement with United States and British regulators over rate manipulation. The case forced a number of the bank’s top executives to resign, including the chief executive at the time, Robert. E. Diamond Jr.

The British firm has also set aside $3.2 billion to cover legal costs related to the inappropriately selling of insurance to consumers. British authorities recently told the bank that it must review the sale of certain interest-rate hedging products after 90 percent of a sample of the complex instruments were found to have been sold improperly. Analysts say the investigation may lead to millions of dollars of new legal costs.

In light of the controversy surrounding the bank, Mr. Jenkins said he did not want to be considered for a bonus that could have totaled up to $4.3 million, adding that many of the problems engulfing the bank were of its own making. The Barclays chief’s annual salary is $1.7 million.

“I think it only right that I bear an appropriate degree of accountability for those matters,” Mr. Jenkins said in a statement. “It would be wrong for me to receive a bonus for 2012.”

A spokesman for Barclays declined to comment about the investigation into potential wrongdoing connected to the loan to Qatari investors.

By forgoing his bonus, Mr. Jenkins contrasts with his predecessor. Mr. Diamond was in line for a $4.3 million bonus in deferred shares for 2011 despite criticism about his handling of the bank’s performance. Faced with mounting opposition, Mr. Diamond and Chris Lucas, the bank’s finance director, eventually agreed to receive only half of the 2011 deferred stock bonus if the British bank failed to reach a number of its financial targets.

Barclays, which will unveil a major overhaul of its operations when it reports earnings on Feb. 12, is expected to slash up to 2,000 jobs in its investment bank in an effort to reduce its exposure to risky trading activity, according to two people with direct knowledge of the matter.

As part of the changes, the British bank has hired Hector Sants, the former chief of the Financial Services Authority, the British regulator, as its new head of compliance.

Mr. Jenkins, who previously ran Barclays’ consumer banking business, told employees earlier this month that they should leave the bank if they were not willing to help rebuild the firm’s reputation.

“My message to those people is simple,” Mr. Jenkins wrote in an internal note obtained by DealBook. “Barclays is not the place for you. The rules have changed.”

Article source: http://dealbook.nytimes.com/2013/02/01/amid-banks-legal-problems-barclays-c-e-o-gives-up-bonus/?partner=rss&emc=rss

Economix Blog: Comparing Jobs in Recessions and Recoveries

Source: Bureau of Labor Statistics. Source: Bureau of Labor Statistics.

CATHERINE RAMPELL

CATHERINE RAMPELL

Dollars to doughnuts.

For the 28th straight month, the country added jobs: 157,000 nonfarm payroll jobs in January, to be more precise.

But employment still has a long way to go before returning to its prerecession level.

The chart above shows economic job changes in this last recession and recovery compared with other recent ones; the red line represents the current cycle. Since the downturn began in December 2007, the economy has had a net decline of about 2.3 percent in its nonfarm payroll jobs. And that does not account for the fact that the working-age population has continued to grow, meaning that if the economy were healthy we should have more jobs today than we had before the recession.

Getting the economy to 5 percent unemployment within two years — a return to the rate that prevailed when the recession began — would require job growth of closer to 284,984 a month.

There are now 12.3 million workers looking for work who cannot find it. The tally of those who are underemployed — that is, adding in those workers who are part-time but want to be employed full-time, and workers who want to work but are not looking — is an even larger 21.4 million.

As bad as all these figures are, it’s worth remembering that job markets in the decade after a financial crisis are always terrible. In fact, layoffs were far worse and lasted much longer in the aftermath of the financial crises that struck, for example, Finland and Sweden in 1991 and Spain in 1977, not to mention the United States during the Great Depression.

Article source: http://economix.blogs.nytimes.com/2013/02/01/comparing-jobs-in-recessions-and-recoveries/?partner=rss&emc=rss

Pay Still High at Bailed-Out Companies, Report Says

WASHINGTON — Top executives at firms that received taxpayer bailouts during the financial crisis continue to receive generous government-approved compensation packages, a Treasury watchdog said in a report released on Monday.

The report comes from the special inspector general for the Troubled Asset Relief Program, the bank bailout law passed at the end of the George W. Bush administration. The watchdog, commonly called Sigtarp, found that 68 out of 69 executives at Ally Financial, the American International Group and General Motors received annual compensation of $1 million or more, with the Treasury’s signoff.

All but one of the top executives at the failed insurer A.I.G. — which required more than $180 billion in emergency taxpayer financing — received pay packages worth more than $2 million. And 16 top executives at the three firms earned combined pay of more than $100 million.

“In 2012, these three TARP companies convinced Treasury to roll back its guidelines by approving multimillion-dollar pay packages, high cash salaries, huge pay raises and removing compensation tied to meeting performance metrics,” Christy Romero, the special inspector general, said in a statement. “Treasury cannot look out for taxpayers’ interests if it continues to rely to a great extent on the pay proposed by companies that have historically pushed back on pay limits.”

The report charges that Treasury has failed to rein in excessive pay at the three firms. It found that Treasury approved all pay raises requested for A.I.G., Ally and General Motors executives last year, with individual compensation increases of $30,000 to $1 million. It also faults the Treasury overseer for allowing pay packages above what comparable executives at other firms receive.

The report also accuses Treasury of failing to follow up earlier recommendations made by the special inspector general. A report issued a year ago made many similar criticisms, arguing that the Treasury officials “could not effectively rein in excessive compensation” because the most “important goal was to get the companies to repay” the government.

“Treasury made no meaningful reform to its processes,” it said in this year’s report. “Lacking criteria and an effective decision-making process, Treasury risks continuing to award executives of bailed-out companies excessive cash compensation without good cause.”

In a response letter included in the report, Patricia Geoghegan, acting special master for TARP executive compensation, disputed several of its assertions. For one, the compensation packages for A.I.G. and General Motors executives were comparable to those received by executives at other firms, Treasury said. Pay packages at Ally were higher than the median because of “unique circumstances,” it said.

Treasury also noted that the Obama administration had cut pay for executives at bailed-out firms and required that the companies pay top employees with more stock and less cash. Treasury “continues to fulfill its regulatory requirements,” the letter said. It has “limited executive compensation while at the same time keeping compensation at levels that enable the ‘exceptional assistance’ recipients to remain competitive and repay Tarp assistance.”

The Treasury is selling off its remaining shares of General Motors. In December, Treasury sold its final shares in A.I.G., bringing its and the Federal Reserve’s total profit on its investment in the company to nearly $23 billion.

Article source: http://www.nytimes.com/2013/01/29/business/generous-executive-pay-at-bailed-out-companies-treasury-watchdog-says.html?partner=rss&emc=rss

Economix Blog: Alan Blinder on the Lessons of the Financial Crisis

Alan S. Blinder describes his new book, “After the Music Stopped,” as a “second draft” of the history of the financial crisis and the government’s response. He argues that many Americans still do not understand what went wrong, and he contends that the government still does not get enough credit for the successes of its policies.

Book Chat

Talking with authors about their work.

Alan S. Blinder, a Princeton economist and author of Denise Applewhite/Princeton University Alan S. Blinder, a Princeton economist and author of “After the Music Stopped.”

Prof. Blinder, a Princeton University economist and former vice chairman of the Federal Reserve, judges that the government itself is at fault. He writes in the book, “The two secretaries of the Treasury during the crisis period, Henry Paulson and Timothy Geithner, have between them barely given a single coherent speech explaining what happened and – perhaps more important – why they did what they did.”

And he is concerned that the resulting combination of public ignorance and outrage will impede the government’s response the next time that a bubble pops.

The first part of the book, the account of the crisis, is lucid and entertaining. There will never be complete agreement about the causes of the crisis, not least because the stories we tell about the past are shaped by the things we want from the future. But four years later, we have reached the point where those stories can be well told.

The second part, a qualified defense of the Obama administration, reads more like a first draft of history, and it is likely to prove more controversial. The events are more recent, the recovery is still a work in progress, and we won’t know how well the government has prepared to deal with the next crisis until we get there.

The following is a condensed transcript of our recent e-mail exchange:

You write, “Our best hope is to minimize the consequences when bubbles go splat — and they inevitably will.” How much confidence do you have that when the next bubble goes splat, we will be ready, willing and able to contain the damage?

Less than I wish I had. But I’m at least hopeful that some of the lessons we’ve learned, and some of the actions we’ve taken, will make the next bubble less damaging than the last ones. For example, we now understand better the dangers that lurk in high leverage, overly complex financial instruments, and lax (or nonexistent) regulation.

While you conclude that government policies were successful in arresting the crisis, you argue that the government should have imposed stronger conditions on banks that received aid, and that it should have acted more forcefully to help people facing foreclosure. Have those failures slowed the economic recovery?

Yes. For example, until very recently, one major factor behind the sluggish recovery was the failure of home building to rebound. And one major reason for that was the seemingly unending waves of foreclosures. How can a builder compete with foreclosed properties coming on the market at 50 percent of construction cost? A second significant headwind is the meager snap-back in bank lending. If the government had made more lending a condition of receiving aid, that would not have changed a D performance into an A. But it might have gotten us a C+ or a B-.

I was surprised by the weight you place on a third failure: poor communication. Do you believe that the policies would have been more effective if the public better understood what the government was trying to do, or just that the administration would have been able to do more if it had retained public support?

It’s more the latter: not being able to do more. But I also believe — as a small-d democrat — that the public is entitled to better explanations when they are being used as guinea pigs in a massive socioeconomic experiment. That said, my greater fear is that rampant misunderstanding of what was done in 2008-9 will make it harder for us, politically, to cope with the next crisis.

Penguin Group (USA)

Of all the choices made by policy makers during the crisis, you express the greatest anger over Secretary Paulson’s three-page TARP bill, which sought to exempt the program from pretty much any oversight or accountability. You variously describe it as an “outrage” and “an assault on the Constitution.”

Well, first of all, let’s note that the mistake was rectified quickly, in large part because of the torrent of criticism that followed. So the actual damage was limited. But the original three-pager certainly didn’t instill confidence in the Paulson Treasury — at a crucial time. I was particularly angry because it showed such disrespect for the Constitution, e.g., by banning judicial review. At the height of the crisis, we needed a dose of “big government” to save us from economic ruin. The first TARP proposal gave big government a bad name.

You credit the Fed for its efforts to stabilize financial markets. But you also write that the bubble in bond prices “does start with the Federal Reserve’s monetary policy.” How much blame, then, does the Fed deserve for starting the fire it later extinguished?

The “error” of holding interest rates too low for too long was only obvious after the fact, not before. In fact, the Fed had good reasons to hold interest rates very low in the early 2000s: The recovery was pathetic, and we faced a real risk of deflation. And those who place primary blame for the house-price bubble on the Federal Reserve are exaggerating so much that it smacks of a put-on. When home buyers believe that house prices will keep on rising at 10 to 15 percent a year, would, say, a half-percentage-point increase in the mortgage interest rate stop speculation?

The book ends with a new version of the Ten Commandments. The second is, “Thou shalt not rely on self-regulation.” You describe the very term as “an oxymoron, maybe even a cruel deception.” Yet your third, fourth, fifth, sixth and ninth commandments call on financial companies to do a better job of self-regulation. The ninth, for example, says compensation should be aligned with risk. You write, “This commandment ought to be enforced by C.E.O.’s and corporate boards; but if they won’t do the job, we may need the heavy hand of government.” Some people would say we’ve let that experiment run long enough. Why prioritize improved corporate conduct?

In truth, we need both. I say repeatedly in the book that foxes don’t make good chicken-coop guards. We need far better government regulation and supervision than we had before the crisis. But supervisors cannot be everywhere. In the regulatory game of cat-and-mouse, the mice will sometimes (often?) fool the cats. This is particularly true, I think, in the area of executive compensation. We need — or perhaps I should say, we should hope for — better management and more alert boards of directors.

Article source: http://economix.blogs.nytimes.com/2013/01/24/alan-blinder-on-the-lessons-of-the-financial-crisis/?partner=rss&emc=rss

It’s the Economy: The Smartphone Have-Nots

Mishel’s session at this year’s meeting of the American Economic Association, titled “Inequality in America,” tellingly coincided with other sessions called “Extreme Wage Inequality” and “Taxes, Transfers and Inequality.” As the financial crisis wanes, economists are shifting their attention toward a more subtle, possibly more upsetting crisis in the United States: the significant increase in income inequality.

Much of what we consider the American way of life is rooted in the period of remarkably broad, shared economic growth, from around 1900 to about 1978. Back then, each generation of Americans did better than the one that preceded it. Even those who lived through the Depression made up what was lost. By the 1950s, America had entered an era that economists call the Great Compression, in which workers — through unions and Social Security, among other factors — captured a solid share of the economy’s growth.

These days, there’s a lot of disagreement about what actually happened during these years. Was it a golden age in which the U.S. government guided an economy toward fairness? Or was it a period defined by high taxes (until the early ’60s, the top marginal tax rate was 90 percent) and bureaucratic meddling? Either way, the Great Compression gave way to a Great Divergence. Since 1979, according to the nonpartisan Congressional Budget Office, the bottom 80 percent of American families had their share of the country’s income fall, while the top 20 percent had modest gains. Of course, the top 1 percent — and, more so, the top 0.1 percent — has seen income rise stratospherically. That tiny elite takes in nearly a quarter of the nation’s income and controls nearly half its wealth.

The standard explanation of this unhinging, repeated in graduate-school classrooms and in advice to politicians, is technological change. The rise of networked laptops and smartphones and their countless iterations and spawn have helped highly educated professionals create more and more value just as they have created barriers to entry and rendered irrelevant millions of less-educated workers, in places like factory production lines and typing pools. This explanation, known as skill-biased technical change, is so common that economists just call it S.B.T.C. They use it to explain why everyone from the extremely rich to the just-kind-of rich are doing so much better than everyone else.

For two decades, Mishel has been a critic of the S.B.T.C. theory, and that morning in San Diego, he argued that broad technological innovation has been taking place so steadily for so long that the rise of computers simply can’t explain the recent explosion in inequality. After all, when economists talk about technological innovation, they are thinking beyond smartphones; they’re usually considering innovations that affect production. Business innovations — like the railroads, telegraph, Henry Ford’s conveyor belt and the plastic extruders of the 1960s — have occurred for more than a century. Computers and the Internet, Mishel argued, are just new examples on the continuum and cannot explain a development like extreme inequality, which is so recent. So what happened?

The change came around 1978, Mishel said, when politicians from both parties began to think of America as a nation of consumers, not of workers. President Jimmy Carter deregulated the airline, trucking and railroad industries in order to help lower consumer prices. Congress chose to ignore organized labor’s call for laws strengthening union protections. Ever since, Mishel said, each administration and Congress have made choices — expanding trade, deregulating finance and weakening welfare — that helped the rich and hurt everyone else. Inequality didn’t just happen, Mishel argued. The government created it.

Article source: http://www.nytimes.com/2013/01/20/magazine/income-inequality.html?partner=rss&emc=rss

Media Decoder Blog: American Prospect and The American Conservative to Share Office Space

The financial crisis did not bring bipartisanship to Congress, but a difficult media environment may have brought that spirit to two political standard-bearers.

In need of cash and with extra space on its hands, the liberal magazine The American Prospect decided to sublet part of its Washington offices. The American Conservative, tired of working from Arlington, Va., was looking for a new location. When the publishers Jay Harris of The Prospect and Wick Allison of The Conservative were getting lunch in August, they put two and two together.

A six-month lease was soon signed. The self-described bastion of “traditional conservatism” moved in with the self-described “liberal, progressive, lefty” on Dec. 27.

“We have a water fountain labeled conservatives only,” joked Mr. Harris, who cleared the idea with his staff. “We turned to the staff and said, ‘Would you be comfortable?’ To a person, the folks who responded said, ‘Our values are pretty different, but we have a lot of respect for what The American Conservative does journalistically.’ ”

What they lack in ideological viewpoint, the two nonprofit monthlies make up for in an independent, establishment-bucking mind-set. Each has faced the sort of downsizing that has become all too common in the print world.

The American Conservative, founded in 2002 by Pat Buchanan, ran biweekly before it went out of print for six weeks in 2009 and returned as a monthly magazine. It has a circulation of 8,000. The American Prospect, in print since 1990, announced to its staff in April that if the magazine could not find $500,000 in financing, it would close altogether by the end of May.  With help from good publicity from Prospect alumni and a few large donors — and by shrinking its staff by four — the bimonthly magazine has endured. The publication has combined paid print and digital circulation of nearly 45,000. The Conservative’s seven staff members will share the white-walled, blue-carpeted 12th floor of 1710 Rhode Island Avenue with The Prospect’s fund-raising and advertising departments. They must share a conference room, a potential source of conflict, though Mr. Harris says it could be a site for events the magazines co-host.

Daniel McCarthy, The Conservative’s associate editor, said the new locale suits its independent outlook.

“Where we had been,” Mr. McCarthy said of the office in Arlington, “was sort of a hotbed of lobbyists and defense contractors. People who represent a different side of Washington.”

Maisie Allison, a Web editor at The Conservative, said the shared space would help both magazines.

“Since we do not directly compete, we can only benefit from sharing ideas, formally and informally,” she said. “They have a bunch of magazine covers on the wall; we’re going to get some of ours up soon.”

Article source: http://mediadecoder.blogs.nytimes.com/2013/01/06/american-prospect-and-the-american-conservative-to-share-office-space/?partner=rss&emc=rss