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Italy Agrees on $65 Billion in Austerity Measures

August 13, 2011 by Leave a Comment

ROME — Scrambling to fend off a sovereign debt crisis, the Italian government on Friday approved $65 billion in additional emergency austerity measures over the next two years, including tax increases and cuts to local government in an effort to balance the budget by 2013.

The government was responding to demands by the European Central Bank, which last week began buying Italian bonds, driving down Italy’s borrowing costs. But it did so on the condition that Italy make significant changes, including liberalizing its labor market and closed professions, privatizing state industry and adjusting its pension system.

After an emergency cabinet meeting on Friday, Prime Minister Silvio Berlusconi announced the new measures, which include raising the capital gains tax to 20 percent from 12.5 percent, except for government bonds; eliminating several nonreligious national holidays; and cracking down on businesses that do not give receipts.

“It wasn’t easy,” Mr. Berlusconi said, looking tired at a news conference on Friday evening, after days of round-the-clock negotiations over the normally quiet August holiday period. “We’re personally pained to have to take these measures, but we are satisfied.”

Facing intense market turbulence and rising borrowing costs, Mr. Berlusconi pledged last week that Italy would eliminate its budget deficit, from the 3.9 percent of gross domestic product it is projected to represent this year, to zero by 2013.

That would be a year earlier than originally planned in a $65 billion austerity package approved by Parliament in July, including tax increases and higher health care fees.

The new measures go into effect as soon as they are approved by the president of Italy, who is expected to sign off on them shortly. They must be approved by Parliament, which can also make modifications, within 60 days.

Market pressures have placed Mr. Berlusconi’s increasingly weak government in a difficult position. With a public debt of 120 percent of gross domestic product, it has to cut spending and stimulate an economy that is expected to grow by only 1 percent this year.

The new measures also include a “solidarity tax” on high earners: an additional 5 percent tax on incomes above $128,000 a year and 10 percent on incomes above $213,000 a year for the next two years.

“Our heart bleeds to have to do this, we who bragged never to put our hands in the pockets of Italians,” Mr. Berlusconi said. “But the world situation changed, and we found ourselves faced with the hugest global crisis ever.”

In a concession to growing antipolitical sentiment in Italy, Mr. Berlusconi said the government would also cut $13.5 billion from local and regional governments.

It would do this in part by eliminating 54,000 elected positions in provincial, regional and city governments after the next round of local elections, and by cutting politicians’ salaries and requiring members of Parliament to travel economy class.

Earlier on Friday, representatives of regional, provincial and city authorities gave a news conference criticizing the measures. Roberto Formigoni, the president of the Region of Lombardi, said that cuts to regional social welfare and transportation systems would have “a depressive effect” on the economy.

The government said the measures also include increased labor flexibility and some changes to Italy’s pension system, but it did not go into greater detail.

Finance Minister Giulio Tremonti is expected to give a news conference on Saturday to elaborate on the measures.

In Italy, changes to the labor market have to be negotiated with business leaders, who have criticized the government’s proposals as too little, too late, and labor unions, which have said they unfairly place the burden on middle- and lower-class Italians.

Article source: http://www.nytimes.com/2011/08/13/world/europe/13italy.html?partner=rss&emc=rss

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Stocks Hold On to Day’s Modest Gains to End a Wild Week

August 12, 2011 by Leave a Comment

There was little sign of the volatility seen in the previous four days, and stocks wavered within a relatively tight range. But the indexes failed to fully recover from the week’s wild swings.

“We didn’t fall off a cliff,” said Bruce McCain, chief investment strategist of Key Private Bank. “We are in a market that is trying to bottom, after a gut-wrenching slide, and going into a weekend where people can take a look at it.”

The Standard Poor’s 500-stock index was up 6.17 points, or 0.53 percent, at 1,178.81. It was 1.7 percent lower for the week. The Dow Jones industrial average was up 125.71 points, or 1.13 percent at 11,269.02 and the Nasdaq rose 0.61 percent to 2.507.98.

American stock markets were wildly volatile in the previous four trading sessions, with alternating days of collapsing and then sharply rising prices. There was a 4.4 percent decline on Wednesday and a 4.6 percent climb on Thursday. The mood has swung between speculation about worries over the economy and a renewed financial crisis, and confidence that banks are healthy and corporate profits strong.

“It seems like we have a continuing trend of lighter volume, with successively lower volume in the rise and the fall, which is typical of the market bottoming out,” said Mr. McCain.

Analysts and traders said the turmoil was driven by intensifying worries over European sovereign debt; the Congressional impasse over the debt ceiling; and revisions to economic data, particularly with respect to gross domestic product, that raised concerns over another recession.

The Standard Poor’s downgrade of the nation’s credit rating last week also weighed on the markets. But many said the selling was driven by emotion, and that the S.P. move had been discounted or paled in comparison to other factors, especially the economy and developments in Europe.

Traders suggested a modest drop in claims for unemployment insurance in the United States and reassurances from French officials that their country’s banks were safe may have helped stocks on Thursday. And on Friday, when trading volume was 4.8 billion shares, investors sifted through new data on the economy, including insights into consumer behavior, a crucial element in trying to gauge the pace of the recovery.

The Commerce Department said retail sales rose 0.5 percent in July. Without the volatile automobile and gas components, sales increased 0.3 percent. The figures included several revisions, but they suggested there was some spending momentum in the second quarter and the beginning of the current quarter, at least.

But another piece of data that is indicative of where the market could swing was a survey by the University of Michigan that showed consumer sentiment dipped in August, registering 54.9 points on its index, which was lower than during the crisis of November 2008.

“Clearly, recent financial market turmoil has weighed heavily on sentiment, which was already under pressure from a dysfunctional political arena and the longer-term issue of an ailing labor market,” said Joshua Shapiro, the chief United States economist for MFR, in a research note.

At times, the VIX or “fear index,” a measure of volatility in the market, declined to its lowest point this week. The VIX was 36.87.

United States benchmark 10-year Treasury yields were lower, to 2.24 percent from 2.34 percent on Thursday.

“Going forward, the recent news in the stock market is not a good thing for consumer confidence and spending,” said Chris G. Christopher Jr., the senior principal economist for IHS Global Insight. “The swings in the equity markets are making consumers very nervous.”

But Mr. Christopher and other economists have noted that the recent declines in oil prices will offer some relief to Americans.

Industrial stocks led the way on the S. P. 500, up almost 2 percent, with General Electric up more than 1 percent. Financial stocks pulled back by late afternoon, showing slight losses, but Bank of America was about 1 percent higher.

Bettina Wassener and Julia Werdigier contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=255ff83f894224f39833007260cc48bd

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Economix: For Stocks, Day 7 Since the Walkout

August 2, 2011 by Leave a Comment

Today was the seventh trading day since John Boehner walked out of talks with Barack Obama at the White House. That move made it clear that the House speaker would not risk alienating the Tea Party and that if a debt default were to be averted, the president would have to capitulate on virtually all issues or defy Congress by claiming the debt limit legislation was unconstitutional. He chose to capitulate.

FLOYD NORRIS

FLOYD NORRIS

Notions on high and low finance.

This is also the seventh consecutive session that the Standard Poor’s 500-stock index has declined. The total fall for the seven days is 6.8 percent.

This is something that Wall Street did not see coming. It took for granted that something more reasonable would be worked out. To make it worse, the economic data has turned much bleaker, highlighted by last Friday’s revisions in the gross domestic product. In normal times, the politicians would be vying to come up with plans to stimulate the economy. Now that seems to be out of the question, and there is more talk of a double-dip recession than at any time since the last downturn ended.

The last time I can recall Wall Street’s being so wrong about what the government would do was in September 2008. Lehman Brothers was collapsing, but the Bear Stearns precedent provided assurance that the government would not take the risks to the financial system inherent in letting a big bank fail.

Over the seven sessions after the Lehman bankruptcy, the S..P fell 5.1 percent. It was a much wilder ride than this one, with two days when the market lost more than 4 percent and two days when it rose more than 4 percent. The market would go on to lose much more. By contrast, the largest decline in this string was today’s fall of 2.6 percent.

Wall Street was so very wrong in 2008 because ideology trumped caution in Washington. Sort of like what seems to be happening now.

Article source: http://feeds.nytimes.com/click.phdo?i=c0cdf988f1eb71326d15687fb8ffc34a

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Economix: Economists Lower G.D.P. Forecasts for 2nd Quarter

June 6, 2011 by Leave a Comment

Quarter after quarter and month after month, the United States has been subjected to increasingly disappointing economic numbers. And this quarter is no different.

In light of a streak of bad news — on jobs, auto sales, housing, manufacturing
and retailing – many economists have ratcheted down their estimates for gross domestic product in the second quarter. A small selection:

  • Macroeconomic Advisers is now forecasting 2.6 percent annualized growth, down from its forecast of 3.7 percent about a month earlier.
  • Barclays Capital has lowered its forecast to 2 percent, from 3.5 percent.
  • IHS Global Insight is expecting 2 percent.
  • Joshua Shapiro of MFR is predicting (gulp) 1.5 percent, about half of what he’d previously expected.

You may recall that the same phenomenon occurred last quarter, when, for instance, Macroeconomic Advisers gradually slid its estimate down from 4.1 percent to 1.5 percent. The Commerce Department eventually reported that the economy grew at an annual rate of 1.8 percent last quarter. (The government will release its initial estimate for second quarter G.D.P. on July 29.)

Then, as now, economists said not to despair because they expected growth to pick up “next quarter,” since “temporary factors” were responsible for the latest bout of slowness. But then those hopes were scuttled, and pushed off until tomorrow and tomorrow and tomorrow.

Let’s hope the sun comes out sometime soon.

Article source: http://feeds.nytimes.com/click.phdo?i=a30d1682d38379fbb6751efc5c24f08f

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Economix: Are Taxes in the U.S. High or Low?

May 31, 2011 by Leave a Comment

Today's Economist

Bruce Bartlett has served as an economic adviser in the White House, the Treasury Department and Congress.

Historically, the term “tax rate” has meant the average or effective tax rate — that is, taxes as a share of income. The broadest measure of the tax rate is total federal revenues divided by the gross domestic product.

By this measure, federal taxes are at their lowest level in more than 60 years. The Congressional Budget Office estimated that federal taxes would consume just 14.8 percent of G.D.P. this year. The last year in which revenues were lower was 1950, according to the Office of Management and Budget.

The postwar annual average is about 18.5 percent of G.D.P. Revenues averaged 18.2 percent of G.D.P. during Ronald Reagan’s administration; the lowest percentage during that administration was 17.3 percent of G.D.P. in 1984.

In short, by the broadest measure of the tax rate, the current level is unusually low and has been for some time. Revenues were 14.9 percent of G.D.P. in both 2009 and 2010.

Yet if one listens to Republicans, one would think that taxes have never been higher, that an excessive tax burden is the most important constraint holding back economic growth and that a big tax cut is exactly what the economy needs to get growing again.

Just last week, House Republicans released a new plan to reduce unemployment. Its principal provision would reduce the top statutory income tax rate on businesses and individuals to 25 percent from 35 percent. No evidence was offered for the Republican argument that cutting taxes for the well-to-do and big corporations would reduce unemployment; it was simply asserted as self-evident.

One would not know from the Republican document that corporate taxes are expected to raise just 1.3 percent of G.D.P. in revenue this year, about a third of what it was in the 1950s.

The G.O.P. says global competitiveness requires the United States to reduce its corporate tax rate. But the United States actually has the lowest corporate tax burden of any of the member nations of the Organization for Economic Cooperation and Development.

Revenue Statistics of O.E.C.D. Member Countries, 2010

If taxes are low historically and in comparison with our global competitors, how are Republicans able to maintain that taxes are excessively high? They do so by ignoring the effective tax rate and concentrating solely on the statutory tax rate, which is often manipulated to make it appear that rates are much higher than they really are.

For example, Stephen Moore of The Wall Street Journal recently asserted that Democrats were trying to raise the top income tax rate to 62 percent from 35 percent. But most of the difference between these two rates is the payroll tax and state taxes that are already in existence. The rest consists largely of assuming tax increases that no one has formally proposed and that would be politically impossible to enact at the present time.

Ryan Chittum, in Columbia Journalism Review, responded with a commentary that called the Moore analysis “deeply disingenuous.”

Nevertheless, one routinely hears variations of the Moore argument from conservative commentators. By contrast, one almost never hears that total revenues are at their lowest level in two or three generations as a share of G.D.P. or that corporate tax revenues as a share of G.D.P. are the lowest among all major countries. One hears only that the statutory corporate tax rate in the United States is high compared with other countries, which is true but not necessarily relevant.

The economic importance of statutory tax rates is blown far out of proportion by Republicans looking for ways to make taxes look high when they are quite low. And they almost never note that the statutory tax rate applies only to the last dollar earned or that the effective tax rate is substantially lower even for the richest taxpayers and largest corporations because of tax exclusions, deductions, credits and the 15 percent top rate on dividends and capital gains.

The many adjustments to income permitted by the tax code, plus alternative tax rates on the largest sources of income of the wealthy, explain why the average federal income tax rate on the 400 richest people in America was 18.11 percent in 2008, according to the Internal Revenue Service, down from 26.38 percent when these data were first calculated in 1992. Among the top 400, 7.5 percent had an average tax rate of less than 10 percent, 25 percent paid between 10 and 15 percent, and 28 percent paid between 15 and 20 percent.

The truth of the matter is that federal taxes in the United States are very low. There is no reason to believe that reducing them further will do anything to raise growth or reduce unemployment.

Article source: http://feeds.nytimes.com/click.phdo?i=a3928c0dcd4572674a185ab8305e3008

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India’s Anti-Poverty Programs Are Big but Troubled

May 19, 2011 by Leave a Comment

NEW DELHI — India spends more on programs for the poor than most developing countries, but it has failed to eradicate poverty because of widespread corruption and faulty government administration, the World Bank said Wednesday.

“India is not getting the ‘bang for the rupee’ that its significant expenditure would seem to warrant, and the needs of important population groups remain only party addressed,” John D. Blomquist, lead economist at the World Bank, wrote in a nearly 400-page study released Wednesday.

India spent 2 percent of its gross domestic product, or $28.6 billion last year, on social programs to alleviate and prevent poverty, the World Bank said, a higher percentage than any other country in Asia and about three times China’s spending.

The programs, central to the Congress party’s platform, include food distribution and health insurance initiatives that are supposed to reach hundreds of millions of households. The report was written at the “request of the government of India” and with full participation from various government bodies, the report said.

The World Bank on Wednesday recommended a radical overhaul of India’s social programs. “Marginal changes alone may not deliver the kind of safety net which a changing India needs for its poor and for its economy,” Mr. Blomquist wrote.

One of the primary problems, the World Bank said, was “leakages” — an often-used term in development circles that refers to government administrators and middle men stealing money, food and benefits. The bank said that 59 percent of the grain allotted for public distribution to the poor does not reach those households.

Instead of distributing food, the government might be better off giving out food stamps or cash transfers that can be easily traced through technology, the World Bank said.

India, the world’s the second-fastest growing major economy, after China, has had an economic boom in recent years that is transforming urban areas and creating a new class of extremely wealthy people. But social problems, including poverty, disease and illiteracy, remain widespread.

About 455 million Indian citizens live on less than $1.25 a day, the World Bank’s poverty line. A United Nations study released last year found more people living below the poverty threshold in eight states in India than in all of sub- Saharan Africa.

Article source: http://www.nytimes.com/2011/05/19/world/asia/19india.html?partner=rss&emc=rss

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Greek Leader Irked by Speculation on Debt

May 7, 2011 by Leave a Comment

But even as Greece and the European Union denied the reports and sought to calm nervous markets, other European officials acknowledged that the country needed its loans adjusted after new figures showed a deep recession and higher-than-forecast fiscal debt.

Instead of a projected budget deficit of 9.4 percent of gross domestic product in 2010, the Greek deficit was 10.5 percent, despite some harsh austerity measures, in part because the economy shrank faster than expected.

The new wave of concern about Greece will reverberate, and will probably complicate coalition negotiations for a new government in Finland, and affect the Portuguese election next month.

The anxiety is another sign that the European Union’s efforts to save the euro by propping up countries that can no longer borrow freely from the market are hardly finished. Greece, Ireland and now Portugal have gone to the union for large loans to protect them from investors demanding high yields, to allow them to pay interest on their debts and to create time for them to restructure their economies. But skeptics believe that in the end, Greece and Ireland will have to restructure their debt — paying back less than face value.

Even after the austerity and adjustment program, Greece will face loans of more than 150 percent of gross domestic product, a debt mountain that many think is unsustainable, even with better tax collection and economic growth.

Mr. Papandreou, European finance ministers and others on Saturday denied any thought of restructuring Greece’s debt, let alone having Greece exit the euro, which would allow it to devalue. And quitting the euro is considered enormously complicated and even self-defeating by numerous economists, since Greek debt is denominated in euros.

“I call on everyone, inside and outside Greece, in the E.U. in particular, to leave Greece in peace to do its job,” Mr. Papandreou said on Saturday. “Greece is doing its job.”

Officials of the European Commission, the European Central Bank and the International Monetary Fund are in Greece assessing the state of the economy to report to finance ministers meeting in Brussels on May 16 and 17, said a spokesman for the economic affairs commissioner, Olli Rehn.

The spokesman, Amadeu Altafaj, denied that a meeting Friday evening of some key finance ministers in Luxembourg was any sort of “ ‘crisis meeting on Greece,’ as presented in some press reports,” in particular Spiegel Online. The meeting, he said, was “informal,” but Greece was clearly a major topic of discussion and Greece’s finance minister, George Papaconstantinou, was asked to attend. He repeated that “debt restructuring is not an option on the table,” given that “its effects could be extremely negative for the country and for the euro area as a whole.”

Afterward, Jean-Claude Juncker of Luxembourg, who leads the group of euro zone finance ministers, said the Greek program “does need a further adjustment” that would be discussed in mid-May.

What is likely is a kind of soft restructuring, in which Greece will be given more time to pay its loans. Major bondholders — which include French, German and Greek banks, as well as the European Central Bank — could agree to exchange their debt for securities with longer maturities and even a lower interest rate rather than face the possibility of getting back only a percentage of their loans. That would make it less likely that the countries involved have to go to their taxpayers and ask for more money to prop up national banks, which would be deeply unpopular, especially in Germany.

Greece was given a 110 billion euro bailout last year, whose terms were already eased by the European Union in the spring.

Article source: http://www.nytimes.com/2011/05/08/business/global/08greece.html?partner=rss&emc=rss

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Finance Ministers Discuss Next Step for Greece

May 7, 2011 by Leave a Comment

After the private gathering, the prime minister of Luxembourg, Jean-Claude Juncker, who heads the group of euro-area finance ministers, said that Greece’s financial assistance program “does need a further adjustment” and that it would be discussed at the group’s next meeting on May 16.

Mr. Juncker told reporters that E.U. officials are “excluding the restructuring option which is discussed heavily in certain quarters of the financial markets,” according to Bloomberg News.

France, Germany, Italy and Spain were represented at the meeting in Luxembourg, which also included the president of the European Central Bank, Jean-Claude Trichet, and Olli Rehn, the European commissioner for economic and monetary affairs, Mr. Juncker said.

A spokesman for the Greek finance ministry did not respond to questions about the nature of the talks.

But after an evening of intense speculation, Athens confirmed in a statement that its finance minister, George Papaconstantinou, attended the meeting and discussed the country’s economic predicament. “The minister was invited to exchange views” including economic developments in Greece, the statement said, denying an online report by Germany’s Spiegel that Greece might leave the euro zone. That report caused a sharp drop in the euro, which fell to $1.4337 in New York from $1.4530 late Thursday.

“It is clear that during this meeting it was never discussed or posed as an issue whether Greece would remain in the euro zone,” the statement said, according to Reuters.

That Mr. Papaconstantinou traveled to Luxembourg for these discussions suggests that Greece may finally be prepared to concede what analysts have been arguing for more than a year: that Greece’s debt, which is expected to exceed 150 percent of gross domestic product in the coming years, is unsustainable.

So far, Greek and European officials have said consistently that a debt restructuring that would cause bondholders to suffer a haircut, or a loss on their holdings, was out of the question. But that stance may not preclude a softer option in which bondholders might be persuaded to exchange their shorter maturity debt for securities with longer maturities and perhaps even a lower interest rate.

The majority of the bondholders are French, German and Greek banks, as well as the European Central Bank.

Referred to as a reprofiling, this softer approach was used successfully in Uruguay in 2003 and for weeks now has been a hot topic for discussion among policy makers in Europe as well as economists and analysts at investment banks.

A reprofiling would allow bondholders to avoid the stark losses they would face under a restructuring and would also give breathing space to Greece to generate enough cash to begin paying its debts.

Detractors say that such a solution, while appropriate for Uruguay, which suffered from a liquidity crisis, does not go far enough in the case of Greece, which is confronting a different problem, namely its huge debt burden.

Top policy makers at the E.C.B. are convinced that a Greek default would quickly undermine confidence elsewhere in the euro area and raise borrowing cost for other countries like Portugal and Ireland. It is also not clear what Greece would gain from such a move because its banks would fail and it would be years before the country could borrow internationally again.

Asked about default speculation at a news conference on Thursday, Mr. Trichet, the E.C.B. president, said, “It is not in the cards.”

The meeting in Luxembourg, made up of just a few ministers and senior officials, prompted some annoyance among the euro zone nations not invited.

Without the status of a formal meeting, the gathering could not make any decisions, but smaller euro zone nations are sensitive about suggestions that the bigger nations are effectively deciding policy.

Article source: http://feeds.nytimes.com/click.phdo?i=e440f684bb50f73754536c03ac759bae

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Economix: What Rankings Show About Cities

May 3, 2011 by Leave a Comment

Today's Economist

Edward L. Glaeser is an economics professor at Harvard and the author of “Triumph of the City.”

The human mind seems to crave the order that comes from rankings. Lists of top football teams, best colleges, greatest shortstops or sopranos of all time all have considerable appeal, even if there is no obvious value to the ranking.

Lists of cities have a comparable appeal, and so two recent reports have ranked global cities in some interesting ways.

A report by McKinsey’s Global Institute, “Urban World: Mapping the Economic Power of Cities,” provides us with predictions about the economic future of the world’s urban agglomeration.

A second report, “Cities of Opportunity,” a joint effort of PricewaterhouseCoopers and the Partnership for New York City, ranks 26 world cities on a large number of factors and names New York the global champion. (Disclosure: I will discuss the second report at a Partnership for New York City event; I am receiving neither compensation nor reimbursement for travel expenses.)

In some ideal world, we could probably all just revel in the diverse offerings that different cities offer to different people and businesses. New York is a fabulous place for many but may seem like hell on earth to others.

But because rankings have such power to excite passion and debate, they can generate interest in the problems and promise of urban areas far more readily than balanced discussions of the pros and cons of different places.

The McKinsey report focuses on such standard measures as population, per-capita gross domestic product and number of households with incomes above $20,000 and projects them 14 years in the future for 2025. The PricewaterhouseCoopers/Partnership for New York City report ranks cities on current values of far more complex qualities, such as “intellectual capital and innovation” and “lifestyle assets.”

Each report is engaging in its own right, and they are interesting to consider together as two different views on the competing, collaborating metropolitan areas that power the world’s economy.

McKinsey peers into the crystal ball by using a combination of country-level projects, which average International Monetary Fund, Global Insight and McKinsey’s own growth models, and city-specific information, such as the relative performance of the city relative to its nation in recent years.

The predictions for population and overall economic footprint seem fairly reasonable. The predictions for per-capita income seem to depend on hypercharged economic growth in South Korea and high levels of prosperity in Scandinavia.

New Yorkers may be pleased to know that the McKinsey Global Institute predicts that the New York metropolitan area will rank first worldwide in total G.D.P. in 2025, followed by Tokyo and Shanghai.

That vision is that the largest share of the 15 largest urban economies will be in the United States (six of them) and China (four) in 2025. The report anticipates that Western Europe will have only three of the largest economic agglomerations (London, Paris and the Rhein-Ruhr region) and the rest of the world only two (Tokyo and São Paulo).

These guesses are reasonable, but the United States/China dominance basically reflects our current wealth and China’s fast rate of growth. I wouldn’t be surprised to see a more varied mix of metropolitan regions, whether in Asia or Latin America, enter the top 15.

America’s large metropolitan economies reflect a combination of high incomes and high population, but our cities aren’t well represented on their top 10 lists of either per-capita income or population. We have only two areas (Bridgeport, Conn., which includes the wealthy towns of Darien and Westport; and San Jose, Calif.) in the top 10 richest metropolitan areas as of 2025, while South Korea and Norway each have three.

Bridgeport and San Jose are economic powerhouses today and are likely to remain so, but will urban prosperity really be so concentrated in Norway and South Korea?

By contrast, it is hard to debate their view that the most populous agglomerations will almost all be in the developing world. Only New York, of all the American or European areas, makes it in the top 10 of their most populous in 2025 list, and I suspect that’s overly optimistic.

Measured by bodies, if not by income, the urban world will be dominated by Asia and Latin America, and that’s why improving quality of life in those urban areas is so important.

While the McKinsey report is focused on the future values of basic measures, the PricewaterhouseCoopers/Partnership for New York City report focuses on the ingredients for urban success. It ranks 26 global cities in a wide range of individual subcategories — some of which reflect hard, quantitative measures, like Internet access in schools, and others of which reflect more qualitative aspects, such as “entrepreneurial environment.”

The strongest city in each category gets a 26 — the weakest receives a 1. They then add up the categories to form a total score in each major quality area and an overall ranking.

There is plenty here to debate. Why should we add up rankings rather than raw measures? Why do all these variables get the same weight? The report’s authors are appropriately cautious with their headline: “New York finishes first with a slim, perhaps ephemeral, lead (see page 12). But the real news lies elsewhere.”

Indeed, as the authors recognize, the real value of the report is to collect a wide variety of interesting rankings of a vast array of urban assets. Ideally, these rankings can be starting point for debate about the causes and consequences of differences across cities.

Of the 26 areas studied, Moscow ranks worst on “health, safety and security” and Stockholm is at the top. That seems reasonable, but how much will that benefit Stockholm or hurt Moscow?

Houston does best in terms of costs, which are adjusted for purchasing power — a proxy for economic productivity — and Mumbai does worst. Mumbai has, after all, some of the most draconian land-use controls in the world, and Houston is well known for its lack of limits to building.

The comparative advantage of America’s Sun Belt metropolises is that they provide affordable real estate on a massive scale.

I’m personally ill-suited to make such lists, in part because I tend to get swept away with the excitement of any city that I’m in or thinking about. To paraphrase the great Yip Harburg, when I’m not near the city I love, I love the city I’m near.

As a result, I’m grateful that these two reports have set down their own lists, which can help prod thinking about what makes cities successful worldwide.

Article source: http://feeds.nytimes.com/click.phdo?i=61330b3925bc8e3b093d0ebdc8a6f1e1

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Economix: After the Fall(s)

April 30, 2011 by Leave a Comment

The gross domestic product number for the first quarter was disappointing, and came in well below what economists had forecast when the year began. Analysts say that things will probably pick up later in the year, but then, we have heard that before.

Remember the White House’s initial projections about unemployment after the Recovery Act was passed? The prediction was that unemployment would never reach 8 percent. Instead, we haven’t seen unemployment below 8 percent in over two years. Then there was “Recovery Summer,” which actually saw growth slow substantially, followed by subsequent predictions of an imminent acceleration.

Hindsight is 20/20, of course, but in retrospect the projections for an easy, and possibly even “V-shaped,” recovery seem almost comically optimistic. Especially when you look at the history of financial crises and the “lost decades” they can sow.

In a paper presented at the January 2009 meetings of the American Economic Association, Carmen Reinhart and Kenneth Rogoff documented the ugly aftermath of previous financial crises. Looking at over a dozen financial crises in developed and developing countries going back to the Great Depression, for example, they found that the unemployment rate rose an average of 7 percentage points over 4.8 years.

DESCRIPTIONSource: Carmen M. Reinhart and Kenneth S. Rogoff, “The Aftermath of Financial Crises.” Notes from the paper: “Each banking crisis episode is identified by country and the beginning year of the crisis. Only major (systemic) banking crises episodes are included, subject to data limitations. The historical average reported does not include ongoing crises episodes.”

This line of research has been fleshed out in other collaborations, including their book “This Time Is Different: Eight Centuries of Financial Folly,” which Economix readers will recognize as a constant and invaluable reference for this blog.

More recently, Professor Reinhart and her husband Vincent (also an economist) have chronicled the “lost decades” that frequently follow financial crises — i.e., that the damage wrought by a financial crisis can last much longer than “only” a few years, which just a couple of years ago had seemed far too pessimistic. In the abstract they write:

While evidence of lost decades, as in the depression of the 1930s, 1980s Latin America and 1990s Japan are not ubiquitous, G.D.P. growth and housing prices are significantly lower and unemployment higher in the 10-year window following the crisis when compared to the decade that preceded it. Inflation is lower after 1929 and in the post-financial crisis decade episodes but notoriously higher after the oil shock. We present evidence that the decade of relative prosperity prior to the fall was importantly fueled by an expansion in credit and rising leverage that spans about 10 years; it is followed by a lengthy period of retrenchment that most often only begins after the crisis and lasts almost as long as the credit surge.

Hopefully things will pick up later in the year, as economists say. After all, many of the reasons for the slow growth last quarter were, in Ben S. Bernanke’s words, “transitory” (snowstorms, for example, are unlikely to persist through the summer months).

But given the record of other post-crisis recoveries, unfettered optimism — especially when other unknown obstacles, however “transitory,” could knock us off course once again — seems imprudent.

Article source: http://feeds.nytimes.com/click.phdo?i=482b7dc260f2362ddfbd804835232eae

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