October 18, 2017

Embracing Wynne Godley, an Economist Who Modeled the Crisis

If the economics profession takes on the challenge of reworking the mainstream models that famously failed to predict the crisis, it might well turn to one of the few economists who saw it coming, Wynne Godley of the Levy Economics Institute. Mr. Godley, unfortunately, died at 83 in 2010, perhaps too soon to bask in the credit many feel he deserves.

But his influence has begun to spread. Martin Wolf, the eminent columnist for The Financial Times, and Jan Hatzius, chief economist of global investment research at Goldman Sachs, borrow from his approach. Several groups of economists in North America and Europe — some supported by the Institute for New Economic Thinking established by the financier and philanthropist George Soros after the crisis — are building on his models.

In a 2011 study, Dirk J. Bezemer, of Groningen University in the Netherlands, found a dozen experts who warned publicly about a broad economic threat, explained how debt would drive it, and specified a time frame.

Most, like Nouriel Roubini of New York University, issued warnings in informal notes. But Mr. Godley “was the most scientific in the sense of having a formal model,” Dr. Bezemer said.

It was far from a first for Mr. Godley. In January 2000, the Council of Economic Advisers for President Bill Clinton hailed a still “youthful-looking and vigorous” expansion. That March, Mr. Godley and L. Randall Wray of the University of Missouri-Kansas City derided it, declaring, “Goldilocks is doomed.” Within days, the Nasdaq stock market peaked, heralding the end of the dot-com bubble.

Why does a model matter? It explicitly details an economist’s thinking, Dr. Bezemer says. Other economists can use it. They cannot so easily clone intuition.

Mr. Godley was relatively obscure in the United States. He was better known in his native Britain — The Times of London called him “the most insightful macroeconomic forecaster of his generation” — though often as a renegade.

Mainstream models assume that, as individuals maximize their self-interest, markets move the economy to equilibrium. Booms and busts come from outside forces, like erratic government spending or technological dynamism or stagnation. Banks are at best an afterthought.

The Godley models, by contrast, see banks as central, promoting growth but also posing threats. Households and firms take out loans to build homes or invest in production. But their expectations can go awry, they wind up with excessive debt, and they cut back. Markets themselves drive booms and busts.

Why did Mr. Godley, who had barely any formal economics training, insist on developing a model to inform his judgment? His extraordinary efforts to overcome a troubled childhood may be part of the explanation. Tiago Mata of Cambridge University called his life “a search for his true voice” in the face of “nagging fear that he might disappoint [his] responsibilities.”

Mr. Godley once described his early years as shackled by an “artificial self” that kept him from recognizing his own spontaneous reactions to people and events. His parents separated bitterly. His mother was often away on artistic adventures, and when at home, she spent long hours coddling what she called “my pain” in bed.

Raised by nannies and “a fierce maiden aunt who shook me violently when I cried,” Mr. Godley was sent at age 7 to a prep school he called a “chamber of horrors.”

Article source: http://www.nytimes.com/2013/09/11/business/economy/economists-embracing-ideas-of-wynne-godley-late-colleague-who-predicted-recession.html?partner=rss&emc=rss

Shortcuts: Novel-Length Contracts Online and What They Say

Of course, this is nothing unusual. Most of us do similar things almost every day, largely without thinking about it.

“We’re routinely giving up our right to sue,” said Margaret Radin, professor of law at the University of Michigan and author of “Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law.” “As a society we accept this as the price of doing business,” Professor Radin said.

Boilerplate contracts – which mean they contain standardized language, often in fine print – can apply in many different circumstances. But consumers typically come across some more than others, like the terms and agreements we click on when buying or using something online, and waivers, like the one I signed for the white-water rafting adventure.

First, about online contracts. If you’re beating yourself up for not reading them, don’t. Almost no one does. James Gibson, a professor of law at the University of Richmond, looked at contracts consumers needed to agree to — by clicking on them — to get software running for computers bought from four major sellers.

All the contracts, he said, “were an average of 74,000-plus words, which is basically the length of the first Harry Potter book.”

Florencia Marotta-Wurgler, a professor of law at New York University, has gone a step further and actually read contracts and privacy policies. Her findings: They don’t vary much from one another, even in competitive marketplaces, and, not surprisingly, they tend to benefit the seller.

She has also tracked how many consumers actually click on online contracts and spend more than one second there.

“It’s one in one thousand,” she said.

So online contracts are long and dense and basically no one reads or understands them. But, they serve a purpose, says Jessica R. Friedman, a lawyer who writes such contracts.

“The company is trying to limit its exposure” to lawsuits, she said. “There’s a tendency to think ‘big bad company and poor consumer,’ but there’s a lot of crazy people out there, and consumers who have unrealistic expectations. The contracts are a way to reach lots of people and protect yourself.”

Ms. Friedman admits that even she doesn’t read the terms of agreement for everything she buys online, even though she writes them. But, she said, if you’re spending a lot, you should.

Know the return policy. Know if there is a restocking fee. And understand that when you click on the little box that says you agree to these terms, it has some meaning.

“If I’m going to get a great deal on a ski jacket, but the terms say I need to return within 30 days and it’s July, so I’m not going to ski for six months, I need to know that,” she said.

And even though virtually everyone agrees that the idea of mutual consent with these types of contracts is a fiction, not all agree the system should be changed.

“I’m not someone who wags his finger and says you should read them,” said Douglas G. Baird, a professor of law at the University of Chicago. “If you read them, you don’t have a very interesting or productive life.”

But, he said, boilerplate contracts, in many cases, are just part of the many features that come when you buy a product. “They are a way a manufacturer has to connect the terms to the product,” he said, and absent a good alternative, our current system works pretty well.

“There are plenty of victims of boilerplates,” Professor Baird said, but wrongdoing is less likely to occur in the mass market than in specialized markets, such as those who take on payday loans or rent to own. That, he said, is where we should focus our concern.

Of course, many disagree with Professor Baird.

Article source: http://www.nytimes.com/2013/07/13/your-money/novel-length-contracts-online-and-what-they-say.html?partner=rss&emc=rss

Michael Hastings, 33, Winner of Polk Award, Dies

His death, in a car crash in Los Angeles at about 4:30 a.m., was confirmed by his wife, Elise Jordan. Mr. Hastings was believed to have been alone in the car, which struck a tree at high speed, according to the Los Angeles County Coroner’s office. He lived in New York City.

In 2010, Mr. Hastings won a George Polk Award, presented by Long Island University for reporting in the public interest.

The award honored his Rolling Stone magazine cover story, “The Runaway General,” published that June. In it, Mr. Hastings profiled Gen. Stanley A. McChrystal, then the top commander of United States forces in Afghanistan.

The article quoted the general and members of his staff making disparaging comments about members of the Obama administration, including Vice President Joseph R. Biden, with respect to their handling of the Afghan campaign. Within days of its publication, President Obama met with General McChrystal in the Oval Office before firing him, ending his 34-year military career.

An inquiry into the article by the Defense Department inspector general the next year found “insufficient” evidence of wrongdoing by the general, his military aides and civilian advisers.

The inspector general’s report also questioned the accuracy of some aspects of the article, which was repeatedly defended by Mr. Hastings and Rolling Stone.

Mr. Hastings was a contributing editor at Rolling Stone at his death and had also written for GQ and Newsweek magazines.

Michael Mahon Hastings was born on Jan. 28, 1980, in Malone, N.Y. After attending Connecticut College, he earned a bachelor’s degree in journalism from New York University.

As a young correspondent for Newsweek, Mr. Hastings covered the Iraq war. His fiancée, Andrea Parhamovich, followed him there, taking a job with a nongovernmental organization. She was killed in 2007 when her car was ambushed by Sunni insurgents.

Mr. Hastings’s memoir of the experience, “I Lost My Love in Baghdad: A Modern War Story,” was published in 2008.

Besides his wife, Mr. Hastings is survived by his parents, Brent and Molly Hastings; two brothers, Jeff and Jon; and his grandmother, Ruth Mahon.

His other books are “The Operators: The Wild and Terrifying Inside Story of America’s War in Afghanistan” published last year, and “Panic 2012: The Sublime and Terrifying Inside Story of Obama’s Final Campaign,” published in January.

Daniel E. Slotnik contributed reporting.

This article has been revised to reflect the following correction:

Correction: June 19, 2013

An earlier version of this obituary, using information from the family, misstated the name of Mr. Hastings’s surviving grandmother. She is Ruth Mahon, not Ruth Mahon Hastings.

Article source: http://www.nytimes.com/2013/06/20/business/media/michael-hastings-award-winning-journalist-dies-at-33.html?partner=rss&emc=rss

Journalist Held in Beijing, Friends Say

Two copies of an unsigned police warrant dated June 1 found recently by friends in the apartment of the journalist, Du Bin, said that it had been issued for “disturbing order at a public place.” That falls under an administrative statute the police can use to hold people for up to 15 days for minor offenses, said Jerome A. Cohen, a scholar of Chinese law at New York University.

The police could release the detainee during that period, move that person to China’s “re-education through labor” system, or seek a formal criminal charge, Mr. Cohen said.

One friend of Mr. Du said he had heard that the police were investigating the journalist, who is 41, for illegal business activity related to his books, many of which are on politically delicate subjects. It is a charge that officials have used before against Chinese journalists writing books on such subjects even when, as with Mr. Du, the books have been published outside mainland China.

His most recent book, “Tiananmen Massacre,” is mostly a compilation of previously published accounts from various sources of the government crackdown of June 4, 1989. It was released in late May by Mirror Books, which has offices in New York and Hong Kong.

Friends of Mr. Du, a self-taught photographer, also said they believed the authorities had been angered by his work on the hourlong documentary film he recently completed on the Masanjia labor camp and what inmates described as abuses there. Many of the Masanjia camp’s prisoners are petitioners seeking redress from the state for perceived wrongs.

Mr. Du had also shown the film at least once in Hong Kong, and a version was posted online on May 1. Mr. Du was escorted from his apartment on May 31 by more than 10 police officers, two of them in uniforms and the rest in plain clothes, according to two friends who had spoken with the landlord’s family. Relatives of Mr. Du said the police had not notified them of his whereabouts or why he is being held.

Mr. Du’s photography work, some of which has appeared in The Times, has covered a wide range of subjects, from petitioners to the Three Gorges Dam to the village of Liangjiahe, where President Xi Jinping lived for seven years during the Cultural Revolution. Among the subjects of his books are Mao Zedong’s reign, the Japanese invasion of China and the rebel artist Ai Weiwei.

Jonathan Ansfield contributed reporting from Beijing, and Chris Buckley from Hong Kong.

Article source: http://www.nytimes.com/2013/06/13/world/asia/chinese-journalist-beijing.html?partner=rss&emc=rss

You’re the Boss Blog: What It Takes to Create a Start-Up Community

Richard Florida: Martin Prosperity Institute courtesy of Atlantic Cities. Richard Florida: “In the past several years we’ve seen an incredible, accelerating shift in start-up activity back to urban centers.”

Start

The adventure of new ventures.

Entrepreneurs exist everywhere, but start-up communities don’t. Some rise up organically and others are created deliberately — or at least people try to create them deliberately. Many hope to create the next Silicon Valley.

Brad Feld, who is known for helping to turn Boulder, Colo., into a robust start-up hub, which he wrote about in his book, “Startup Communities,” said entrepreneurs lead a community’s creation and everyone else feeds it. Those feeders include government, universities, mentors, investors, service providers and large companies. Start-up communities also need a steady supply of talent — engineers, yes, but designers, scientists, sales and marketing experts, management consultants and investors, too. Another essential is density — lots of people sharing ideas and collaborating — and lots of places for entrepreneurs to network and share ideas.

One recent example of a burgeoning community is a segment of Los Angeles that is becoming known as Silicon Beach. With a steady supply of engineering, business and creative talent from Hollywood studios and major universities like U.C.L.A. and U.S.C., plus lots of meet-ups, co-working spaces and start-up events, Silicon Beach — which includes the beach communities of Santa Monica and Venice, as well as downtown L.A. and Hollywood — has become a haven for start-ups that blend technology and media, especially gaming companies.

Richard Florida, co-founder of the Atlantic Cities blog, and an urban studies professor at the University of Toronto and New York University, said Silicon Beach is part of an interesting evolution happening in entrepreneurial activity — it’s moving from the suburbs to the cities. “During the Industrial Age, a lot of activity moved to the edge of cities and to the suburbs,” he said. “And we believed then cities had been supplanted. High tech was happening in suburban areas of Silicon Valley, and outside of Boston, Seattle, in the Austin suburbs, in Research Triangle. But in the past several years we’ve seen an incredible, accelerating shift in start-up activity back to urban centers.”

Population density, he said, allows for the serendipitous encounters that inspire creativity, innovation and collaboration. “Entrepreneurs are competitive,” Mr. Florida said. “But they are also looking for people to partner with, people they resonate with.” Boulder is an unusual example of density. The city has only about 100,000 people, but Mr. Feld has hypothesized it may have more entrepreneurs per capita than any other community in the country. “The number of people working for start-ups is off the charts,” he wrote in a 2011 blog post.

According to Mr. Feld’s site, Startup Revolution, Boulder has 191 start-ups today, six accelerators, three incubators, 35 investors (including angels, seed investors, venture capitalists and corporations), five meet-up groups and a host of events like Ignite Boulder, Startup Weekend and TEDx Boulder. The area has attracted lots of engineers as well as sales, marketing, management and finance professionals.

Mr. Feld told DealBook in December that the city’s start-up community has grown because Boulder is a place where people wanted to live, so they built a life around it. But can you create a start-up community in a place like Detroit or even Las Vegas? Both cities lack density, but they do have evangelists — someone with a vision.

Detroit has Dan Gilbert, founder of Quicken Loans. In Detroit today, the median house price is less than $60,000, household income is around $25,000 and the number of people living in poverty is more than three times the national average. Talent is leaving in greater numbers than it’s arriving — which runs completely counter to what a start-up community needs. But as you can read in this recent Times story, Mr. Gilbert has already spent $1 billion to try to change all of that.

Meanwhile, Tony Hsieh, the founder of Zappos, is investing $350 million to revitalize Las Vegas, with $50 million going to tech start-ups through the VegasTech Fund. (The Times Magazine wrote about Mr. Hsieh’s efforts in 2012.) Drawing start-ups to economically challenged cities like Detroit and Las Vegas is hard enough but once there, those start-ups still face the usual challenges — finding investors, hiring talent and connecting with their communities.

Those connections are essential, said Scott Case, chief executive of Startup America Partnership, a private-sector initiative that aims to encourage the development of high-growth start-ups. Mr. Case said that is one thing his organization is focused on, recruiting and making its members visible. And that’s why the presence of accelerators and incubators, as well as events like meet-ups and pitch fests, are vital for a community’s growth.

Over the next several months this blog will take a closer look at a variety of start-up communities nationwide — those that are established and that that are emerging, or perhaps even struggling — in an effort to learn more about  what makes these places work.

Do you think it’s possible to create start-up communities deliberately? Or do they have to happen organically? And which communities would you suggest we look at?

You can follow Eilene Zimmerman on Twitter.

Article source: http://boss.blogs.nytimes.com/2013/04/26/what-it-takes-to-create-a-start-up-community/?partner=rss&emc=rss

The Boss: Hearing Health Foundation’s Chief, on Never Turning Away

Having a family member with a disability was not easy. I saw how hard it was to navigate in a wheelchair, and that people were often condescending. They’d address my father when they had a question for my mother. She’d tell them, “You can speak to me.”

I also see that happening today to those with hearing loss. People sometimes think that someone who can’t hear has trouble processing information, so they address someone else instead.

I majored in religion at Temple University. In my junior year, I studied in Rome. It was one of the best experiences of my life. I remember how my classmates and I would go to an all-night bakery for chocolate croissants that had just come out of the oven.

After graduating in 2000, I worked at a synagogue for a year as the executive assistant to the clergy, then moved to New York University as special events manager and coordinator for the dean of the College of Arts and Science. While at N.Y.U., I enrolled for a master’s in education. I learned from the dean that the way to be a fund-raiser was to find out what was meaningful to people invested in our community and to get them more involved. Asking for money goes only so far.

In 2006, I went to work for Bear Stearns as a fixed-income corporate marketing and events manager for a year. I wanted to work for a nonprofit group, and in 2007 I was offered the position of chief operating officer at the Hearing Health Foundation. I was promoted to executive director in 2010.

Until September 2011, we were known as the Deafness Research Foundation. But we wanted our name to cover the full range of hearing loss, as opposed to how people thought of deafness years ago. Most of our constituents would probably say that they have hearing loss or hearing impairment but would not say that they’re deaf.

We fund hearing research. Our emerging research grants program pays for research at a junior level. We hope that two years after receiving our help and collecting their data, researchers will receive funding from the National Institute on Deafness and Other Communication Disorders. We also hope to encourage scientists to enter the field of hearing research.

My grandmother had terrible difficulty hearing but refused to get a hearing aid. When talking to her, everyone in the family yelled, trying to be heard. I remember holiday dinners when she’d deliberately look down and stare at her hands.

Once I tried to start a conversation with her, but she said, “Honey, it’s just too hard for me to hear with all this going on.” I realized that she avoided making eye contact so that no one would try to engage her in conversation. It broke my heart. I hear such examples again and again when I talk to people with hearing loss.

In the 1960s, we funded some of the initial studies on cochlear implants, and last year we started the Hearing Restoration Project, in which researchers are working on a cure for hearing loss. We’ve learned that chickens can recover their ability to hear and that mice can recover partial hearing. We believe that scientists can achieve the same results for people.

As told to Patricia R. Olsen.

Article source: http://www.nytimes.com/2013/03/17/jobs/hearing-health-foundations-chief-on-never-turning-away.html?partner=rss&emc=rss

Common Sense: At Google, a Place to Work and Play

Yahoo employees should be so lucky.

Whatever else might be said about Yahoo’s workplace, it’s a long way from Google’s, as I discovered this week when I dropped in at Google’s East Coast headquarters, a vast former Port Authority shipping complex that occupies a full city block in the Chelsea neighborhood of Manhattan. Yahoo set off a nationwide debate about workplace flexibility, productivity and creativity last month after a memo with the directive surfaced on the Internet. “We need to be one Yahoo, and that starts with physically being together,” read the memo from Jackie Reses, Yahoo’s director of human resources, which went viral after Kara Swisher posted it on AllThingsD.

The discussion may have been all the more heated since the ban was imposed by one of the relatively few female chief executives, one who had a nursery built near the executive suite after she gave birth last year.

Google’s various offices and campuses around the globe reflect the company’s overarching philosophy, which is nothing less than “to create the happiest, most productive workplace in the world,” according to a Google spokesman, Jordan Newman. But do its unorthodox workplaces and lavish perks yield the kind of creativity it prides itself on, and Yahoo obviously hopes to foster?

Mr. Newman, 27, who joined Google straight from Yale, and Brian Welle, a “people analytics” manager who has a Ph.D. in industrial and organizational psychology from New York University, led me on a brisk and, at times, dizzying excursion through a labyrinth of play areas; cafes, coffee bars and open kitchens; sunny outdoor terraces with chaises; gourmet cafeterias that serve free breakfast, lunch and dinner; Broadway-theme conference rooms with velvet drapes; and conversation areas designed to look like vintage subway cars.

The library looks as if Miss Scarlet (from the board game Clue) just stepped out, leaving her incriminating noose (in the form of a necktie) prominently draped on the back of an oversize wing chair. A bookcase swings open to reveal a secret room and even more private reading area. Next to the recently expanded Lego play station, employees can scurry up a ladder that connects the fourth and fifth floors, where a fiendishly challenging scavenger hunt was in progress. Dogs strolled the corridors alongside their masters, and a cocker spaniel was napping, leashed to a pet rail, outside one of the dining areas.

Google lets many of its hundreds of software engineers, the core of its intellectual capital, design their own desks or work stations out of what resemble oversize Tinker Toys. Some have standing desks, a few even have attached treadmills so they can walk while working. Employees express themselves by scribbling on walls. The result looks a little chaotic, like some kind of high-tech refugee camp, but Google says that’s how the engineers like it.

“We’re trying to push the boundaries of the workplace,” Mr. Newman said, in what seemed an understatement.

In keeping with a company built on information, this seeming spontaneity is anything but. Everything has been researched and is backed by data. In one of the open kitchen areas, Dr. Welle pointed to an array of free food, snacks, candy and beverages. “The healthy choices are front-loaded,” he said. “We’re not trying to be mom and dad. Coercion doesn’t work. The choices are there. But we care about our employees’ health, and our research shows that if people cognitively engage with food, they make better choices.”

So the candy (MMs, plain and peanut; Tcho brand luxury chocolate bars, chewing gum, Life Savers) is in opaque ceramic jars that sport prominent nutritional labels. Healthier snacks (almonds, peanuts, dried kiwi and dried banana chips) are in transparent glass jars. In coolers, sodas are concealed behind translucent glass. A variety of waters and juices are immediately visible. “Our research shows that people consume 40 percent more water if that’s the first thing they see,” Dr. Welle said. (Note to Mayor Bloomberg: Perhaps New York City should hide supersize sodas rather than ban them.)

Craig Nevill-Manning, a New Zealand native and Google’s engineering director in Manhattan, was the impetus behind the company’s decision to hire a cadre of engineers in New York, and he led an exodus to Chelsea from what was a small outpost near Times Square. “I lobbied for this building,” he told me. “I love the neighborhood. You can live across the street. There are bars and restaurants.”

Article source: http://www.nytimes.com/2013/03/16/business/at-google-a-place-to-work-and-play.html?partner=rss&emc=rss

Political Economy: Finest Hour for Mario Draghi and Europe

Who is Europe’s most powerful man? If one phrased the question differently — who is Europe’s most powerful person? — the answer might well be Angela Merkel. But the deliberate use of the masculine excludes the German chancellor, leaving the field open to Mario Draghi.

This answer can, of course, be disputed. How can one compare power in economics with power in, say, religion? Is it possible to rank the technocratic European Central Bank boss on the same scale, for example, as the pope?

The best place to start is with an attempt to understand what power is. The British philosopher Bertrand Russell said it was the production of intended effects. By contrast, Steven Lukes, one of the top contemporary power theorists, said in an interview last week that power was the capacity to make a difference in a manner that is significant.

What’s appealing about the way that Mr. Lukes, a professor of sociology at New York University, puts things is his use of the word “significant.” Whereas Mr. Russell just looks at whether people can get their way, the introduction of significance allows us, as observers, to take a view about whether powerful people are affecting things in a manner that matters to us.

That, in turn, allows us to rank individuals’ power. We can decide that right now in Europe, what matters most is navigating the current euro crisis and pick our ranking with that in mind. That, indeed, is my view — which, of course, is somewhat subjective.

Let us return to Mr. Draghi, whom I have known since the mid-1990s. To see why he is so powerful, it is worth considering the three P’s of power: position, personality and pivot points. Having a position that enjoys authority; possessing a personality that is astute enough to maximize the use of that authority; and operating at a point in history where one’s actions have the chance to be pivotal — all these are important ingredients in the power mix. Mr. Draghi scores highly on all three.

Look, first, at position. The E.C.B. has the sole authority to print money for the 17 member countries of the euro monetary union. Mr. Draghi has used this power to huge effect since he took over as president in November 2011. First, the E.C.B. lent banks €1 trillion, or about $1.3 trillion, helping to avert a banking crisis.

Then, in July, during a particularly hot phase of the crisis, Mr. Draghi uttered his famous phrase about doing within the E.C.B.’s mandate “whatever it takes to preserve the euro,” adding, “and believe me, it will be enough.” The E.C.B. later spelled out its willingness to spend potentially unlimited sums of money buying sovereign bonds. The markets calmed down.

The E.C.B.’s power does not just come from its money-printing authority, but also from its independence — which is enshrined in the Maastricht Treaty that established the European Union. Although its president is appointed by politicians, he gets an eight-year term. Once he is in place, he can only be removed in the event of incapacity or serious misconduct. Unlike prime ministers and presidents, he does not have to face the electorate. Mr. Draghi is in an especially strong position because his term has seven more years to run; he is not remotely a lame duck.

The Italian central banker, though, has not just relied on this strong position. His personality is particularly well suited to wielding power. For many years, he survived and thrived while playing Rome’s power games. This is partly because, like a chess grandmaster, he always thinks several moves ahead. That gives him a good understanding of the dynamics of a situation.

Mr. Draghi also gives huge importance to credibility. Through his orthodox central banking rhetoric, he convinced the German people that he was really not from Southern Europe at all. If he had been considered to be more Italian, he would not have gotten the E.C.B. job in the first place. Bild, the influential German tabloid, even celebrated his nomination as E.C.B. president by running a doctored photo of him wearing a Prussian spiked helmet.

Bild did turn on Mr. Draghi after his promise to buy potentially unlimited quantities of sovereign bonds. But, critically, Ms. Merkel — whose approval was not required but whose tacit support gave him valuable cover — did not.

Mr. Draghi’s credibility with the markets has also magnified his influence. So much so that he has not yet even needed to buy a single sovereign bond.

Position and personality, though, are not the only ingredients of Mr. Draghi’s power. He has taken the role of E.C.B. boss at a pivotal moment, when the power to print money is crucial. In a financial crisis, the ability to supply liquidity is of paramount importance.

Mr. Draghi has understood the importance of pivotal points in history and used his position and personality to have a big impact. As such, he scores AAA on the three P’s of power — in a way that puts him ahead of, say, Mario Monti of Italy or François Hollande of France, neither of whom would get straight A’s.

The E.C.B. boss should not let the plaudits go to his head, however. Much of the euro zone is in deep recession. If growth does not return, the crisis could enter a new ugly phase, and his powers will be sorely tested.

Hugo Dixon is the founder and editor of Reuters Breakingviews.

Article source: http://www.nytimes.com/2012/12/17/business/global/17iht-dixon17.html?partner=rss&emc=rss

Nobel Winners in Economics: The Reluctant Celebrities

It was early on the morning of Oct. 10, the sun not yet up. A crank call, he figured, and rolled over.

Then the phone rang again. His wife, Cathie, fumbled for the receiver.

“If it’s a prank,” she whispered, “they’re doing a pretty good Swedish accent.”

At the same hour, near the campus of New York University in Manhattan, Thomas J. Sargent was already wide awake. He, too, had received an unexpected call.

Stockholm was on the line. The two men, intellectual sparring mates for more than 40 years, had won the Nobel in economic science. (They are to collect it on Saturday.)

And yet, in this time of economic angst, with the fate of the euro and the course of the global economy uncertain, these two Americans have reached the pinnacle of a profession that, to many, seems to have failed miserably. The financial crisis of 2008-09, the Great Recession, the debt mess in Europe — few economists saw all of it coming. For all its elegance, modern macroeconomics seemed to provide little help when the world needed it most.

Today, solutions to our economic troubles, from onerous government debt to high unemployment, remain elusive. And the field of economics, like Washington politics, seems as polarized as ever.

During the Great Depression, John Maynard Keynes held out remedies. His ideas have shaped many policy makers’ thinking ever since. Keynes maintained that market economies are inherently unstable and, if left to their own devices, can self-destruct. Hence governments, he argued, must sometimes intervene.

Mr. Sims and Mr. Sargent neither prescribe cures nor forecast the future. Nor do they deal in the sound bites of talking heads on cable TV. They are reluctant celebrities, men whose work can baffle even Ph.D.’s.

So it comes as a surprise, not least to Mr. Sims and Mr. Sargent, that these two now find themselves thrust into an uncomfortable spotlight. Conservative voices, like the editorial page of The Wall Street Journal, have claimed them as their own. The men’s work on economic cause and effect and the theory of rational expectations — which maintains that people use all the information available in making economic decisions — proves that Keynes had it wrong, these commentators say.

It would be a provocative thesis — if it were true. But Mr. Sims and Mr. Sargent say their work is being misread. Both, in fact, are longtime Democrats who maintain that government can, and should, play a role in economic affairs. They stand behind many recent policies of the Obama administration and the Federal Reserve. They even have some ideas about how European governments might defuse the running crisis on the Continent.

They won their Nobel for “their empirical research on cause and effect in the macroeconomy,” in the academy’s words. What that means, in part, is that they have done some serious math. Today, ideas they largely formed in the 1970s and ’80s help shape the thinking inside the Fed and on Wall Street.

Their work goes beyond old labels like Keynesianism and the monetarism of Milton Friedman. They have shown that fiscal and monetary policy are inextricably linked, and their research reflects the broad shift in economics from words to numbers — toward a level of empirical analysis that few outside the profession can readily grasp. But it contains a kernel of skepticism appropriate for these troubled times. In a world of uncertainty and constraint, cause and effect may not be what they seem. As a result, we must test and retest our assumptions — and try to prepare for the unexpected.

“The most impressive thing about them as scholars,” says David Easley, an economist at Cornell University, “is that in recent years they have questioned the assumptions of the models they helped to create, and they have been at the vanguard of the efforts to go beyond them.”

Mr. Sargent says his most important work is spoken “in the beautiful language of math.” He knows it’s not widely understood.

“The kind of work we do, that real economists do, will never catch on with the public,” he says.

THOMAS SARGENT, in a draft of his Nobel acceptance speech, refers to himself as an “American provincial.” On a recent afternoon, over a bowl of noodles at an Asian restaurant near N.Y.U. in Greenwich Village, he used football metaphors to discuss economics. He compared fiscal policymakers to coaches, with X’s and O’s. He often wears T-shirts, sweatshirts and baseball caps, gear as appropriate in Montana, where he keeps a cabin, as it is in Washington Square.

Born in 1943, the son of an insurance salesman and a social worker, Mr. Sargent grew up in Monrovia, Calif., east of Pasadena. He says he didn’t cut an impressive figure in high school. “I wasn’t the brightest kid, not by a long shot,” he says. “I was interested in football, in girls, in getting my work done with the least amount of effort.”

Economics? Please. “I think you’ve got to watch out for anybody in high school who says he wants to become an economist,” he says.

And yet, from an early age, Tom Sargent was acquainted with real-world economics. Both of his grandfathers were pretty much wiped out in the Depression, he says.

Article source: http://feeds.nytimes.com/click.phdo?i=0f35a807de59425d79dd3b6c1553005d

Deal-Making Pushes Wall Street Higher

Stocks rose on Monday after Wendy’s/Arby’s Group said it would sell control of its Arby’s business to a private equity firm. VF Corporation, whose brands include Wrangler and The North Face, also said it would buy boot maker Timberland for more than $2.2 billion.

The deals gave investors some much-needed confidence. In early trading, the Dow Jones industrial average is up 43 points, or 0.4 percent, at 11,996 points. The Standard Poor’s 500 is up 4 points, or 0.3 percent, at 1,275. The Nasdaq is up 8, or 0.3 percent, at 2,652.

Markets were also higher in Europe. In Europe, the FTSE 100 index of leading British shares was up 0.4 percent at 5,786.16 points, while France’s CAC 40 rose 0.4 percent to 3,821.86. Germany’s DAX was 0.5 percent higher, at 7,101.84 points. Trading activity in Europe was low as many countries, including Germany and France, were on national holiday for the Monday after Pentecost, though stock markets remained open for business.

The deal-making comes after weak economic news has sent stocks lower for six straight weeks. On Friday, the Dow fell below 12,000 for the first time since March.

Concerns over the American economic recovery and expectations that China will raise interest rates again have weighed on stock markets, while the euro was steady at the start of a potentially crucial week in the Greek debt crisis.

Over the last month the economic news, particularly out of the United States, has turned distinctly negative. Investors are now worried that the rise in share prices in the early part of the year may have been overdone.

Nouriel Roubini, the New York University economics professor notorious for predicting the 2008 financial crisis, cautioned against risky investments.

“In the last month, things have changed, the evidence is that maybe this is not just a soft patch but something worse,” he said in a speech in Singapore. “If your horizon is the next two or three months, I would be a bit defensive on equities. …This is time to be cautious, and safe rather than sorry.”

Given the public holidays in many parts of Europe and a light economic calendar in the United States, analysts were skeptical that stocks would gain any momentum over the day.

Tuesday may have more to offer, with the release of Chinese inflation data that is expected to stoke concerns that the central bank will tighten monetary policy again soon. Retail sales figures in the United States for May will also provide an insight into the state of the economic recovery; consumer spending accounts for around 70 percent of the nation’s economy.

“All stock markets remain under pressure going into this week, and in the short-term at least, it is difficult to see the catalyst that is going to spark off a sustainable rally,” said David Jones, chief market strategist at IG Index.

In the currency markets, investors continue to monitor any developments surrounding the Greek debt crisis ahead of next week’s meeting of euro zone finance ministers in Brussels, where a fresh Greek bailout is on the agenda.

On Friday, the euro sank amid signs that policy makers in Europe have divergent views on how to deal with the Greek crisis, with the European Central Bank and the German government at odds on getting Greece’s bondholders to share some of the pain in helping the country.

Germany’s finance minister, Wolfgang Schäuble, has proposed that bondholders contribute a “substantial” portion of a fresh bailout package for Greece by giving the country an extra seven years to repay existing bonds. But the European Central Bank president, Jean-Claude Trichet, has said nothing should be done that would be deemed “a credit event” by the ratings agencies and that any private sector involvement has to be done on a voluntary basis.

“A failure to achieve a workable agreement by the end of the eurogroup meeting next Monday threatens the real risk of what Schäuble described last week as the first unorderly default within the euro zone,” said Simon Derrick, senior currency strategist at the Bank of New York Mellon.

By early afternoon London time, the euro was up 0.4 percent at $1.4379. That’s 3 cents lower than the one-month highs it reached only last Thursday.

Earlier in Asian trading, Japan’s Nikkei 225 dropped 0.7 percent to close at 9,448.21 after the government reported that core machinery orders fell unexpectedly by 3.3 percent during April. The drop came as companies canceled orders following a devastating March 11 earthquake and tsunami in northeastern Japan that destroyed or damaged scores of factories.

The decline was the first in four months, evidence that the twin disasters continue to take their toll on Japan’s economy.

South Korea’s Kospi closed 0.1 percent higher at 2,048.74 while Hong Kong’s Hang Seng Index finished 0.4 percent higher at 22,508.08.

But mainland Chinese shares edged lower as market players reacted to data showing a dip in bank lending and awaited the inflation figures that could show the consumer price index surging to more than 6 percent.

The Shanghai Composite Index fell 0.2 percent to 2,700.38 after dipping more than 1 percent earlier in the day. The Shenzhen Composite Index fell 0.2 percent to 1,110.89.

In the oil markets, crude continued to fall on concerns over the global economic recovery and speculation that Saudi Arabia would decide to raise production levels despite last week’s surprise decision by the OPEC oil cartel to maintain current levels.

Benchmark oil for July delivery was down 87 cents at $98.43 a barrel in electronic trading on the New York Mercantile Exchange.

Article source: http://www.nytimes.com/2011/06/14/business/14markets.html?partner=rss&emc=rss