by Simon Johnson, Peterson Institute for International Economics and Peter Boone, Effective Intervention

Op-ed in the Wall Street Journal

February 13, 2010

Plutus, the Greek god of wealth, did not have an easy life. As the myth goes, Plutus wanted to grant riches only to the "the just, the wise, the men of ordered life." Zeus blinded him out of jealousy of mankind (and envy of the good), leaving Plutus to indiscriminately distribute his favors.

Modern-day Greece may be just and wise, but it certainly has not had an ordered life. As a result, the great opportunity and wealth bestowed by European integration has been largely squandered. And lower interest rates over the past decade—brought down to German levels through Greece being allowed, rather generously, into the eurozone—led to little more than further deficits and a dangerous buildup of government debt.

President Obama has smartly suggested that a new export strategy could support 2 million very good American jobs, more than created by his stimulus initiative. The United States already sells about $1.5 trillion worth of goods and services annually to the rest of the world, which creates about 10 million high-paying jobs. Every $1 billion of additional exports will produce about 7,000 very good jobs. Robust export expansion would also reduce our large trade deficits and resultant need to borrow abroad to finance them.

Howard F. Rosen argues that exports are a key to US economic recovery but that export-led growth will require public and private investment.

Steve Weisman: Improving exports is key to the future of the United States’ economic recovery. This is Steve Weisman at the Peterson Institute for International Economics with Howard Rosen, resident visiting fellow at the Institute, to talk about how and why the United States can improve that performance. Howard, thanks for joining us.

Simon Johnson argues that President Obama’s proposed bank tax is a step forward but the financial system is still distorted by flawed incentives. 

Steve Weisman: What does the United States do about banks and financial institutions that are believed too big to fail? This is Steve Weisman at the Peterson Institute for International Economics with Simon Johnson, senior fellow at the Institute, professor at MIT, and blogger extraordinaire on this subject. Welcome, Simon. Simon, this week the Financial Crisis Inquiry Commission heard from a lot of the marquee names in banking on that very issue. You’ve been addressing this yourself for many months. Have we moved the ball with their testimony and with some new proposals for bank taxes and the discussion in Congress about compensation?

Simon Johnson: Yes, the ball has moved; the ball is moving, I think, in the right direction. There is now recognition, really, for the first time this week I would say, Steve, from the top level, from the president himself, that we have a problem with reckless risk taking in our financial system, particularly by the biggest banks. So the tax, which I’m not a huge fan of for various reasons, but it’s skewed toward the biggest firms, which is sensible, and it’s skewed toward the firms that take the most risk—the investment banks, if you like, rather than the boring old state commercial banks, which is also a sensible principle. So, now we’ve started to move, the question is how far can we go and how quickly.

Steve Weisman: One interesting thing to me about the testimony was that all of the leading banking executives who testified agreed that there should not be financial institutions that are too big to fail. But did they offer any particularly interesting approaches to how to deal with that?

Read More

Opinions and comments on RGE EconoMonitors do not necessarily reflect the views of Roubini Global Economics, LLC, which encourages a free-ranging debate among its own analysts and our EconoMonitor community. RGE takes no responsibility for verifying the accuracy of any opinions expressed by outside contributors. We encourage cross-linking but must insist that no forwarding, reprinting, republication or any other redistribution of RGE content is permissible without expressed consent of RGE.       

Uniquely BRICs (Brazil, Russia, India, and China) has become a political grouping after having been invented by Jim O'Neill at Goldman Sachs. In June 2009, Russia organized the first BRIC summit, but will it hold?

The emerging economies will soon account for most of the world economy. We are at a crossroads of world history, as Oswald Spengler caught in his pessimistic 1918 book Der Untergang des Abendlandes or Paul Kennedy in his 1988 book The Rise and Fall of the Great Powers.

Jeffrey J. Schott says carefully targeted sanctions could impede Iran’s nuclear program and energy infrastructure, but they are unlikely to change Iranian leaders’ political agenda.

Steve Weisman: A deadline for Iran to comply with a request to suspend its uranium enrichment has come and gone as of January 2010. This is Steve Weisman at the Peterson Institute for International Economics, with Jeffrey Schott, senior fellow at the Institute, to discuss what comes next on sanctions against Iran. Thanks for joining us, Jeff.

Jeffrey Schott: Thank you, Steve.

Steve Weisman: Iran’s failure to comply with the demands of the United States, Europe, and a host of other countries has raised the possibility of tighter sanctions against Iran by the United States— possibly by the United Nations Security Council. Jeff, you’ve studied this issue for many years. What’s in the offing?

Jeffrey Schott: Well, the politicians will insist on doing something, and the response will be to ratchet up the sanctions that have been in place for more than 25 years. The difficulty will be to develop a sanctions regime that actually has some impact on Iranian policy. And so far, that has been a very difficult thing to do.

Steve Weisman: Have the sanctions had an economic effect and placed pressure on Iran in the last 25 years? 

Read More

Opinions and comments on RGE EconoMonitors do not necessarily reflect the views of Roubini Global Economics, LLC, which encourages a free-ranging debate among its own analysts and our EconoMonitor community. RGE takes no responsibility for verifying the accuracy of any opinions expressed by outside contributors. We encourage cross-linking but must insist that no forwarding, reprinting, republication or any other redistribution of RGE content is permissible without expressed consent of RGE.      

Nicholas R. Lardy says relations with China are deteriorating over climate change, Iran, and the possible return of global current account imbalances.

Steve Weisman: It’s early 2010 and China is increasingly the focus of news on several fronts including climate change, the possibility of sanctions in Iran, and the future of the global economy. This is Steve Weisman at the Peterson Institute for International Economics with Nicholas Lardy, senior fellow at the Institute, to sort through some of these developments. Thanks for joining us, Nick.

Nicholas Lardy: Thank you, Steve.

Steve Weisman: China is not only in the news but it seems to be increasingly the focus of criticism in Europe and the United States for its policies in these areas. Let’s start with climate change. After Copenhagen, criticism in Europe has been especially fierce that China allegedly prevented an agreement, or something like an agreement, from taking place there. What’s your sense of the justice or injustice of that criticism?

Nicholas Lardy: I think it’s easy to criticize China’s policy but I think the reality is that it was known months and months in advance that China had certain goals that were not compatible with reaching a binding agreement. And I think those who were most closely involved in negotiating in a run-up to Copenhagen with the Chinese recognized the unwillingness of the Chinese to move forward on a number of really critical issues.

Steve Weisman: Is there any hope that in coming months they can achieve a consensus, if not in terms of a treaty or binding set of obligations?

Read More

In his speech at the American Economic Association on Sunday, Ben Bernanke, chairman of the Fed, said that monetary policy played at most a small role in the US housing bubble and that financial regulatory policy is the appropriate tool for preventing harmful asset price bubbles in the future.  I agree with these conclusions, but I suspect that many do not, even within the world of central banking.

Michael Mussa says the latest improved employment figures are consistent with his forecast of 5 percent growth next year, but it is still too early to say the recovery will accelerate to that pace.

Steve Weisman: This is Steve Weisman at the Peterson Institute for International Economics with Michael Mussa, senior fellow at the Institute, to discuss the latest information about jobs and the economic recovery. Thanks Mike.

Michael Mussa: My pleasure.

Steve Weisman: In early December, a lot of people expressed surprise that the unemployment rate dropped from 10.2 percent to 10 percent. Were you surprised?

Michael Mussa: I wasn’t particularly surprised. We had a large four-tenths of 1 percent increase month-over-month the preceding month. And these are numbers that—since they are based on a survey—have a kind of statistical sampling error. So, the thought that it might come down one- or two-tenths is not, I think, surprising and also not particularly reassuring just in and of itself.

Steve Weisman: Why?

Read MORE

Opinions and comments on RGE EconoMonitors do not necessarily reflect the views of Roubini Global Economics, LLC, which encourages a free-ranging debate among its own analysts and our EconoMonitor community. RGE takes no responsibility for verifying the accuracy of any opinions expressed by outside contributors. We encourage cross-linking but must insist that no forwarding, reprinting, republication or any other redistribution of RGE content is permissible without expressed consent of RGE. 

How should climate change goals be met to ensure that developing countries’ energy needs are not sacrificed?

In a previous posting on RealTime Economic Issues, Meera Fickling offered a different view on an issue posed earlier by Nancy Birdsall and me in our article “Forget Emissions, Focus on Research” in the Financial Times.

In this Vox EU piece Nancy Birdsall, Dan Hammer, and I explain how to achieve the goal of meeting both the objectives of climate change and development. Based on a research paper, we argue that fairness would imply that basic energy needs of consumers in developing countries should not be different from those enjoyed by consumers in industrial countries at a comparable stage in their development.

However, the manner in which these needs are met—i.e., the technologies that are used—should be the latest available. Our calculations suggest that the only way that energy needs can be met equitably is through a carbon technology revolution. Facilitating this revolution should be the focus of national and international efforts going forward.

Opinions and comments on RGE EconoMonitors do not necessarily reflect the views of Roubini Global Economics, LLC, which encourages a free-ranging debate among its own analysts and our EconoMonitor community. RGE takes no responsibility for verifying the accuracy of any opinions expressed by outside contributors. We encourage cross-linking but must insist that no forwarding, reprinting, republication or any other redistribution of RGE content is permissible without expressed consent of RGE.