Economically minds
Germany Reforms - Slowly
Gerhard Schroder, Chancellor of Germany, was able to get a package of tax reforms and social benefit cuts through the Bundestag on October 17th. Around 4.2 million Germans (10.1%) are unemployed, German economic growth has ground to a halt, and the government faces a deficit of 3.7% of GDP (America's record deficit is only 3.5% of its GDP).
The question is whether Schröder can continue to confront the vested interests that stand in the way of reform, and withstand the accompanying unpopularity.
French President Jacques Chirac is also pursuing its own reforms, as both countries try to end the new "Eurosclerosis".
Developing Countries and the US Economy
While lots of people complain about competition from developing economies such as China and India, America's Intel (INTC) reports the best third-quarter sequential growth in more than 25 years.
The tie in: Intel's jump in sales, earnings and profit levels got a boost from strong growth in emerging chaturbate markets such as China and India.
The planet is one economy. The US economy will do better when other economies, including the rapidly developing Asian ones, do better as well.
Former (and Current) Communist Country Update
What's going on in former and current Communist countries?
Five years after defaulting on foreign debt, Russia's debt has been upgraded to "investment grade" by Moody's. Russian GDP has grown consistently since 1998, and is expected to grow 6% this year. The Russian RTS stock index is up over 600% since 1998.
Meanwhile, home improvement is coming to China (now transitioning to the free market). Britain's Kingfisher retailing group estimates that 10% of China's 400 million households have $1,000 or more a year to spend on home improvements, a $40 billion market. Kingfisher's B&Q is China's largest home improvement chain by sales, and IKEA and Germany's Obi are there as well. Even Home Depot is considering opening stores in China.
And in North Korea (still mostly Communist), economic reforms begun 15 months ago are stabilizing the electric power system, farmers are allowed their own small gardens, and farmers' markets can sell consumer goods. Products such as VCRs have become available for hard currency. A South Korean company that assembles cars in North Korea is now allowed to market them there.
Unfortunately, while wages and prices have risen to market levels in North Korea, government controlled businesses have not been able to boost their output, leading to spiralling inflation. 80% of an average family's income now goes towards food. The situation there may be getting worse, not better.
Economic downturn
Perhaps labor regulations put into place in the US during the 1970's, 1980's, and 1990's may only now be raising unemployment rates, and that further economic downturns could raise unemployment even higher.
Studies done in 1999 and 2000 did not find much evidence for unemployment hysteresis in the US, but some was found for Europe. Perhaps now, after the most recent US economic downturn, it is time to again examine hysteresis in the US live sex show labor market, and if found, decide how to handle it.
Dangerous Dollar Devaluaton?
A previous Econotarian story (Flying on One Engine) discussed how the best solution to reduce the US trade deficit is through growing foreign demand, not devaluing the dollar. The Economist's Buttonwood column mentions a risk of devaluation, that foreigners who hold 35%-40% of US Federal Debt might respond to devaluation of the Dollar by selling-off some of the debt, plunging Treasury securities prices, thus raising their yields, which will leave the US government with higher debt financing costs, something the US budget does not need right now.
European Pension Crisis
The Economist article titled "Work longer, have more " concludes that "Europe is currently witnessing the slow-motion explosion of the most predictable economic and social time-bomb in its history."
European pensions are seeing the collision of the pay-as-you-go scheme of current workers paying retirees pensions with the reduced birth rates and longer lives of citizens in developed countries. Europe now has 3 workers for every retiree, and within 30 years will only have 2 workers for every retiree. The US lags Europe in this "population inversion," but the US is catching up and will face the same crisis.
France and Austria have passed pension reforms to raise the retirement age of public-sector employees. Italy and Germany are considering reforms to raise the retirement age of private-sector and jasminelive workers as well.
Robert Reich on Offshoring IT
Robert Reich, former US Secretary of Labor during the Clinton administration, has an article in CIO Magazine titled "Jobless in America", which addresses offshore outsourcing of IT. And despite the ominous tone of the title, Reich concludes:
"The U.S. government should not try to protect or preserve IT jobs in America, or block efforts by American companies to outsource. That would only put American companies at a competitive disadvantage."
"Even as they ship out 'commodity' IT work overseas...the best companies are simultaneously shifting their in-house IT employees to more innovative, higher value-added functions, such as invention, integration, key R&D and basic architecture."
"...despite the long-term trend toward outsourcing IT jobs, there will continue to be plenty of IT work in the United States in years to come."
Medicare Going Bust 2019
This week Health and Human Services Secretary Tommy Thompson announced that Medicare will become insolvent in 2019, seven years earlier than had been predicted. The full report from the Medicare Board of Trustees is here. The reason? Health care prices up, Medicare revenues not growing as fast because of slower economic growth.
Last month the Senate Joint Economic Committee issued a report which shows that US health expenditures are now growing twice as fast as the overall economy.
But interestingly, the report shows that real per capita health care spending is rising (from $800 in 1960 to just over $5,000 today) as the out-of-pocket share of health care spending is moving down (from 50% in 1960 to 15% today). Maybe this means something.