Since the financial crisis, there’s been a lot of research and discussion about the decline in labor force participation. That’s the percentage of the working age population that is either working or looking for work. It’s been declining steadily. This post goes into detail about what those who aren’t in the labor force are doing. It’s interesting. It probably corrects some widespread misperceptions but doesn’t answer all the questions.
Fed policy, of course, isn’t a magic cure-all for a sick labor market. If lots of people are out of the labor force because they are retired or can’t find work because their skills aren’t useful, low interest rates won’t do them much good. Whether or not low rates are still warranted depends on why so many Americans aren’t in the labor force anymore.
Some of the decline results from the fact that the population is older, which means more retirees per worker. The President’s Council of Economic Advisors estimates half of the decline (pdf) since the recession’s start can be blamed on an aging population. But lots of working age Americans, aged 16 to 64, aren’t in the labor force either.
In his recent autobiography, former Fed Chairman Ben Bernanke said that the government didn’t rescue Lehman Brothers because it lacked the legal authority to do so. That is consistent with arguments I’ve heard and seen from the other major players in the events. But this article repeats an argument that staffers at the government concluded that there was authority to rescue Lehman Brothers and argues further that at least one of the key players had already decided that there wouldn’t be any more bailouts.
On September 29, 2014, a New York Times story by Peter Eavis and James B. Stewart reported that unnamed economists at the New York Fed had analyzed Lehman’s financial condition before that fateful weekend, and believed that, as the article stated, “Lehman might, in fact, be a candidate for rescue.” In other words, these economists had concluded that Lehman had sufficient collateral for a loan from the Fed, but they were never asked for their views. This suggests that neither Bernanke nor anyone else really wanted to knowwhether Lehman could be rescued.
In this post, Tyler Cowen summarizes the highlights he found in Ben Bernanke’s autobiography.
The bottom lines: This book has way, way more economics than I expected and probably more than the publisher wanted. It really is Ben’s attempt to defend his place in history, and yes the book does deliver a huge dose of Bernanke. This is not ghostwritten fluff. It does not however dish much “dirt” or shed much new light on the key episodes of the financial crisis. Both in public and in the book Ben has been extremely gentlemanly. Still, as I kept on reading I could not escape the feeling that he is deeply, deeply annoyed by many of his critics, and very much determined to tell the story from his point of view. That is what you get from this book.
Former Fed Chairman Ben Bernanke has a book out. The book is basically his autobiography with special emphasis on the financial crisis period. I’ve read several reviews and article on the book. It sounds like the main problem is that Bernanke waited until this book to say things that would have been helpful during the financial crisis and in the years after. This article emphasizes his view that more financial executives should have been prosecuted and sent to prison. He also wrote piece for The Wall Street Journal in which he said that other branches of the government should have helped the Fed with better actions to restore economic growth.
With publication of his memoir, The Courage to Act, on Tuesday by W.W. Norton & Co., Bernanke has some thoughts about what went right and what went wrong. For one thing, he says that more corporate executives should have gone to jail for their misdeeds. The Justice Department and other law-enforcement agencies focused on indicting or threatening to indict financial firms, he notes, “but it would have been my preference to have more investigation of individual action, since obviously everything what went wrong or was illegal was done by some individual, not by an abstract firm.”
He also offers a detailed rebuttal to critics who argue the government could and should have done more to rescue Lehman Brothers from bankruptcy in the worst weekend of a tumultuous time. “We were very, very determined not to let it collapse,” he says. “But we were out of bullets at that point.”
None of the bankers behind the mortgage and housing crisis faced criminal charges, and only a few faced civil suits from the government. Most of those suits were settled. This articles updates the story of the only mortgage banker to be sued by the government and found liable at trial. She owes a $1 million fine to the government. She’s appealing her case now.
While jurors pinned liability on Mairone and her employer, Countrywide acquirer Bank of America Corp., they, too, questioned why she was the only individual named in U.S. Attorney Preet Bharara’s complaint. Angelo Mozilo, Countrywide’s chief executive officer, settled out of court despite billions in mortgage-related losses. And Mairone’s supervisor, subprime-mortgage unit CEO Greg Lumsden, wasn’t sued.
“Rebecca was part of a group of mid-level and senior managers that made every decision together,” Lumsden said in an interview. “There’d be no value created for anyone there to do anything that wasn’t ethical or right.”
Some analysts are pointing out that back in 2009 when China led the world with a large, bold stimulus plan, that they warned us back then. They said that China was stimulating artificial growth, generating a lot of debt, and that at some point the chickens would come home to roost. They’re saying China might be in the same position the U.S. was in 2007 with too much debt, some assets in bubble territory, and not a lot of options for dealing with it. Here’s one example and here’s another example.
In the meantime, the consumption sector in China seems to be faring poorly. On the way up, investment rose at the expense of consumption, but on the way down they are falling together. Funny how things like that work out, and it does suggest that a consumption-oriented stimulus maybe can break the fall but it won’t restore prosperity.
It’s striking how little recent discussion I’ve seen of China’s much-heralded fiscal stimulus of 2008-2009.
There’s a lot of debate around that question. It certainly helped the stock market. The official theory from the Fed and others is that boosting asset prices makes people more confident. They spend and invest more. It’s called the wealth effect. But one Fed official recently questioned the theory. He says the three main arguments in favor of zero interest rates and QE aren’t supported by the data. He’s especially critical of the zero interest rate policy, saying it might have the opposite of its intended effect.
But as for spurring inflation, reducing employment or otherwise generating sustained economic activity, the results, particularly for QE, are “at best best mixed.” In addition to muted inflation, gross domestic product has yet to eclipse 2.5 percent for any calendar year during the recovery, while wage gains, and consequently living standards, have been mired around 2 percent or less.
“There is no work, to my knowledge, that establishes a link from QE to the ultimate goals of the Fed—inflation and real economic activity. Indeed, casual evidence suggests that QE has been ineffective in increasing inflation,” Williamson wrote.
Europe has a long way to go to climb out of the hole of the financial crisis. While Americans complain about our slow growth in this recovery, things are much worse in Europe. Even countries that are considered to be doing well, aren’t in good shape, such as Germany and many of the Scandinavian countries. Take a look at the quick data in this post.
And that is with a lot of QE (more than a trillion), a weaker euro, and a favorable oil price shock.
Overall the eurozone economies are one percent smaller than they were in 2008.
The former Finance Minister of Greece allowed a writer from The New Yorker to spend time with him in the months preceding the historic July referendum in which a majority of Greeks voted to reject the terms offered by European authorities regarding their debt. The article has interesting insights, including that the minister expected the Greeks to buckle under pressure and vote to approve the debt terms.
When the crisis hit Greece, Varoufakis began his blog, and, with Stuart Holland, a British academic and former politician, published an essay, “A Modest Proposal.” It suggested ways in which the E.C.B. and the E.U. could press the banks holding bonds of struggling eurozone countries to forgive much of this debt, and envisaged a Europe that could issue its own bonds and fund stimulus investments—effectively putting German savings to work in Ireland and Greece. Varoufakis, who had argued against Greece’s decision, in 2001, to adopt the euro, wrote that if there was going to be a currency union then it should not be half-baked, and should function more like the one that joins California and Alabama.
Varoufakis recognized the many frailties in Greece’s economy, but he preferred to talk of a banking crisis rather than a debt crisis, and of a European crisis rather than a Greek one. If Greece had over-borrowed, the real villains were the lenders standing in line for bailout funds. The euro had created a delusion: banks had lent to Greece as if it were a student backed by wealthy parental guarantors. But there were no such guarantees, and when the lending stopped Greece was trapped by the currency that had indulged it. The country couldn’t painfully devalue its currency, like, say, Argentina at the start of the century. (A devaluation makes your people poor but your goods enticingly cheap.) And the euro lacked a body like the Federal Reserve, or the Bank of England, that could feed newly minted cash into the Greek economy; to Varoufakis’s frustration, the E.C.B. wasn’t that kind of bank.
George Friedman of Stratfor.com gives us perspective on the recent negotiation concerning Greece’s debts. He views the situation as Germany vs. Greece, with the rest of Europe not having much influence on either side. Friedman also says that the issues aren’t resolved. It’s interesting reading, whether you agree with it or not.
There were two sides of the Greek position that frightened the Germans. The first was that Athens was trying to use its national sovereignty to compel the European Union to allow Greece to avoid the pain of austerity. This would, in effect, shift the burden of the Greek debt from the Greeks to the European Union, which meant Germany. For the Germans, the bloc was an instrument of economic growth. If Germany accepted the principle that it had to assume responsibility for national financial problems, the European Union — which has more than a few countries with national financial problems — could drain German resources and undermine a core reason for the bloc, at least from the German point of view. If Greece demonstrated it could compel Germany to assume responsibility for the debt in the long term, it is not clear where it would have ended — and that is precisely what the Greek vote intended.
On the other hand, if the Greeks left the European Union, it would have created a precedent that would in the end shatter the bloc. If the European Union was an elective affinity, in Goethe’s words, something you could enter and then leave, then the long-term viability of the bloc was in serious doubt.