Tag Archives: Kenneth Rogoff

10.29.2012 | Election Economics: Comparing Economic Recoveries

Illustrated by this graph from the Minneapolis Federal Reserve, sometimes one orange line can create a huge debate.

The thick orange line representing the US recovery from the December 2007-June 2009 recession reflects a tepid ascent next to curves that represent other post-WW II economic recoveries. Still though, Democrats say the numbers reflect progress while Republicans call them poor. How can we decide?

Looking at several academic papers, it gets ever more confusing. Some policy makers and scholars believe that the recovery is typical. Explaining that it takes a long time to bounce back from a recession connected to a financial crisis, they say the trajectory of this recovery is what we should expect. Disagreeing, other equally auspicious individuals use their data to prove that financially related deep recessions actually precede robust economic growth.

The disagreement takes us to the data. Should the US be compared to other culturally and institutionally different countries or should the data just focus on US economic history? Is is more valid to look at how how long it takes to return to pre-crisis output levels or how fast the economy grows during its recovery? Do we look at per capita or overall figures?

If you would select the first half of each question in the previous paragraph, then the recently announced 2% growth rate for the 3rd quarter of 2012 is progress. If, on the other hand, your preference is the second choice, you can say that current numbers should be better. And as you can see, Obama likes the former and Romney the latter.

A Final Fact: Just 2 definitions today.

A recession: Technically, a recession is a decline in real GDP for 2 successive quarters. The people who decide the dates of recessions, the NBER (National Bureau of Economic Research), say that they take into consideration additional variables including real income, employment and industrial production.
GDP: Most simply stated, the Gross Domestic Product is the total dollar value of the goods and services produced in a country during a specific time period.

Sources and Resources: Replete with data and ideas about financial crises, recessions, and recoveries, Kenneth Rogoff’s and Carmen Reinhart’s 2009 book and their paper, “This Time Is Different,” say that recoveries from systemic financial crises take a long time. Much more briefly, in his blog, John Taylor disagrees with the Rogoff/Reinhart approach as do Michael Bordo and Joseph Haubrich in this Cleveland Federal Reserve paper. Also, you might enjoy manipulating the interactive graphs from the Minneapolis Fed. Finally, here and here is the actually debate unfolding with Carmen Reinhart and Kenneth Rogoff on one side and John Taylor and Michael Bordo on the other.

Election Economics Topics:

Posted by: adminEcon
Tags: 2% GDP growth, Barack Obama, Carmen Reinhart, John B. Taylor, Kenneth Rogoff, Michael Bordo, Minneapolis Federal Reserve, Mitt Romney, NBER, recession, recovery, This Time It's Different, US economic growth
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10.13.2012 | Luxembourg Yogurt?

For this Greece update, some past and current information…

Soon after the euro was launched on January 1, 2002, a €76,000 bank heist near Athens became the first major euro robbery. Near Athens also, with the new currency launch, it took 3 staff members to figure out how a customer could pay for a cheese pie. And everywhere in Greece, the transition was slow because the Greek Economic Ministry had supplied only one sixth of all Greek businesses–50,000 out of 300,000–with euros.

Looking back further, since its independence in 1829 to 2006, Greece has had 5 defaults or debt re-schedulings that occupied a total of 50.6 years. In This Time It’s Different, economists Kenneth Rogoff and Carmen Reinhart say that few nations break out of a serial default pattern.

Fast forward to 2012.

Greek yogurt maker Fage is moving its headquarters from Greece to Luxembourg. Coke’s second largest bottler, Hellenic Coca-Cola (EEEK on the Greek Stock Exchange) is relocating its Greek headquarters to Switzerland and switching its primary stock listing to London. Both wanted a lower and more stable tax environment, greater access to financing, and less exposure to a Greek financial calamity. Predictably, other firms located in Greece have responded to the ongoing crisis with modified business behavior and contingency planning.

Meanwhile, overall Greek unemployment remains near 25%, close to 50% for youth aged 15-24, its debt is still more than 150% of GDP, and unless Greece gets its next bailout transfusion, its government will soon run out of money. Still the WSJ reports the odds of Greece leaving the euro zone are down.

Your prediction?

A final economic thought: In the euro zone, countries with different economic conditions lack the flexibility to respond to their own special needs. They share monetary policy and cannot target their fiscal policy (government spending, taxing and borrowing) to high or low unemployment and inflation.

Sources and Resources: Illustrating the extent of Greece’s dysfunction, this 2002 BBC article that specifically describes the introduction of the euro in every country was fascinating and if you do not have the Rogoff/Reinhart book, This Time It’s Different, this paper provides an excellent summary. For current information on Greece and the corporate exits, here and here are Greek newspaper articles, here is a European perspective, and here, the WSJ talks about how Citi analysts have lowered the chance of a “Grexit” from 90% to 60%.

Posted by: adminEcon
Tags: Carmen Reinhart, default, euro zone, euro zone bailout, Fage yogurt, Greece, Greek debt, Greek unemployment, Hellenic Coca-Cola, Kenneth Rogoff
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01.04.2012 | Questions about Capitalism

Can capitalism survive?

In a Project Syndicate article, Harvard professor Ken Rogoff said, probably. But the “Anglo American paradigm” might evolve into another kind of capitalism.

What threatens Anglo-American capitalism? Dr. Rogoff lists 5 challenges.

pollution
rising health care costs
inequality
financial upheaval
the welfare of future populations

What might replace today’s dominant form of capitalism? Good Capitalism Bad Capitalism names 4 categories (pp. 60-61) of capitalism:

“state-guided” where government dominates
“oligarchic” where small groups have power and affluence
“big-firm capitalism” dominated by giant enterprise
“entrepreneurial capitalism” with innovation from small firms the dominant force

And finally, sort of like cars, discussing the best vehicles for growth, financial journalist David Wessel says there are the U.S., European, Japanese export-driven, Chinese, and Latin American models of capitalism.

The Economic Lesson

This takes us to the three basic economic questions that every country needs to answer:

What will be produced?
How will goods and services be produced?
Who will receive income?

The different forms of capitalism (and combinations of these forms) provide different answers to the 3 economic questions. Good Capitalism Bad Capitalism considers combinations that lead to beneficial economic growth and those mixtures that are “bad.”

An Economic Question: How does the U.S. capitalism model answer the three basic economic questions?

Posted by: adminEcon
Tags: 3 basic economic questions, capitalism, China, Europe, Good Capitalism Bad Capitalism, Japan, Kenneth Rogoff
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11.02.2011 | Default Deja Vu

Between its independence in 1829 and 2006, Greece has had 5 defaults or debt reschedulings that occupied a total of 50.6 years. Described by Rogoff and Reinhart in their 2008 paper and book, This Time It’s Different, few nations break out of a serial default pattern.

Here are the total number of defaults and/or reschedulings for selected euro zone countries, 1800-2006:

Spain: 13
Germany: 8
France: 8
Austria: 7
Portugal: 6
Greece: 5
Italy: 1
the Netherlands: 1
Belgium:0
Finland:0

And here is a thought-provoking discussion of the politics and economics behind the beginning and potential end of the euro.

The Economic Lesson

Even those in Holland, then the financial capital of the world, displayed confidence in our public credit. Adhering to the Hamiltonian philosophy, the United States has never defaulted on its debt.

An Economic Question: How do countries borrow money?

Posted by: adminEcon
Tags: Alexander Hamilton, default, Greece, Kenneth Rogoff, public credit, sovereign debt
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10.25.2011 | Greece and Argentina

Nobody wants Greece to become Argentina.

It all began with what scholars Rogoff and Reinhart called the lending boom of the 1990s. Enjoying the influx of dollars, Argentina borrowed and grew and prospered…for awhile. But when recession hit at the end of the decade, the good times quickly unraveled. She defaulted on $95 billion (p. 19) of sovereign debt while also undergoing banking, currency, and inflation crises.

Some say a part of the problem was her inflexible currency. To combat 3,000% hyperinflation Argentina had tied her peso to the dollar. Yes, she got a stable currency. But also, she lost the ability to make her currency cheaper when a recession threatened and her export revenue needed a boost.

Is Greece similar? She too has a massive debt, a damaged economy, and the inability to manipulate her own currency. And, were she to default, her connection to banks throughout the euro zone and beyond could stimulate a banking crisis.

On the other hand, we could say that Argentina seems to be doing okay. True, she still faces a tough time borrowing. But, with control over her own currency, she was able to enjoy a booming export sector and a growing economy.

Here, NPR’s Planet Money discusses Argentina in “The Price of Default.”

In “Default Deja Vu” econlife looked a serial defaulters.

The Economic Lesson

Alexander Hamilton surely knew about sovereign debt defaults and wanted to avoid them. Reading about his plan to fund and refinance the United States’ revolutionary war debt reveals his commitment to establishing our good credit. His approach was varied, including issuing new bonds to pay for those outstanding and servicing the interest promptly on the foreign debt. It worked. Even those in Holland, then the financial capital of the world, displayed confidence in our public credit. Adhering to the Hamiltonian philosophy, the United States has never defaulted on its debt.

An Economic Question: One debt rating agency said that congressionally gridlocked budget negotiations could affect worldwide confidence in the safety of U.S. debt. Your opinion?

Posted by: adminEcon
Tags: Alexander Hamilton, Argentina, default, Greece, Kenneth Rogoff, sovereign debt
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