Peterson Institute for International Economics Update Newsletter
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PIIE Update Newsletter
August 13, 2013

"Washington's premier think tank on the global economy"
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FEATURED
 
  Op-ed
The Global Economy Is Now Distinctly Victorian

Adam S. Posen
Published in the Financial Times
   
  Adam S. Posen The underlying realities of globalization are becoming clearer: Technological convergence between rich nations and capable poor ones is rapid in a multipolar world. This state of affairs is a return to the "Old Normal" of the late 19th century. National rivalries, multiple reserve currencies, eroding intellectual property rights, and corporate competition in many industries will increase economic volatility and diminish investment. The division between investments yielding safer low returns and speculative higher-return assets will be sharp. The global economy is returning to unfettered markets and more volatile economic conditions at the national level, resulting in slower average growth. The Old Normal may not be nice but is likely to last.

>> Read full op-ed

  Op-ed
India's New Central Bank Governor Will Need Serious Political Skill

Arvind Subramanian
Published in the Financial Times
   
  Arvind Subramanian As the next governor of the Reserve Bank of India (RBI), the economist Raghuram Rajan will be stepping into the breach of India's besieged economy. His immediate objective will be damage control. Economic growth has decelerated, the fiscal deficit is 10 percent of GDP, inflation has been at close to a double-digit rate for over three years, and the current account deficit has widened to an unsustainable level. To stabilize, Rajan will need to restore calm to the currency market and ensure a transparent process for awarding new bank licenses. After the elections, he can go on to modernizing the RBI, improving communications, strengthening regulations, developing domestic banking markets, and promoting financial inclusion.

>> Read full op-ed

  Op-ed
The Cult of Home Ownership Is Dangerous and Damaging

Adam S. Posen
Published in the Financial Times
   
  The residential property bubble and subsequent crisis of the past decade should have made people and governments leery of encouraging widespread home ownership. Despite ongoing fiscal consolidation, the UK coalition government is pressing on with its "Help to Buy" scheme and the US Congress continues its unquestioning protection of the home mortgage interest tax deduction. This is the economic policy equivalent of incurring the individual and social costs of an obesity epidemic while still subsidizing corn and beef production. Increasing home ownership in the United States and Britain beyond what the free market would generate distorts capital allocation, puts a large share of household savings at unnecessary risk, impedes mobility, and creates housing bubbles to devastating effect.

>> Read full op-ed

  Op-ed
US Should Support a Trade Deal with Japan

Adam S. Posen
Published in the Financial Times
   
  Prime Minister Shinzo Abe's victory in Japan's upper house election in late July was a turning point for world trade. If allowed, Japan will enter the Trans-Pacific Partnership (TPP) trade negotiations and make the structural reforms needed to be a fair and full participant. Japan is not manipulating its currency and is bound by a G-7 agreement not to do so. Japan's participation would increase the prospects for a high quality agreement emphasizing trade in services and setting high standards for intellectual property protections and the environment. Most important, including Japan in the TPP will open opportunities for less developed economies to export while reassuring advanced economies on investment. This kind of quid pro quo offers large gains from trade.

>> Read full op-ed

  Working Paper 13-8
The Greek Debt Restructuring: An Autopsy
[pdf]

Jeromin Zettelmeyer, Christoph Trebesch, and Mitu Gulati
   
  Jeromin Zettelmeyer The Greek debt restructuring of 2012 stands out in the history of sovereign defaults. It achieved very large debt relief—over 50 percent of Greece's 2012 GDP—with minimal financial disruption. It accomplished this using a combination of new legal techniques, exceptionally large cash incentives, and official sector pressure on key creditors. But it did so at a cost. The timing and design of the restructuring left money on the table from the perspective of Greece and created a large risk for European taxpayers. The Greek restructuring set precedents in its generous treatment of holdout creditors that are likely to make future debt restructurings in Europe and elsewhere more difficult to achieve.

>> Read full working paper [pdf]

  Working Paper 13-7
How to Measure Underemployment?
[pdf]

David G. Blanchflower and David N. F. Bell
   
  David G. Blanchflower Unemployment rates in the United States have been slow to fall over the last couple of years despite a modest growth in the number of people employed. Similar patterns have arisen in the United Kingdom and some other advanced economies. What explains rising hours and employment but only a slowly falling unemployment rate? Bell and Blanchflower argue that one factor is the extent to which workers already employed prefer to work more hours to meet the increasing needs of their employers. As a result, as demand grows, employers may first offer more hours to existing workers before hiring new people. The authors have captured this "excess capacity" in the British labor market using UK data. Their "underemployment index" reveals that existing workers are taking advantage of the recovery by increasing hours rather than creating new jobs, at the expense of the unemployed. Similar data do not exist in the United States, but the authors recommend that the Bureau of Labor Statistics produce the data needed to construct an equivalent US index.

>> Read full working paper [pdf]


Peterson Perspectives Interviews

audio  Obama and Greece: Thinking Outside the Basket Case
Nicolas Véron takes stock of prospects for Greek economic reform after Prime Minister Antonis Samaras's visit to the White House.

audio  Argentina's Debt Imbroglio—Without Tears: Part I
Anna Gelpern explains how Argentina's default in 2001 unleashed riots, political turmoil, and a legal battle among creditors with far-reaching consequences.

audio  Argentina's Debt Imbroglio—Without Tears: Part II
Anna Gelpern discusses why Argentina's two classes of aggrieved creditors are at each other's throats and why the United States and the International Monetary Fund are concerned about the outcome.


Recent Blog Posts

RealTime Economic Issues Watch   China Economic Watch    North Korea:  Witness to Transformation
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Carney's Debut at the Bank of England Predictably Sends the Wrong Signal (Just like the FOMC).

Is Europe Still in an Economic Downswing?

The Misguided Campaign against Corporate Tax Abuse

Who Should Chair the Fed?

Argentina and Its Creditors: Pari Passu Whiplash
  Ignore the Noise: Why Chinese Household Consumption is Still Too Low

China Rebalancing Update—Q2 2013

China Attempts to Stimulate Household Incomes

Why China's State-Owned Enterprises Want to Diversify their Business

An Urgent Need for the "Visible Hand" in China
  Military Promotions in the DPRK

Financial Sanctions: Evidence of the Squeeze?

"Business or pleasure?" Both please!

Reading the tea leaves in Pyongyang

Slave to the Blog: Possibly Apocryphal Stories of Cultural Misunderstanding


PIIE Noted in the News and on the Web

Marketplace Public Radio
Middle Class Asks: Should We Buy Our Home?
Adam S. Posen discusses how home buyers may not realize that owning a home can be an unstable investment.

Voice of America
Russia Re-Industrializes as Energy Boom Fades
Anders Åslund tells Voice of America that declining energy revenues are dictating new directions for Russia's economy.

NPR's All Things Considered
Weakening Yen Strengthens Toyota's Profits
In this interview Joseph E. Gagnon explains how the yen's decline in value has boosted Toyota's profit margins.

Northeast Public Radio (WAMC)
Alan Chartock in Conversation with Ted Truman
Edwin M. Truman joins Alan Chartock for an in-depth conversation touching on his career, how the Federal Reserve operates, and China's financial interests in the United States.



Preview of Our Next Issue

Working Paper
The Renminbi Bloc Is Here: Asia Down, Rest of the World to Go?
Arvind Subramanian and Martin Kessler

Policy Brief
Progress on Sovereign Wealth Fund Transparency and Accountability: An Updated SWF Scoreboard
Allie E. Bagnall and Edwin M. Truman

 
 
In This Issue
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Event
Representative Sander Levin The Challenges and Opportunities of International Trade: Past, Present, and Future

Representative Sander Levin discusses the US trade agenda, including the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership negotiations.
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