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Channel Title: Economic Issues
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Financial regime change: Donald Trump, trade and the new world order
Main image:  TWO months into the Trump administration and we have had more sound and fury than concrete proposals about its economic agenda. The most alarming sign so far is that America forced the G20 to drop a pledge about resisting “all forms of protectionism” from a joint statement but this may be purely symbolic.Nevertheless, Mr Trump’s determination to shake up the status quo may yet have global consequences. In a research note, Chris Watling of Longview Economics suggests thatTrump’s policies might inadvertently bring about a new international monetary order as the administration struggles to fulfil campaign promises in the light of the original misdiagnosis of the ‘trade deficit’ problem.The current monetary system emerged from the downfall of Bretton Woods in the 1970s. Under the Bretton Woods system, devised in part by John Maynard Keynes (pictured, left), currencies were fixed to the dollar (with scope for occasional devaluations or revaluations) and the dollar was fixed against gold. But this required America to act as the anchor of the system; other central banks were entitled to sell their dollars for gold. In order to maintain confidence in the system, America would have to tighten policy if its gold reserves fell; that is, subordinate domestic economic policy to international demands. ...
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Daily chart: Measuring the cost of living worldwide
Main image:  SINGAPORE retains its title as the world’s most expensive city for a fourth consecutive year, according to the latest cost-of-living survey from the Economist Intelligence Unit, our sister company. The survey, which compares the prices of 160 goods and services in 133 cities around the world and is primarily used by human resources managers to calculate compensation packages for overseas postings, found that Singapore was 20% more expensive than New York and 5% pricier than Hong Kong, which lies in second place.A sustained recovery in the strength of the Japanese yen has led to rising costs in Osaka and Tokyo. Asia now hosts five out of the six most expensive cities in the world. This contrasts with a gradual drop down the rankings for European cities, which made up eight of the ten most expensive places a decade ago and now account for just four. In Britain the depreciation of sterling after the Brexit referendum has helped push London and Manchester sharply down the rankings; London is at its lowest position in 20 years.American cities have fallen down the rankings, too, although they still remain comparatively expensive compared with five years ago, when New York was ranked in 46th position. San Francisco and Lexington, Kentucky were the only American cities out of the 16 surveyed to ...
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Love thy neighbour: An array of churches opposes Donald Trump’s proposed cuts to foreign aid
Main image:  THERE IS no consensus among America’s faith leaders over how the country should help poorer parts of the world. The question pits religious conservatives against religious liberals, just as it divides the non-religious. There was dismay in the conservative camp when the Obama administration said it would no longer channel help through organisations with traditional ideas on gender and sexuality. And Donald Trump dismayed progressives when he ruled that no more funds would be given to organisations that offer advice on abortion, a draconian reinstatement of an old policy known as the “gag rule”.This week, however, church leaders across a broad ideological and theological spectrum came together to oppose the Trump administration’s proposal to slash the foreign aid budget. More than 100 dignitaries wrote to Congressional leaders, including two of the clerics whom the president invited to participate in his inauguration ceremony: Cardinal Timothy Dolan of New York, and Samuel Rodriguez, a leader of the burgeoning Hispanic Pentecostal movement. They made the simple point that a prosperous country should share some of its riches with others:  America is blessed with fertile land, abundant natural resources, a strong economy, and faithful citizens who value religious freedom. But ...
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Promises, promises: Just what is the status of the Conservative manifesto?
Print section Print Rubric:  A U-turn on tax highlights the odd status of a sacred, yet disposable, document Print Headline:  Promises, promises Print Fly Title:  The Conservative Party manifesto UK Only Article:  standard article Issue:  The global economy enjoys a synchronised upswing Fly Title:  Promises, promises Main image:  Cameron? Never heard of him Cameron? Never heard of him PHILIP HAMMOND’S budget of March 8th was short and rather sensible. But it blew up spectacularly over a promise to raise taxes on the self-employed. The chancellor’s tax plan was extremely modest, representing less than 0.1% of public spending. Yet the response from Conservative backbenchers and the right-wing press—who, with Labour under inept leadership, form the main opposition to the government these days—was apoplectic. The Sun even offered its readers bumper stickers bearing ...
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Can't tax, won't tax: The hole in Western finances
Main image:  HAVE western governments, faced with angry voters, lost the ability to raise taxes? The question is raised by a farcical U-turn by the British government over a budget measure announced a week previously. The government retreated in the face of backbench opposition and the right-wing press. It seems eerily reminiscent of America, where Republicans have an absolute abhorrence of tax-raising measures.The planned British increase (aligning the tax rates of the employed and self-employed) was perfectly sensible. Unless closed, this gap will erode the tax base over the long run. Most economists agree that differential tax treatments tend to distort behaviour for no long-term gains. But the government had promised at the 2015 election not to raise income tax, national insurance or VAT—three taxes that raise around two-thirds of revenues—and this (foolish) promise was used against it. As the graph shows, British tax revenues have struggled to get above 35% of GDP since the late 1980s. That is a problem when spending has consistently been above 35% and often above 40%. The UK is not alone. From 2000 to 2016, the average OECD government spent 40.9% of GDP a year; tax revenues have been 37% of GDP (see the data here). In only two years (2000 and 2015) did tax revenues get to 38% of GDP; since ...
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On the rise: The global economy enjoys a synchronised upswing
Print section Print Rubric:  A synchronised global upturn is under way. Thank stimulus, not the populists Print Headline:  On the rise Print Fly Title:  The world economy UK Only Article:  standard article Issue:  The global economy enjoys a synchronised upswing Fly Title:  On the rise Main image:  20170318_ldd001_hr.jpg ECONOMIC and political cycles have a habit of being out of sync. Just ask George Bush senior, who lost the presidential election in 1992 because voters blamed him for the recent recession. Or Chancellor Gerhard Schröder, booted out by German voters in 2005 after imposing painful reforms, only to see Angela Merkel reap the rewards. Today, almost ten years after the most severe financial crisis since the Depression, a broad-based economic upswing is at last under way (see article). In America, Europe, Asia and the emerging markets, for the first ...
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From deprivation to daffodils: The world economy is picking up
Print section Print Rubric:  All around the world, the economy is picking up Print Headline:  From deprivation to daffodils Print Fly Title:  The world economy UK Only Article:  standard article Issue:  The global economy enjoys a synchronised upswing Fly Title:  From deprivation to daffodils Main image:  20170318_FBD001_1.jpg “IF WINTER comes,” the poet Shelley asked, “can Spring be far behind?” For the best part of a decade the answer as far as the world economy has been concerned has been an increasingly weary “Yes it can”. Now, though, after testing the faith of the most patient souls with glimmers that came to nothing, things seem to be warming up. It looks likely that this year, for the first time since 2010, rich-world and developing economies will put on synchronised growth spurts. There are still plenty of reasons to fret: China’s debt mountain; the ...
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The Economist explains: How Australia has gone 25 years without a recession
Main image:  WESTERN AUSTRALIA’S iron ore and Queensland’s coal were at the centre of Australia’s recent mining boom, stoked by the red-hot growth of China’s steelmaking industry. At its height about five years ago, mining investment accounted for 9% of national GDP. But as investment started to decline in 2013, Western Australia’s debt soared. At 6.5%, its unemployment is now Australia’s highest. If the pattern of earlier booms had followed, Western Australia’s plight would have reverberated around the country and ended in a national bust. Yet the economy’s growth has stayed intact, notching up 25 years without a recession. How has Australia managed a feat that has defied most other rich countries? Australia’s mining booms over the past 160-odd years made the country feel rich and confident while they lasted. Workers made big money, and this brought prosperity to far-flung regions producing gold, coal, gas and other commodities. Recessions followed nearly all earlier booms, including the most recent one, in the 1980s, largely because the upheaval proved too big a shock for an economy that was highly regulated. When negative growth was recorded in the third quarter of 2016, some anticipated the start of another recession (technically defined as two successive quarters of ...
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Death spiral: To fight hyperinflation, South Sudan decides to tax aid workers
Print section Print Rubric:  To fight soaring inflation amid a famine, South Sudan taxes aid workers Print Headline:  Death spiral Print Fly Title:  South Sudan UK Only Article:  standard article Issue:  The global economy enjoys a synchronised upswing Fly Title:  Death spiral Location:  JUBA Main image:  20170318_map501.jpg EVEN in the posher restaurants in Juba, the capital of South Sudan, the world’s newest country, the menus are printed on cheap paper. It is not worth having more expensive ones when they have to be updated every few weeks. Thanks to an inflation rate that touched more than 50% a month at one point last year (the conventional definition of hyperinflation, though price rises have since eased off a bit), even a modest meal costs a brick-sized bundle of currency. Over the past ...
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Free exchange: The end of “secular stagnation”?
Print section Print Rubric:  Economic recovery will put the theory of “secular stagnation” to the test Print Headline:  Borrowed time Print Fly Title:  Free exchange UK Only Article:  standard article Issue:  Quantum leaps Fly Title:  Free exchange IN PERIODS of economic stress all sorts of theories are entertained about the nature of the problem. When better times return, some theories fade from memory. Others linger, however. During the economic mess of the past decade, economists frightened themselves with tales of “secular stagnation”: a nasty condition that dooms its victims to chronically weak growth. Now that the economic outlook is brightening a bit—deflation has been dispatched, and for most advanced economies 2017 is forecast to bring a third consecutive year of economic growth—it is tempting to laugh off the idea of secular stagnation as a bit of crisis-induced hysteria. Tempting, but also premature. In a time of ...
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Food for thought: In praise of quinoa
Print section Print Rubric:  The spread of exotic grains is evidence that globalisation works Print Headline:  In praise of quinoa Print Fly Title:  Food snobbery and economics UK Only Article:  standard article Issue:  Quantum leaps Fly Title:  Food for thought Main image:  20170311_LDP002_0.jpg PEOPLE are funny about food. Throughout history they have mocked others for eating strange things. In 1755 Samuel Johnson’s dictionary defined oats as “a grain, which in England is generally given to horses, but in Scotland supports the people”. Nineteenth-century Japanese nationalists dismissed Western culture as bata kusai, or “stinking of butter”. Unkind people today deride Brits as “limeys”, Mexicans as “beaners” and French people as “frogs”. And food-related insults often have a political tinge. George Orwell complained that socialism was unpopular because it ...
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Who’s Nexit?: The retreat of globalisation threatens the Dutch economy
Print section Print Rubric:  If globalisation is in retreat, the Netherlands would be a big loser Print Headline:  Who’s Nexit? Print Fly Title:  The Dutch economy UK Only Article:  standard article Issue:  Quantum leaps Fly Title:  Who’s Nexit? Location:  AMSTERDAM AS ANY football fan knows, little delights the Dutch more than beating the Germans. So, as the country prepares for an election on March 15th, it should be cheering an economy that, after lagging behind Germany’s for years, is at last outpacing it. GDP grew by 2.1% last year, which was the fastest rate since 2007 and a stronger performance than its neighbours, including Germany. Unemployment has fallen to 5.3% and more people are in work than before the crisis in 2007-08. After years of belt-tightening, households are spending again, thanks to a strong housing-market recovery and rising wages. ...
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On a chiko roll: The end of a mining boom leaves Australia’s economy surprisingly intact
Print section Print Rubric:  The end of a mining boom leaves the economy surprisingly intact Print Headline:  On a chiko roll Print Fly Title:  Australia’s economy UK Only Article:  standard article Issue:  Quantum leaps Fly Title:  On a chiko roll Location:  CHARTERS TOWERS Main image:  20170311_ASP006_0.jpg A GOLD rush in the late 19th century so enriched Charters Towers, an outback town in the state of Queensland, that it opened its own stock exchange. Trading ceased long ago. But the grand building still stands, its barrel-vaulted portico supported by eight slim pillars. Over a century later, Queensland is reeling from the demise of another mining boom. “There was a perception it would go on forever,” says Liz Schmidt, mayor of Charters Towers. But unlike so many other booms, this one has not ...
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Flying high: Are stockmarkets in a bubble?
Print section Print Rubric:  Markets are booming. Their underpinnings are fragile Print Headline:  Bubble-spotting Print Fly Title:  Stockmarkets UK Only Article:  standard article Issue:  Quantum leaps Fly Title:  Flying high HAVE investors become irrationally exuberant? That is the biggest question hanging over global stockmarkets. Despite tumultuous politics across much of the rich world, share prices are reaching ever loftier heights. After breaking the 20,000 barrier in January, the Dow Jones Industrial Average swiftly passed 21,000 earlier this month. In Britain the FTSE 100 has been notching up fresh records, too. The MSCI World Index has hit an all-time high. At first sight, the warning signals are flashing. The recent flotation of Snap, an internet firm that is yet to make a profit, brought back memories of the dotcom boom; its shares soared by 44% on their first day of trading (although they have fallen back since). By ...
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The future of America: The comforts of familiarity
Print section Print Rubric:  Two books examine American society. One analyses its growing complacency and another (see following page) the importance of serendipity in social discourse Print Headline:  Bland comfort Print Fly Title:  The future of America UK Only Article:  standard article Issue:  Quantum leaps Fly Title:  The future of America Main image:  20170311_BKP001_0.jpg The Complacent Class: The Self-Defeating Quest for the American Dream. By Tyler Cowen. St Martin’s Press; 241 pages; $28.99. AMERICA is the land of opportunity, they say. Inspired by the ambition of its Founding Fathers, its people revel in their dynamism. Diversity is their strength, as captured in the national motto—E pluribus unum (“Out of many, one”). Americans embrace change and reinvention, and this, they like to think, sets their country apart from Europe or Asia. Tyler Cowen, an ...
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Daily chart: Where France’s National Front is on the rise
Main image:  THIS year’s French presidential election promises an upheaval. The Socialists and Republicans, two parties that between them have held power since the founding of the Fifth Republic in 1958, could be eliminated in the first round on April 23rd. Two insurgents, Marine Le Pen, the leader of the populist National Front (FN) and Emmanuel Macron, the upstart founder of a centrist movement, En Marche! (On the Move!), lead in the polls. Though no poll has shown Ms Le Pen winning the second round, the tight margins leave Mr Macron little room for complacency.Perhaps the most striking aspect of the FN vote is the faultline it reveals between France’s cosmopolitan cities, at ease with globalisation, and its in-between places where farmland gives way to retail sprawl and a sense of neglect. Between 2006 and 2011, the number of jobs in 13 big French cities—Lyon, Marseille, Toulouse, Lille, Bordeaux, Nantes, Nice, Strasbourg, Rennes, Grenoble, Rouen, Montpellier and Toulon—increased on average by 5%. In France as a whole, jobs were lost. These dynamic cities seldom register strong support for the FN.Ms Le Pen's party is, however, popular elsewhere. Its first base was in the south, where Jean-Marie Le Pen, her father, built support among French settlers returning from independent Algeria in the 1970s. ...
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The post-2016 world order: Who will lose when globalisation retreats?
Main image:  THE new nationalists are on the march in Europe and America. They argue that globalisation has benefited the elites and penalised the ordinary workers and that governments should put America/Britain/France first. That means favouring domestic producers and restricting global flows of people, goods and (this gets mentioned less often) capital. The latest proposal came from the Trump White House last night—a threat to ignore World Trade Organisation rules and impose tariffs on countries with “unfair” trade practices.A previous column suggested that the world may have entered a third phase of the post-1945 economy, after the Bretton Woods phase (fixed exchange rates and recovery) from 1945-early 1970s and the globalisation phase from 1982-2007. Each phase ended in a crisis (stagflation in the 1970s, a credit crunch after 2008). The next era could see globalisation in retreat for the first time since 1945.That is the focus of a chapter in Barclays’ Equity-Gilt Study, its annual look at the big themes of finance. As the authors point out, globalisation suffered a huge setback once before after 1914. World trade didn’t really recover (as a proportion of GDP, at least, until the 1990s.). The 1914-45 period is one of the darkest in world history, marked by two world wars and ...
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Better does not mean good: British banks are doing better than expected—but the taxpayer is not off the hook yet
Print section Print Rubric:  British banks are doing better, but the taxpayer is not off the hook yet Print Headline:  Better does not mean good Print Fly Title:  British banks UK Only Article:  UK article only Issue:  France’s next revolution Fly Title:  Better does not mean good Main image:  20170304_brp503.jpg THE day after last June’s Brexit referendum, shares in British banks tanked. Most economists feared financial instability and recession, and few investors wanted to be associated with a sector that had been so badly damaged by the financial crisis (see chart). But eight months on the banks are doing better than expected. By recent standards, at least, their results have not been that bad. In 2016 Barclays avoided making a loss. And on February 22nd Lloyds, now almost exclusively a Britain-focused bank, posted its highest pre-tax profits for a ...
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Apocalypse then: The lessons of violence and inequality through the ages
Print section Print Rubric:  Only catastrophic events really reduce inequality, according to a historical survey Print Headline:  Apocalypse then Print Fly Title:  Violence and inequality UK Only Article:  standard article Issue:  France’s next revolution Fly Title:  Apocalypse then Main image:  20170304_BKP001_0.jpg The Great Leveller: Violence and the History of Inequality from the Stone Age to the Twenty-First Century By Walter Scheidel. Princeton University Press; 504 pages; $35 and £27.95. AS A supplier of momentary relief, the Great Depression seems an unlikely candidate. But when it turns up on page 363 of Walter Scheidel’s “The Great Leveler” it feels oddly welcome. For once—and it is only once, for no other recession in American history boasts the same achievement—real wages rise and the incomes of the most affluent fall to a degree that has a “powerful ...
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Still possessed: Investors in America’s housing-finance giants lose in court
Print section Print Rubric:  Investors in America’s housing-finance giants have a bad day in court Print Headline:  Still possessed Print Fly Title:  Fannie Mae and Freddie Mac UK Only Article:  standard article Issue:  Wind and solar power are disrupting electricity systems Fly Title:  Still possessed Location:  NEW YORK ONE unresolved issue from the financial crisis is the future of Fannie Mae and Freddie Mac, the two firms that stand behind much of America’s housing market. Fannie and Freddie purchase mortgages, bundle them into securities and sell them on to investors with a guarantee. When America’s housing market collapsed a decade ago, the government had to bail them out. Its treatment of the firms since then has created a titanic legal struggle. Shareholders have cried foul. On February 21st, a federal appeals court upheld a ruling in the government’s ...
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