New Economist

Economist job of the week: Director of Global Economics, European University Institute

I rarely give academic economist jobs much attention, having chosen a different career path. But one plum job did catch my eye recently. The European University Institute are looking for a Director for their Programme on Global Economics:

The Programme on ‘Global Economics’ will focus on the connected fields of the economic and financial trends of the global economy and the mechanisms of global economic governance. The programme should develop a research agenda departing from the consequences of economic globalisation and the changing global economic order. Among the many possible themes from which such agenda can emerge are international trade, global economic imbalances and crises, exchange rates and capital movements, the reform of the international economic and monetary system and the regulation of the financial system.

As for the job itself:

The Programme Director will be responsible for the overall conception and direction of the Programme, the co-ordination of activities across different projects, the reporting, dissemination, and training activities. The Director of the Programme will ensure the fulfillment of high scientific standards and the outstanding quality of all these activities.

...Preference will be given to candidates with the potential to establish links and generate synergies with other research strands at the Global Governance (see below). Initial financial support will be available to help the Programme Director to launch the Programme.

The EIU is based in San Domenico di Fiesole, in the foothills surrounding Florence (Firenze). A more pleasant location, or interesting role, is hard to imagine.

The deadline for applications is 3 June 2012. More details on their website here.

Weekend reading/viewing: Explaining the rise of child labour in Victorian Britain

In Victorian Britain child labour was cheap and plentiful. Few today know much about the era; but they should.

Next week Jane Humphries, a Professor of Economic History at Oxford University, is due to give a seminar at the Paris School of Economics about her work on the topic. She published a book on Childhood and Child Labour in the British Industrial Revolution in 2010, and her excellent 2010 Tawney lecture summarises that larger work. The lecture is forthcoming in the Economic History Review (PDF).

Quantitative and qualitative analysis of a large number of autobiographies by working men who lived through the industrial revolution has demonstrated that there was an upsurge in child labour in the late eighteenth and early nineteenth centuries with children’s work entrenched in traditional sectors as well as spreading in newly mechanized factories and workshops.

I have interpreted this rise in terms of the appearance of a new equilibrium in the early industrial economy with more and younger children at work. The new equilibrium, in turn, was related to a number of co-incidental developments including: an increase in the relative productivity of children as a result of mechanization, new divisions of labour, and changes in the organization of work; the dynamics of competitive dependence linking labour market and families; high dependency ratios within families; stumbling male wages and pockets of poverty; family instability; and breadwinner frailty.

Better yet, you can view the original lecture either below or here (65 minutes, flash file).

 

A very interesting slice of economic history. But the most engaging account of her work can be found in her 2011 BBC documentary, The Children Who Built Victorian Britain. The BBC website has 8 animated videos from the programme, with harrowing testimonies from children of the era. Well worth viewing.

N.B. Teachers and lecturers might also be interested in the excellent compilation of video clips on child labour at BBC's Learning Zone: 34 in all.

Economist job of the week: International economist at Standard Life (2 posts)

Edinburgh-based fund manager Standard Life Investments is looking for two economists. According to their vacancy posting:

The aim is to have two or more economists, one to focus on OECD economies, especially the UK and Europe, and one to focus on emerging markets, especially China and Asia. These would coordinate international economics coverage with the North Amercian economist based in Montreal. As a result, a considerable degree of travel is probable for one or both positions.

The economists would be based in the Multi Asset Investing Team (MAIT)  and report to Andrew Milligan, SLI's Head of Global Strategy. The main responsibilities of the posts are to:  

 • Contribute accurate economic forecasts and productive scenario analysis
• Ensure a sufficient understanding of the House View amongst internal contacts eg the MAIT, SLI fund managers or SL Group
• Create good media contacts as measured by press office surveys
• Conduct high quality engagement with SLI clients

While it's not clear what the salary range is, I would expect Standard Life to offer a competitve package.

Both jobs offer a good opportunity for international economists with 5+ years experience to work with a major asset manager (£150 billion AUM). There would be considerable exposure to institutional clients, which I always enjoyed in my time as a market strategist.

The deadline for applications is Friday 25 May 2012. You can find the full job description here (or just search via their Careers page).

 

 

 

UK recession roundup: the magnificent seven

A lot of interesting newspaper articles and blog posts on the Q1 UK GDP results have been published since my post earlier today. Here are links to seven of the best, along with an excerpt from each:

1. NYT columnist and uber econoblogger Paul Krugman (@NYTimeskrugman) lambasts the UK Government's austerity plans: Cameron’s Remarkable Achievement

Now Britain is officially in double-dip recession, and has achieved the remarkable feat of doing worse this time around than it did in the 1930s. Britain is also unique in having chosen the Big Wrong freely, facing neither pressure from bond markets nor conditions imposed by Berlin and Frankfurt.

Now, the defense I hear from Cameron apologists is that the austerity mostly hasn’t even hit yet. But that’s really not much of a defense. Remember, the austerity was supposed to work by inspiring confidence; where’s the confidence? Basically, the expansionary aspect should already have kicked in; it’s all contraction from here.

Needless to say, Cameron and Osborne insist that they will not change course, which means that Britain will continue on a death spiral of self-defeating austerity.

2. NIESR director Jonathan Portes (@jdportes on Twitter) manages to quote both Keynes and Popper in his blog post, also critical of the government: On GDP figures today, credibility, and Popperian falsifiability..

Is there a credible alternative? Of course there is. You don't have to be Keynes to think so. And you don't have to take my word for it. Ask the IMF. Or Martin Wolf at the FT. Or Ian Mulheirn at the Social Market Foundation. Or John Van Reenen at the LSE. As I said over a year ago, the real hit to credibility comes from sticking to unsustainable policies in the face of the facts.

George Osborne says that we are all "at the outer fringes of the international debate." That's clearly false as far as serious economists go. But if he's right in terms of UK government policy, the main losers won't be us: it will be the unemployed, especially the young.

3. BBC economics editor Stephanie Flanders (@BBCStephanie) provides a good account of the numbers, including the impact of the Q1 construction decline, in her post: No recovery for UK: No let up for ONS

Are the official numbers wrong? An impressive number of independent experts, with access to a lot less information than the ONS, are today convinced that they are.  ...I don't know which is more striking, the doubts about the ONS numbers - or the supreme confidence of their critics.

4. Guardian economics editor Larry Elliott (@BusinessDesk) believes the double-dip recession affords George Osborne no escape from this reality

The coalition's fear is that the government would be punished by the markets if it went soft on austerity – and there is no obvious magic bullet for Osborne to fire. Since the recession began, the Treasury has borrowed £500bn, the pound has depreciated by 20%, interest rates have been pegged at 0.5% for more than three years, and the Bank of England has plonked £325bn of newly created money into the banking system. The result has been the weakest recovery of the past 100 years.

There are ideas knocking about. ...[but] Osborne has no Plan B and shows no sign of wanting one. He has made reduction of the budget deficit the judge and jury of Britain's performance, talking tough in the hope that the financial markets will spare Britain the harsh treatment they have meted out to the weaker members of the euro. Until now they have, but slow growth has meant progress in getting the deficit down has been much slower than the chancellor planned, and the credit rating agencies are getting jittery. Two of them have put the UK's prized AAA rating on negative watch.

A second recession hard on the heels of the first gives the (accurate) impression that the economy is a disaster area and makes a downgrade more likely.

5. Investment Chronicle writer and prolific econoblogger Chris Dillow (@CJFDillow) explains why there is such scepticism about the GDP estimate: What recession?

Today’s figures conflict with at least five other findings:

- Purchasing managers surveys found a “marked expansion” in construction activity, and the strongest growth in services activity since Q2 2010.

- Official figures show that retail sales volumes rose 0.8 per cent in the quarter. Would consumers really have gone on such a spending spree of the economy was shrinking?

-The ONS reported last week that in the three months ending February, total hours worked rose by 1.4 per cent. This can only be reconciled with falling GDP either if hours fell sharply in March or if productivity has slumped.

- The NIESR estimates that GDP grew by 0.1 per cent in Q1.

- The latest British Chambers of Commerce survey found a “welcome improvement” in the economy.

6. Telegraph assistant editor Jeremy Warner (@jeremywarnerUK) argues that the Chancellor must ignore this double-dip recession

Personally, I wouldn't try to deny that fiscal consolidation is damaging growth; the more important question is whether the Government has any choice in the matter. In my view it does not. We'll never know what would have happened to interest rates had Labour won the last election and pursued a different policy, but the evidence of sharply rising spreads around the political negotiations that led up to the formation of the Coalition is that like the eurozone periphery, they might well have run out of control.

For a highly indebted economy such as the UK's, with an overgrown banking sector, this was not a risk any sensible government could have afforded to run. The banking sector, not to mention many households and businesses, would have been tipped over the edge by any significant rise in short and long term interest rates.

Stagnation in the UK economy is not the result of government policy as such, but is part of the adjustment process to the financial crisis. The idea that you should counter a crisis caused by too much debt by taking on more of it runs counter to common sense.

7. Finally, housing writer/blogger Jules Birch (@jules_birch) argues that housebuilding "will deliver the quickest boost to the economy and generate the most jobs": If you’re in a hole, start digging

Judging from his speech at the Home Builders Federation (HBF) this week Grant Shapps seems to think that all he has to do is sit back and wait for all his initiatives, from FirstBuy to NewBuy, from cutting red tape to boosting self-build, from the New Homes Bonus to extending the right to buy, to pay off. ...Yet for all the rhetoric and all the new wheezes, housebuilding remains stuck at around half the level needed to meet demand and nowhere near his ‘gold standard’ of building more homes than Labour.

Relying on big housebuilders that care more about rebuilding their balance sheets than building homes will not work. A serious programme of investment in building new homes and refurbishing empty ones could be channeled through smaller firms, housing associations and local authorities and combined with reform of the housebuilding industry. That would start to generate the jobs and deliver the boost for the economy we need at the same time as tackling the housing shortage. Borrow to invest, change the borrowing rules or try something new like quantitative easing for housing. We are in a hole. It’s time to start digging.

UK’s double dip recession: your questions answered

This morning the Office for National Statistics published preliminary estimates of an -0.2% fall in March quarter 2012 GDP. This follows a -0.3% contraction in Q4, so pulling the UK into a ‘double dip’ recession (the first since the 1970s). Below are some frequently asked questions, and my response.

Was the fall a surprise?

Most forecasters were expecting very modest growth in Q1, with the median estimate (according to Bloomberg) for a +0.1% increase. These forecasts were in line with most leading indicators and partial indicators, which pointed to sub-trend growth last quarter.

Though disappointed, however, I doubt many commentators (including myself) were that surprised. Preliminary GDP numbers are notoriously volatile, and there are several variables which can unexpectedly throw the result (more about that later).

Why did growth fall in Q1?

The services sector, which accounts for more than three-quarters of output, is not in recession - it rose a modest 0.1% in Q1 (a lot lower than business surveys and retail sales suggested). Industrial production fell by -0.4%, but that alone would not have been enough to produce a negative number. What dragged it lower was a -3% fall in construction output, which detracted 0.2 percentage points from the headline number. Without that fall, GDP would have been flat last quarter.

Should we believe these estimates?

Not particularly. Preliminary GDP estimates in the UK are based on less than half the data that go into the final national account estimates. The rest are extrapolated or imputed. They are frequently subject to large downward (or more commonly, upward) revisions. In a year or two’s time we could well discover there was no ‘double dip’ recession after all.

Former MPC member Andrew Sentance gave a powerful example in a March 30 blog:

In the early 1990s, the recession appeared to continue through 1992 and into early 1993. At the time, it was believed to be the longest recession that the UK had experienced since the Second World War. The most recent data show the decline in GDP coming to an end in late 1991, exactly when Norman Lamont declared he could see the “green shoots of recovery”. He was right, though ridiculed at the time.

Most economic commentators are likely to react with a degree of scepticism to today’s numbers, for three reasons. First, past GDP estimates have experienced major revisions. Second, there are serious quality concerns about some of the inputs, especially construction. Third, and most important, because these estimates are at odds with most of the other main indicators of economic activity. The numbers simply don’t gel.

So we shouldn’t be too worried?

Yes we should. There is a real risk that the headline contraction, reinforced by ‘doom and gloom’ stories the media will pump out over coming days, will weaken already soft consumer confidence and spending, discourage British business from hiring or spending, and deter foreign investment. If Britons talk themselves into a funk we could see what (to me at least) looks like a temporary soft patch into a more serious and protracted downturn. It’s all about Keynes ‘animal spirits’, as Akerlof and Shiller and others have noted.

How will the Government respond?

Calls for the Chancellor, George Osborne, to abandon (or at least modify) his fiscal austerity plans will grow. However ministers are terrified at the prospect of losing their AAA rating, and there are few signs of a ‘Plan B’ in the works. Indeed on Monday the Treasury chief secretary said he had asked Government department’s to identify another £16bn of cuts.

With the Office for Budgetary Responsibility set to downgrade its growth forecasts, larger spending cuts will be required simply to maintain the Government’s debt-to-GDP targets. So should the government cut even more, maintain its existing spending plans, or rethink its approach?

We can expect a protracted debate in the UK about whether the pace of spending cuts is too high, and hence self-defeating. It is a view forcefully made by Jonathan Portes, and even the IMF in their January 2012 World Economic Outlook Update (PDF):

Overdoing fiscal adjustment in the short term to counter cyclical revenue losses will further undercut activity, diminish popular support for adjustment, and undermine market confidence.

Dixit on 'the 21st Century’s Economic Hurricane'

Princeton emeritus professor Avinash Dixit is always worth reading, even when he is speculating about the economy over the next hundred years. Likening economic forecasting to weather forecasting (plenty of caveats and uncertainty), his approach is suitably sceptical. Here's how he kicks off:

At least one prediction can be made with high confidence... in the course of the next century there will be several financial and economic crises. Each crisis will be preceded by a boom and by a state of euphoria, when almost everyone will believe that “this time is different; we have learned how to avoid crises, and have finally learned the secret of how to sustain the Great Moderation.”

When the crisis hits, policymakers everywhere will be shocked and unprepared. Their panicked responses will merely paper over the real problems and sow the seeds of the next crisis a few years down the line.

Dixit lays out some provocative scenarios for our economic future. The chapter, entitled The Cone of Uncertainty of the 21^st Century’s Economic Hurricane (PDF), will appear in In 100 Years, ed. Ignacio Palacios-Huerta, to be published by MIT Press in 2013.

Economist job of the week: Director of Economic Analysis, Competition Commission

I have a number of economist friends and former colleagues who are looking for work, so I thought it might be helpful to post a 'job of the week'. They will mostly be senior, and mostly based in London - so apologies to my overseas readers and to more junior economist reading this post. I also plan to offer some advice on looking for jobs.

My first job of the week is a senior role at the UK's Competition Commission:

The Competition Commission is an independent public body which helps to ensure healthy competition between companies in the UK for the ultimate benefit of consumers and the economy. It conducts in-depth investigations into mergers and markets and also has certain functions with regard to the major regulated industries.

The vacancy is for their Director of Economic Analysis, a senior civil servant post paying £65-£80k base salary, plus benefits.They are looking for a"a first-rate economist" who is "practical in designing and implementing projects", is "an effective leader" and "an excellent communicator". Of course, it helps if you know something aboput competition and regulatory economics! The role also involves being Deputy Chief Economist at the Commission.

Closing date: Monday 23 April 2012

Introducing EconAcademics.org

I'm back again ..and would like to kick off by highlighting a recent and very welcome initiative by Christian Zimmerman and colleagues at the St Louis Federal Reserve: EconAcademics.org

According to the email I received this week:

EconAcademics.org lives at http://econacademics.org/ and aggregates blog posts that discuss economic research. The aggregator looks through blog posts for a link to some research indexed on a RePEc service, currently EconPapers, IDEAS and NEP. IDEAS then also links back from the abstract page to the blog posts.

A great idea, and time spent browsing there will not only introduce you to some new economic research, but new econoblogs as well.

Chart of the week: Spanish unemployment

Spaniards vote today, with opinion polls pointing to a change of government. Incoming conservative Prime Minister Mariano Rajoy faces unsustainably high sovereign bond yields, a depressed economy most likely sliding back into recession and, at 21.5%, the highest unemployment rate in the Eurozone.

While the European Commission's autumn economic forecasts, published earlier this week, forecast tepid GDP growth for Spain of 0.7% in 2012, most market economists are more pessimistic. Without further austerity measures, JP Morgan economist Greg Fuzesi expects a decline of -0.7% next year. With further measures, he forecasts GDP to fall by -1.1%.

What does this mean for jobs? In a research note published in the 18 November Global Data Watch (forthcoming), Fuzesi estimates what Okun's law - the relationship between GDP growth and unemployment - means for European labour markets. He forecasts that if the Spanish unemployment rate continues to move in line with its historic norm, it may reach a shocking 27% by end-2012. Why so high?

First, in Spain, the pace of growth needed to keep unemployment stable was very high at 3%, likely reflecting high immigration and rising labor force participation. The responsiveness of the unemployment rate to growth was also extremely high in Spain at almost one-to-one, likely reflecting a low responsiveness of the workweek to economic conditions and the dual labor market with rapid firing of temporary workers. Due to these two features, the dramatic increase in Spanish unemployment since 2007 has not been that unusual.

Rajoy and his Cabinet will have their work cut out for them...

Nudging behaviour: When incentives do (and don't) work

Behavioural economics has blossomed in recent years, to the point that the Fall 2011 edition of the Journal of Economic Perspectives can, along with articles on neuronomics, genetics and retirement, include a fascinating 20 page review paper on incentives. That's not surprising; a lot of people have taken an interest in them lately, including President Obama and Britain's prime minister.

When and Why Incentives (Don’t) Work to Modify Behavior was written by Uri Gneezy from the University of California–San Diego, Stephan Meier from Columbia Business School, and Pedro Rey-Biel at the Universitat Autònoma de Barcelona. It discusses when extrinsic incentives are more or less likely to alter behaviors in the desired directions, focussing on incentives in education, incentives for 'pro-social' behaviour, and incentives and lifestyle habits. They argue that although "incentives to modify behavior can in some cases be cost effective", there is also a danger that direct extrinsic motivations might 'crowd out' intrinsic motivations. For example:

...an incentive for a child to learn to read might achieve that goal in the short term, but then be counterproductive as an incentive for students to enjoy reading and seek it out over their lifetimes.

The authors conclude:

Our message is that when economists discuss incentives, they should broaden their focus. A considerable and growing body of evidence suggests that the effects of incentives depend on how they are designed, the form in which they are given (especially monetary or nonmonetary), how they interact with intrinsic motivations and social motivations, and what happens after they are withdrawn. Incentives do matter, but in various and sometimes unexpected ways.

To paraphrase Sergeant Esterhaus: Choice architects, let's be be careful out there!

I’m back

For various reasons I have been unable to blog for almost three years. But now I'm back.

It would be an understatement to say I have missed a lot. Not only the Great Recession and the not-so-great recovery, but all the fun and games in the Eurozone as well. Regulators are flexing their muscles, central banks have gone all 'unconventional' on us, European politicians are still struggling to find a lasting solution to their problems, American politics is as polarised as it's ever been, Japan is finally showing signs of recovering from its earthquake and tsunami, and China looks like it might just pull off a soft landing. Interesting times.

Economics, meanwhile, is in a right old mess. Like most of my economist colleagues I missed the warning signs, so owe you all a mea culpa. As a profession we have a lot to be humble about. It's clearly time to rethink many of the assumptions, models and verities that we once held to be true.

I don't have all the right answers, but I hope to pose some of the right questions over coming weeks and months, contributing in my own small way to the Great Economic Rethink. Along with more regular features and commentary, of course.

A word of thanks to the master econobloggers (Mark Thoma, Tyler Cowen, Brad Delong et al) and countless others who have written so many great posts in recent years. Particularly gratifying has been the number of leading academic economists who have joined the fray. Welcome!

When I get the time I will also update my blogroll, clean up the thousands of spam comments on the site, and perform other necessary site housekeeping.

Stay tuned.

IMF: "Risks to financial stability have intensified"

For those hoping that credit conditions might gradually be returning to normal, today's IMF Global Financial Stability Report market update contained a stark warning:

Risks to financial stability have intensified since October 2008. Macroeconomic risks have risen as global growth has fallen precipitously alongside a sharp slowdown of global trade. Credit risks have also risen as a deterioration of economic and financial conditions have resulted in rising loan losses. At the same time, the flight from risky assets and illiquid market conditions has increased funding costs, even as risk-free rates have declined with monetary easing.

That is despite the massive bailouts, spending plans and other government interventions we have seen since the last report:

...With the help of extensive government support, market functioning toward the end of 2008 improved in a number of asset classes. However, the negative interaction between the economy and the financial sector has intensified as the credit crunch bites harder and extends globally, with confidence among financial counterparties remaining strained. Indeed, the recent shock to bank earnings and other bad economic news has put further downward pressure on bank equity prices, and the width of credit default swap spreads points to still-elevated systemic risks.

And if you think that prognosis was depressing, the sentence that follows is even worse:

Notwithstanding public injections of capital, many banks around the world may have an insufficient capital cushion to weather a deep global economic downturn.

Translation: many banks are insolvent and probably won't survive the global recession.

The credit crunch ain't over; not by a long shot.

CBO: largest growth shortfall since the Great Depression

 The Congressional Budget Office's new director, Douglas W. Elmendorf, testified on the state of the US economy before the House Budget Committee today. It makes sober reading.

An accompanying blog post summarises his three key points:

1. The economy is currently weathering a recession that started more than a year ago, and absent a change in fiscal policy, CBO projects that the shortfall in the nation’s output relative to potential levels will be the largest– in duration and depth– since the Depression of the 1930s.
   
2. Most economists agree that both significant fiscal stimulus and additional financial and monetary policy approaches are needed.
3. H.R. 1, the American Recovery and Reinvestment Act of 2009, would, in CBO’s judgment, provide a substantial boost to economic activity over the next several years relative to what would occur without the legislation.

Somehow the low key style makes these conclusions seem all the more compelling.

'Lone dove Danny' quits the MPC

Controversial Monetary Policy Commitee member and Dartmouth professor Danny Blanchflower is leaving the Bank of England, according to The Times: Man who wanted early rate cuts David Blanchflower steps down from MPC

Professor Blanchflower, who has voted to cut interest rates every month since October last year, said that he would not seek reappointment when his three-year term ends on May 31.

Once can hardly blame him. Despite being one of the first to call the economic slowdown, global recession, downside risks to inflation and upside risks to unempoyment, he has routinely been derided by City economists and market commentators - and ignored by his fellow MPC members.

His doveish voting record often put him at loggerheads with members of the committee, who refused to cut rates earlier over fears about rising inflation. Professor Blanchflower, who travelled to rate meetings from his home in the United States, maintained that the sharp economic downturn in America could be replicated here and advocated taking evasive action by cutting rates.

'Lone dove' Danny has been proven right. The rest of the MPC stubbornly refused to acknowledge the growing downside risks to UK inflation from the global credit crunch and economic downturn.

A key lesson from this is the importance to bring a global (or US0 perspective to monetary policy. In a globalised world, what happens in the United States economy and financial markets clearly has major implicatiosn for the UK. While in theory British-based MPc members ought to be aware of these developments and factor them into their thinking, danny's example shows that they don't.

It is clearly time to globalise the Monetary Policy Commitee and move away from a parochial 'little England' approach. Let's see if Treasury have learned the lesson, and appoint another US-based member as Danny's replacement.

Are emerging Asia’s reserves really too high?

Aside from China, no, according to a new IMF working paper by Marta Ruiz-Arranz and Milan Zavadjil. This is in large part an attempt to insure against a repeat of the 1997 Asian currency crisis:

The paper has presented evidence that to a large extent explains Asia’s large reserve accumulation since the 1997–98 crisis through the precautionary motive. Current reserve holdings in most of Asia (excluding China) are not seen excessive when compared with levels predicted by a simple model of optimal reserves applied to specific country and regional characteristics. By mitigating the potentially large welfare costs of crises, reserves provide benefits in terms of insurance that more than compensates economies for the
opportunity cost of holding liquid assets.

Large currency reserves have the added benefit of lowering borrowing costs:

Furthermore, the benefits of reserves in terms of reduced spreads on privately held external debt, and thus borrowing costs, further justifies most of the observed growth in reserves. The paper finds that a majority of economies in Asia continue to benefit from reduced spreads, as evidenced by the high estimated threshold levels beyond which no further gains are realized.

Nonethless, the authors consider that current reserves "are close to or have recently reached optimal
reserves levels", and "a slowdown in the pace of accumulation in Asia is now desirable."

China, meanwhile, remains an anomaly. These models "cannot fully explain the large stock of reserves in China" - a subject to be explored in future research.