The U.S. Does Not Have A Debt Problem...It Has A Health Care Cost Problem

This article discusses the problems the U.S. has been facing with rising health care spending. Currently, health care spending is growing at about 1.5 times the rate of growth of GDP, and is about 20% of the economy. If this growth continues, health care will eat up the federal budget. Health care spending has been a root cause of our debt problems, and the charts from this article show health care spending to rise from 5% of GDP to about 18% of GDP, which will crowd out social security and national defense. As a result taxes could rise, and the U.S. could get become a junk quality sovereign debt. This is an issue that will continue to be brought up throughout the year as we head into election time, and it will be interesting to see what will happen.

Syrian forces shell Homs ahead of Arab meeting

This article discusses the conflict in Syria against the president Bashard al-Assad and the forming revolt against him. It’s an example of a total government failing and needing assistance from foreign governments. The conflict in Arab has possible negative externalities not only on civilians who aren’t necessarily part of rebel camps revolting but also on neighboring countries such as Turkey, Iraq, Jordan, Israel, and Lebanon. The U.N is slow to send help because a proper plan of action hasn’t been decided upon yet. Some countries feel that a plan of forcing Assad to step down from power is called for. While other countries are hesitant to intervene with the responding argument that the rebel forces are unorganized and Assad will always have the militant edge. The threat of a civil war is looming in the near future, especially if the civilian causalities keep growing.

The uprising revolt has been going on for the last 11 months but the conflict has just recently reached some of the larger cities, taking innocent lives. The recent bombing of Syria, third largest city, in the week long government siege homes has been the largest massacre. At least 31 people were reportedly killed.  Among these casualties was a 55 year old woman, whom was hit by piece of shrapnel in the head. Armed forces including military snipers and military armored tanks rolled into Syria firing armor piercing ammunition at an unorganized small group of rebels. It is clear that at any sign of revolt, Assad will destroy an area involved with no regards to the innocent civilians and neighboring countries.

http://www.reuters.com/article/2012/02/11/us-syria-idUSL5E8DB0BH20120211

Consumer Sentiment Falls More Than Forecast

Despite being out of the recession, consumers are still skeptical towards future spending. Bob Willis initially suggests that the rise in fuel price is part of the cause, but then expands to other factors such as a decline in exports in China, expectations for inflation and raise in incomes. The negative view for future may be causing a self for filling prophecy.

Obama's Proposed Fiscal 2013 Budget Has $901B Deficit

President Obama's 2013 fiscal budget includes, among other things, hundreds of billions of dollars in infrastructure projects. That means new and improved roads, sewers, and other public goods that will, after all the construction, leave us with a more efficient nation. The issue that I foresee is passing this budget through congress. The budget leaves the nation with a $1.33 trillion deficit, and we all know the republicans will not like this. The second largest expenditure on President Obama's budget is to jump start job creation. I'm interested in the regulation that will be attached with the money. How will firms use the money to create more jobs?

Education Gap Grows Between Rich and Poor, Studies Say

This article focuses on the achievement gap between the poor and affluent members of American society. While statistics about education may not initially seem to be based in the field of economics, the study makes conclusions concerning social mobility. According to the study, family income makes a difference in standardized testing and college completion – and the correlation between income and achievement has increased over recent years. Although it is possible for a member of the lower class to rise up by chance, it is far more likely to occur by acquired skills, which can come from a good education.

This reminded me of our discussion in class about a redistributive government and how income is determined, as well as the article “International Comparisons of Economic Mobility”. There are many factors that impact income but acquired skills and effort can be emphasized or developed through a good education system. This has the potential to change how an individual approaches life and the workforce. 

If American continues with this trend, the impact will become more obvious through total American human capital.  The more educated the workforce, the more innovations can be made, which can benefit a country as a competitor in the global market. How can America keep a high academic standard and lessen this achievement gap? Can it be done with today’s government-economy relationship or does it require a more centralized system?

http://www.nytimes.com/2012/02/10/education/education-gap-grows-between-rich-and-poor-studies-show.html?_r=1&ref=education

What's next for Europe...?

This article discusses the current European economic situation. The first paragraph of the article perfectly describes what europe must do to regain economic confidence and stability. In reality, they must come up with a system that puts more confidence and weight on the euro, as well as giving up control of budgets to a European authority like the European Central Bank.

The article focused on Europe's media forerunners for economic crises, including Spain, and Greece.

http://finance.fortune.cnn.com/2012/02/06/whats-next-for-europe/?iid=SF_BN_River

Keynes vs. Hayek

The video is a rap that details the ideological differences of Keynes and Hayek. It highlights the situations that each has focused on to prove their point.  Keynes states that government needs to be pervasive in the economy. Whereas Hayek alleges that the government needs to allow the market to act on its own.
http://www.youtube.com/watch?v=d0nERTFo-Sk 

US Trade Deficit Swells to $48.8 Billion on China Gap

The trade deficit widened slightly more than expected in December, and the bilateral trade deficit with China last year soared to a record high $295.5 billion.

The monthly trade gap swelled to $48.8 billion as goods imports climbed to the highest level since July 2008, just before the financial crisis caused world trade to plunge, a report from the Commerce Department showed on Friday. Analysts surveyed before the report had expected the December trade deficit at $48.0 billion, up from a revised estimate of $47.1 billion in November.

U.S. exports grew slightly in December, with records set for petroleum, services and advance technology goods. For the year, the U.S. trade gap rose 11.6 percent to $558.0 billion, the highest since 2008.

Exports last year rose 14.5 percent to a record $2.1 trillion, keeping the United States on pace to meet President Obama's goal of doubling exports in five years. Imports grew 13.8 percent to a record $2.7 trillion, with records set in several categories. Auto imports rose to the highest since 2007 and petroleum the highest since 2008. The average price for imported oil in 2011 was a record high $99.78 per barrel

The record trade deficit last year with China is certain to reinforce concerns in Congress about Beijing's currency and trade practice ahead of a meeting next week between Obama and the Asian giant's expected next leader, Vice President Xi Jinping. U.S. exports to China jumped 13.1 percent to $103.9 billion. But that was overwhelmed by a 9.4 percent increase in imports from China, which pushed the tally to a record $399.3 billion.

http://www.cnbc.com/id/46339978

Preventing collapse isn't enough

This article argues that the European Central Bank has not been liberal in its recent policies. It starts out by quoting part of a different article that made the conclusion that since the ECB is doing more than the Bank of England, it is liberal. He then says that this is not what the ECB should be measured against, but that it should be measured against an appropriate macroeconomic stabilization policy. In this case, its actions are not liberal in comparison.

The author argues that if one considers the growth, inflation, and unemployment in the euro zone, the European Central Bank should definitely be doing more than it currently is. He says the ECB is also failing miserably at facilitating labour-market clearing. The author says that the way to solve the problem of peripheral economies trying to boost their net exports (since exchange-rate adjustment is not an option) is inflation throughout the euro zone, which is not what the ECB is doing. Lastly, he says that there are structural issues in the ECB as well. It is willing to allow the euro zone to fall into a recession so that inflation may fall, and this leads to problems in growth.

U.S. Attacks China Inc.

The U.S. is taking the trade fight to the front door of Fortress China, a step that could hold more promise for companies than the endless debate over the value of the yuan.

Prodded by corporate chiefs across the country, U.S. trade officials have launched a coordinated attack on the core of America's commercial conflict with China: the heavily protected and subsidized Chinese state-owned enterprises that are pounding U.S. companies not just in China but in competition globally.

"There's been a change" in the U.S. approach to Chinese state capitalism, says Christian Murck, who heads the American Chamber of Commerce in China, which represents U.S. firms. "It's a good change."


"It's something of a paradigm shift," adds John Neuffer of the Information Technology Industry Council, whose corporate members have been hit hard by China's policies. "China is giving a leg up to domestic producers that we think is discriminatory to foreign companies—that's what we're fighting across the board."

The heightened focus on Beijing's grip on the China market is long overdue and takes place—big surprise!—in an election year. The question is: What will the U.S. do besides jawbone?

And jawbone it has. In bully pulpits in Geneva, Hong Kong, Beijing and many other venues, top officials from the State Department, the Office of the U.S. Trade Representative and other agencies have sounded the alarm. Secretary of State Hillary Clinton said in New York that the U.S. wants "competitive neutrality" for world commerce and warned that state-owned enterprises enter global markets "not just for profit, but to build and exercise power on behalf of the state."

Robert Hormats, the State Department's top economic official, told a group of U.S. firms in Washington: "The trade distortions created by the 'China Model' are disadvantageous to our U.S. companies…and a direct threat to U.S. jobs and competitiveness." And he repeated the criticism in Beijing.

In Davos last month, Treasury Secretary Timothy Geithner described China's state capitalism and its "subsidies and distortions" as "very damaging" to trade partners, echoing comments made by President Obama in his State of the Union address.

"Increasingly, trade frictions with China can be traced to China's pursuit of industrial policies that rely on trade-distorting government actions to promote or protect China's state-owned enterprises and domestic industries," the U.S. Trade Representative told Congress in December.

Beijing rejects this criticism and says China is merely developing its economy the way others have theirs. It isn't lost on China that many other developing countries still have state owned enterprises, including Russia and Brazil. The U.S. has dabbled in the model as well.

It is the omnipresence and girth of its SOEs that distinguish China. Supported by large state subsidies and preferential financing, taxes and regulations, the SOEs are at the center of China's drive for "indigenous innovation." They also empower the Communist Party leadership, which controls the national SOEs and their thousands of subsidiaries and related entities.

That vast empire accounts for about half of China's nonagricultural GDP, says the U.S.-China Economic and Security Review Commission, which reports to Congress.

So when a U.S. company goes to China to compete with a Chinese company, it often finds itself competing instead with the state. And it is the state that has the handy advantage of approving or rejecting the foreigner's investment, or demanding the newcomer transfer technology to China before getting access.

If you can't beat them, join them, which is what many companies—GM, Volkswagen and General Electric among them—have done by joint venturing with a Chinese SOE. The Chinese giants also have invested outside China, including in the U.S. Backed by the government's big subsidies, they often underbid U.S. and other competitors for international contracts, sometimes using the technology they got in one of those joint ventures.

In its new five-year plan, China goes further, identifying critical new industries the state plans to dominate and setting aside hundreds of billions of dollars in subsidies to fund that mission.

"If anything, China is doubling down and giving SOEs a more prominent role," says the Review Commission.

So what to do?

U.S. companies won't talk on the record about troubles in China because they fear retaliation. Increasingly, though, some top executives have wondered aloud whether the U.S. itself needs more government-led industrial policy.

Trade experts say new trade agreements, such as the evolving Trans-Pacific Partnership, will create trade clubs with enhanced market access but stricter restraints on state enterprises. The message to China: If you want to join, you have to change. But China Inc. knows its huge market will continue to attract investment. It may simply say, "No thanks."

Others suggest that a bilateral investment treaty between the U.S. and China could offer enough incentives to entice China to liberalize faster. But the incentives would have to be enormous to dislodge the politburo from its perch atop Chinese commerce.

"I don't have magic answers," the State Department's Mr. Hormats says. "But if they continue along these lines, they risk the global system turning inward, which will have very serious consequences for them."

An industry observer says no one wants a trade war, but a stick may work better than a carrot. "What we have the most control over is our own border and access to our own market," he says. "There's no way of addressing these issues without inflicting some pain on ourselves."

In the meantime, the U.S. is using a rhetorical battering ram on the fortress door. It's tough to see, though, how words alone will breach much of anything.

Mean-Spirited, Bad Economics

http://economix.blogs.nytimes.com/2012/02/09/mean-spirited-bad-economics/?ref=economy

This article discusses the reality about unemployment and the aid families receive when they lose a job at no fault to their own.  Within the article the author states some historical facts about the reasoning and logic behind the implementation of unemployment insurance. The author states that currently republicans are trying to cut unemployment insurance believing that it will force people to get back to work quicker. As of now, long term unemployment is at its highest in recent history and by cutting down the time in which people receive unemployment insurance people will be put in even more of a bind.  On the other hand, we could help these people that need the insurance and help them get back to work, where they will then have more disposable income to spend.  The Obama administration has yet to take action to this matter as well, even though he preaches that we help low to middle class families.  The title of this article, "Mean-Spirited, Bad Economics", infers that these new policies are heartless and expose the negative side of competition and shows that a small group of people hold more power that the large group of people currently unemployed.

Should America's Rich Pay More

http://www.economist.com/node/21543165

This article surrounds the topic of America complex tax system.  Barrack Obama has made a call to Americas millionaires and billionaires to pay their far share.  To do this he proposed to introduce a minimum tax rate on millionaires and return the top income-tax rate to 39.6% from 35%, and the other 98% of Americans would not have to pay more, he claims.  However, as the article states history shows that deficit reduction works best when most of the burden falls on spending cuts.  This means that the middle class entitlements would be reduced.  The idea of spending cuts just after the US has adopted a kind of universal health care program, education in the US is not even near quality of other developed nations and the continuous deterioration of infrastructure makes the idea of spending cuts scary.  How else do you see the US tax system changing in the future?  What advantages and disadvantages will come from Obama's proposed plan to raise taxes on the rich?

Government expects lending fund to turn taxpayers a profit

http://money.cnn.com/2012/02/07/smallbusiness/lending_fund/index.htm?iid=SF_E_LN 

As reported in this news, The Obama administration lending program , which set up to funnel cash to small banks , is expected to turn a profit of $80 million. This program is estimated to cost taxpayers 1.3 billion. Under the program, banks that seek an infusion of money spelled out how they would use taxpayer money to spur lending to small businesses.  Once the treasury accepted a bank’s plan, it became an investor in the bank; So far, this program has disabused $4 billion of the $30 billion it was allotted. According to Independent Community Bankers of America chief economist Paul Merski, in fact, the $4 billion infusion could eventually spur $32 billion in lending.  One successful example is Alma Bank received $19 million from the program and it reported one of the largest increases in lending to small firms. As the CEO of Kirk Karabelas which obtained the loan from the bank says, “we did need this money. It helped us dedicated more to small business lending, and God knows there are plenty of businesses right now that can use this. “

However, the turnabout is not all good news. The author states  that the Treasury Department’s Small Business Lending Fund helped far fewer banks than Congress intended. Furthermore, of more than 7000 community banks small enough to potentially qualify for the loans. However, only 933 applied. And a mere 332 community banks and organizations made the cut to receive the funding. Treasury explained that fewer banks are healthy enough to qualify for these funds. But, some small business leaders and banks are discontented with the low participation rate. They argued that the government officials are too stringent about which banks can get the money or that money banks had trouble navigating the application process.  On the other hand, some bankers or small business leaders have a different take on the lending fund. As the New Jersey Community Bank President, Bob O'Donnell, said he avoided the program entirely because he feared that the funds would allow the government to place restrictions on his bank.  In summary, government regulations are necessary to facilitate a healthy functioning economy, especially when during a depression or other difficulties. However, how much the government should do to regulate the economy is always an issue to be discussed.

Do Manufacturers Need Special Treatment?

http://www.nytimes.com/2012/02/05/business/do-manufacturers-need-special-treatment-economic-view.html

This article discusses government intervention not just as it relates to market failures, but also as it is used to give help to manufacturing companies.  In class we talked about government intervention when a market fails due to imperfect competition, an incomplete market or a market lacking complete information, however this government intervention is tax cuts for manufacturers rather than a legitimate reason for the government to intervene.  The author argues that while there may be some positive effects from this policy, overall the gains will be small.  The advantages that have been true in the past such as better income distribution for lower skill workers with positions in manufacturing is less true today and the need to raise demand doesn't need to occur at the manufacturing level, but at the household level.  The author believes that while government intervention is definitely necessary in certain cases and in certain problems we face today, manufacturing is not an area that requires it.

Fiscal Psychology and Political Economy

This article is a great example of why economics was originally called political-economy and how the psychology of governments as agents in the global marketplace is poorly understood. It is poorly understood because of the multitude of interests at play in any governmental decision and the array of policy options. Economics has so far devoted most of it's energy concerning this topic towards the latter problem. We have developed powerful tools and institutions for evaluating policy options. However we have accomplished very little in understanding what effects the actual decision making process.
The real lesson to economics from the euro crisis playing out in Greece and other European nations is that the ability to rationally/efficiently make decisions may be more important to an economic system then what specific policy option they pick.

Is Reduced Policy Uncertainty Responsible for Improved US Economic Fortunes?

Since economic policies materially affect the economy, uncertainty about future policy changes also affects the economy, since actors in the economy are uncertain about the outcomes of their current behavior and wish to avoid making costly mistakes. This can result in reduced economic output as key actors wait to make decisions as they await final policy decisions. Four months ago, Scott Baker and Nicholas Bloom determined that policy uncertainty was hurting the US economy, since so many policies were in doubt. These included the budget ceiling debates and regulatory and tax reforms. Now, they argue that public attention has moved from pending legislation onto the Republican presidential primaries, and this shift in attention away from pending policy changes is largely responsible for the increase in United States economic fortunes.

While I certainly agree with Baker and Bloom that economic policy uncertainty can be very detrimental to economic success, I am not sure that I entirely agree with their method of measurement for 'economic policy uncertainty'. Baker and Bloom rely on a formula in which half of 'economic uncertainty' is determined by the headlines in the popular press. Logically, the headlines have changed from 'economic uncertainty' to 'Republican presidential nominations', but I am not so sure that this shift signals increased certainty, rather it showcases the political showcase du jour. I feel as though they are stretching their hypothesis when tying the increased economic success in the past few months to increased certainty. Regardless of the current cause and effect, Baker and Bloom present an interesting graph showing declines of economic production in times of uncertainty.

Greece Facing 'Dramatic Dilemma'

http://money.cnn.com/2012/02/07/markets/greece/index.htm?iid=HP_LN

Greece's clock to negotiate more measures to ensure it is given a second bailout by the International Monetary Fund and European Union.  The deal being brokered is further austerity measures to balance the Greek budget.  Austerity measures have already been placed in Greece, but further budget cuts are needed to satisfy the IMF and EU.  The EU needs to bail out Greece and other nations who are part of it in order to avoid a "financial shock:" if the nations pull out. 
The Greek's recognize that austerity will have "high social costs," but recognize that this may be the only way.  It is important to note that austerity measures have so far not helped the Greek economy.  The economic growth predictions for Greece has shrunk in response to more austerity plans.

In Kodak Bankruptcy, Another Casualty of the Digital Revolution Read more: http://business.time.com/2012/01/20/in-kodak-bankruptcy-another-casualty-of-the-digital-revolution/?iid=biz-article-mostpop1#ixzz1llHsdQQH

In capitalism, competition is very high, and only the most efficient firms that innovate themselves regularly stay in the market. This article is an example of a firm that fell complacent and tried to survive on its past achievements.   Eventually there came a time when it was no longer competitive in the market and had to file for bankruptcy. 

Why China's Housing Market will Slow, Not Collapse

Unlike the United State's housing market China's housing market is viewed as a safe place for investors to put their money. According to this article the income of the Chinese population is on the rise and that is correlating a rise in demand in the housing market. Precautions have been set by the Chinese government in the form of limitations on the amount that banks can loan out for home purchases. I think that this precaution will be very helpful in preventing an economic downfall. According to Bhaskar Chakravorti, an executive director at Tufts University, due to the size of the recent rapid surge( Regional growth of 82% in over 35 Chinese cities) in housing prices, even a 20% drop in prices would be withstand-able for China. In fact, the government saw that the housing market was rising too quickly for their liking so they implemented limitations on lending. So declines in the market are actually welcome by the government, and have also made houses more affordable to a larger population of the Chinese. Due to the limitations that have been implemented by the government, the housing market is forecasted to drop by 20% at the national level, but this will not worry the Chinese government.

The classes drift apart---Can the rich save the American dream by preaching what they practise?

This is a nice article to check after reading our supplemetary essay of capitalism: “International Comparisons of Economic Mobility,” in Getting Ahead or Losing Ground: Economic Mobility in America.

As talked by the essay, the United States has been famous and proud for its "Americam Dream", thus if you work hard, there will always be chances waiting for you. But according to most of the researches, the reality shows totally oppsite things.

This articles states that not only the mobility between classes is low, but also the classes are drifting apart. There is an obvious isolation of the new upper level class. But in the oppsite, the lower level class are struggling harder.

Where you might not be shopping in 2012

Retail stores are still trying to recover in this recession and although things have improved, there is still a long road ahead for several stores. Approximately 3,000 stores closed in 2011 which was considerably better than the 5,000 lost in 2010. Stores such as Sears, J.C. Penny, and Gap are having a hard time recovering as they seem to struggle to change with the time and carry today's hottest accessories. We have seen the demise of Blockbuster over the years as we are in the transition of streaming video and actual DVD's are being purchased and used less and less. The general reasoning for the struggles of these stores are that they are simply struggling to keep up with the times and have not made nearly enough advances to compete with newer, more advanced businesses entering the markets.

Job Openings in U.S. Rise by the Most in Almost a Year

One of the best indicators for the status of an economy is the unemployment rate.  This article states that the most job openings in a year occurred in December and have continued to see high openings in the following months.  Economist believe the economy will continue to expand so employers are looking for new workers for the expected continue growth. However, the Fed Chairman, Ben Bernanke stated, “We still have a long way to go before the labor market can be said to be operating normally.”  He went on to say the number of people who have been unemployed for a long term (27 weeks) is too high.  Do you believe the economy is on its way to bouncing back or will the economy dip again?
http://www.businessweek.com/news/2012-02-07/job-openings-in-u-s-rise-by-the-most-in-almost-a-year-economy.html

India's Air the World's Unhealthiest, Study Says

http://india.blogs.nytimes.com/2012/02/01/indias-air-the-worlds-unhealthiest-study-says/?scp=4&sq=pollution&st=cse

We have recently discussed in class the role of the government to intervene when market failures occur. One reason for government intervention is for negative externalities, such as pollution. The article discusses the annual study, the Environmental Performance Index, which uses satellite data to measure air pollution concentrations in countries all over the world. Currently, India has the worst air ranking out of 132 countries, which has been caused by their high level of fine particulate matter. These particulate matters are not only five times the threshold, but are also unsafe for human beings and have been the cause of infections and cancers. Even the smaller cities in India are enduring pollution, which has been caused from the increase of vehicles and power plants in India. India created an Air Act in 1981, but they have lacked enforcing this act. A scientist at India’s Central Pollution Control Board does not think the findings in the study should be much of a concern to the country because India has a different environment than other countries and because India would not have developed with restrictions on polluting. This does not seem like the best reasoning to just ignore the problems with pollution in India, which will most likely get worse in the future if no action is taken.

A hair of the dog -- A bit more debt keeps the recovery on track

http://www.economist.com/node/21546034

A bit more debt keeps the recovery on track

Feb 4th 2012 | WASHINGTON, DC | from the print edition

AFTER three years of stagnant loan growth, The Peoples Bank in Coldwater, Ohio, has noticed a change. Clients who two years ago would not have qualified for a loan now find that they can. One customer who was working for only 35 hours a week two years ago is now working 45 to 50 hours. “That was his reason for coming in: he had steadier income,” says Jack Hartings, president of the seven-branch bank. Since the bank’s main alternative to lending money is buying Treasury bonds that yield only 1%-2%, Mr Hartings is eager to make new loans.

Across the country, bank lending, which shrank almost steadily from early 2009, is growing again (see chart), thanks to modest employment growth, stabilising home prices in many regions, and the Federal Reserve’s Herculean efforts to hold down interest rates.

Both of these sectors were helped by easier credit. Moderate job growth, skimpy pay rises and higher petrol prices held growth in income after taxes and inflation to just 0.9% last year. Consumption grew faster because households borrowed more and saved less. Saving, which had topped 5% as a share of disposable income in the wake of the recession, had fallen to 3.5% in November.

This is helping. In the fourth quarter, America’s economy grew by 2.8% at an annual rate, the fastest in an otherwise dreary year. Much of that was from inventory restocking which will not be repeated. Still, consumer spending rose at a 2% annual rate and house building expanded by 11%, the most since 2004.

This was not sustainable, and indeed the saving rate jumped back to 4% in December. Are further increases in store? If so, that would hold back consumption, which accounts for roughly two-thirds of GDP. And indeed that is the main reason recoveries after financial crises are usually sluggish: households and businesses have to hack back the debt they accumulated during the boom years, a process called deleveraging. Households have as expected reduced their debts relative to their incomes; much of that has come by defaulting on their loans. More such defaults are probably in store. The question is, will consumers also divert more of their income from consumption? That would cause the saving rate to rise further.

Nathan Sheets, an economist at Citigroup, reckons that household debt, now running at 120% of disposable income, should be 100% to 110% given the current configuration of interest rates, unemployment and asset values. This, he reckons, can be achieved with a saving rate of just 4.5%, not much higher than it is now. But the Bank Credit Analyst, a financial forecasting service, thinks households’ current net worth is more consistent with a saving rate of 6%.

A higher saving rate would be much less painful for the economy if it were achieved through increased income rather than lower spending. That could happen. The non-partisan Congressional Budget Office (CBO), in its economic outlook released on January 31st, reckoned that real disposable incomes would grow by 3% this year thanks both to faster wage growth and a big drop in inflation. That, it reckons, should support growth in consumption and overall GDP of 2%.

Plenty could go wrong with this scenario. Oil prices could spike again; banks, worried about Europe, could tighten their lending standards, as they already have done for some business loans. And at the end of 2012 an even bigger threat looms: taxes will automatically rise and spending shrink unless Congress votes to override existing legislation. The CBO reckons that would slice the deficit in half, but at the cost of pummelling the economy. For private deleveraging to proceed, public deleveraging may have to wait.

S.E.C. Is Avoiding Tough Sanctions for Large Banks

http://www.nytimes.com/2012/02/03/business/sec-is-avoiding-tough-sanctions-for-large-banks.html?hp
Since the recession began there has been some animosity between the public and Wall Street, whose speculation is often blamed for causing the 2008 recession and helped birth the Occupy movement.  This article shows that the Security and Exchange Commission had actually been avoiding punishing companies that mislead its investors, and at a time when President Obama wants to "make punishments for fraud count" this looks unsettling.  Though deregulation is part of the Anglo-Saxon model of capitalism there could be a strong public backlash against the organization because of it.

Brazil's future More personal security, less inequality

Fernando Henrique Cardoso on Brazil's future

More personal security, less inequality

The Economist: Can we start with the way Brazil’s place in the world is changing? Brazil seems to be trying to create a new sort of world power—a “soft power”.

Cardoso: In the last century Brazil’s economy grew very consistently up to 1980. Only Japan grew faster in per-capita terms. From that point on Brazil has been always looking for roles. In Brazilian people’s minds, we are a giant. But our size, for so long it was an illusion. We did not yet have the capacity to play an important role. We were all the time envisaging what we might become.

Brazil aspired to be part of the core group of the League of Nations; after the Second World War Brazil raised that possibility again [during the creation of the United Nations]. Churchill vetoed it, saying that the Americas could not speak with two voices. Churchill was wrong. So we have always aspired to a big role.
In the 19th century, because of the struggle between Spain and Portugal, we were involved in wars in the South, and the Brazilian empire was perceived by our neighbours as a trap. Then the axis moved towards the United States and Brazil became a Republic and much more quiescent—and again hesitated. To what extent would we play a hegemonic role in the region? We never assumed such a role. We preferred to be more loved than feared.

At the end of the last century, the economy became so vigorous, we had established democratic traditions and we rediscovered our cultural particularities. These give us a sense that maybe we can play a role in the area of “soft politics”: not just to be economically strong, but also because of our capacity to accept others, to be tolerant. We love to consider ourselves as open-minded, as a racial democracy. It’s not entirely true, but it’s an aspiration with some ingredients of reality. Because in fact we are more tolerant than several other countries.

Compare the United States and Brazil. Both are countries built on migration, but in Brazil migrants have fused much more, and what has been even more impressive is that the cultures have mixed. We do not have a Black culture in Brazil, and a White culture. It is senseless in Brazil to speak about a Black culture: it is our culture.

And we are very accepting of variety in religion. We are not intolerant—Brazilians are syncretists, not fundamentalists. And because we are a country composed of migration we have contacts with many different parts of the world. Lots of Brazilians are Japanese and maybe more than 10m are Arabs. More than that are Germans; there is no other country in the world with more Italians, in absolute numbers. And all this fused. We never exactly know our descendancy.

Brazil has always been in favour of multilateralism, instead of bilateral relations, and of trying to negotiate, to bridge. Brazilian diplomacy is based on that. We need to look South, to the basin of the Rio da Plata—and to America; both relations with America and the South. There are elements of flexibility in Brazilian culture; they originate with the Portuguese, not only in Brazil.

If you compare the Portuguese and the Dutch in Africa, it is quite different. The Portuguese always had sexual relations with the native people. There is a phrase I like to repeat when I’m in Spain. In the eighteenth century the Marquess of Pombal [Sebastião José de Carvalho e Melo; the first minister of the Kingdom from 1750 to 1777] sent a letter to his brother, the viceroy of the North of Brazil, saying, we have to promote the Portuguese who marry indigenous women, because it is better to have half a Portuguese than one Spaniard! They were fighting the Spanish and worried about the demographic question. They felt the children were somehow Portuguese. That was not common in the Spanish world. They kept more separate.

Then in Brazil, the dominant ruling class normally tried to disguise the fact that inequality was so high. One of the ways to disguise differences is to treat people as if they are closer than they really are, to speak as if we were equal. To some extent this is a tricky thing, even if people are not aware of it: it is a way to maintain differences without provoking a strong reaction. The traditional part of the ruling class in Brazil will always be mild, soft, always saying “please”, not ordering. This is not the same now with the new bourgeoisie: they are much more arrogant than the old traditional elite groups in Brazil. They are different; more capitalist.

The Economist: Let’s talk about those social changes. Brazil has changed an enormous amount in recent years.

Cardoso: The landmark was the new Constitution. The beginning was the struggle against the military and the strikes, and the new constitution was the baptism of a new society.

The Economist: It’s still changing. This Republic is young; the Constitution was only written in 1988. You’re working out your institutions still. You are part of that process of institution-building, possibly the most important of all Brazil’s institution-builders.

Cardoso: The sense of institution has always been very present in Brazil, compared with other parts of the New World. The Portuguese monarchy was stable, and we were heirs to the Portuguese crown. All the institutions came here with the king of Portugal and Rio [de Janeiro] became the capital of the Portuguese Empire. And simultaneously this is a highly disorganised society! It is difficult to combine these facts: that we have institutions and simultaneously we are very ready to disobey them. It’s a flexibility—the jeitinho. It is good and bad. In some aspects our legislation is wonderful but the practice is a disaster. For example, we have very strict rules for the behaviour of public servants and politicians, and with respect to public money. And in spite of that corruption is there.

The Economist: Is corruption increasing?

Cardoso: Always we have had some degree of corruption, here and there, but the system was not corrupted. Now the system allows corruption as a normal ingredient. Everyone knows that when you organise a cabinet you have to share power with parties. But you are not sharing power, you are sharing opportunities to have good contracts.

The Economist: Was that not the case for you?

Cardoso: No, no, no. Maybe in one or another case, but now the whole system is based on this. This is novel. It’s a very bad development. In the political culture flexibility has become… not flexibility, but tolerance of crime. You have institutions, you have tribunals—but nobody is in jail.