Rising Unit Labor Costs Not Responsible For Weak EZ Economy

Stephen Rattner's article, which I posted and commented on two days ago,  argued that anti-business regulations in the EZ, which keep unit labor costs from falling, are the cause of the EZ recession.  Paul Krugman provides us with a picture of rising unit labor costs in the EZ and he argues that they are pretty consistent with what one would expect with a 2% inflation target.  Germany's unit labor costs are an exception on the low side.  They are much lower than those of other EZ nations.  Italy is an exception on the high side.  Furthermore,  the EZ has a trade surplus with the rest of the world.  The EZ recession can't be explained by a lack of global competitiveness.  The basic problem in the EZ is a lack of domestic demand.  Does Rattner believe that wage cuts would increase EZ wide demand?

Stanford Public Opinion Poll On Global Warming

The great majority of Americans, and even 47% of Republicans, believe the scientific evidence about global warming.  Democrats and Independents are more inclined to vote for politicians who support policies to reduce carbon emissions.  Republican voters have a negative response to climate change deniers, but they are not more likely to vote for a candidate who supports policies to address climate change.  Tea Partiers respond favorably to Republicans who avoid taking a position on climate change by stating that they are "not scientists".  Its bad to be on the wrong side of science, but is OK for Tea Partiers to pretend ignorance.

US Economy Grows by 2.6% in Q4

The US economy grew slower than it did in Q3,  but it was not far from the expected growth range.  Business investment and government spending were a drag on the economy, but consumer spending which is 70% of GDP, increased in response to lower oil prices.  Some economists attribute the relatively strong performance of the US economy to structural factors which make US firms cost competitive in international trade.  This is not supported by the data.  Net exports were negative.

Europe's Economic Problems Due To Anti-Business Policies

The US has economy has grown much faster that the eurozone economy since 2000.  This article reflects the views of some in Northern Europe who believe that structural issues in Southern Europe are the root cause of anemic growth in the eurozone.  High unit labor costs have made the eurozone uncompetitive in the global economy.  Even Germany has a competitive problem.  Its unit labor costs are also too high in the competitive global market.

Although, the eurozone may have some structural problems, the evidence used to support the lack of competitiveness hypothesis is faulty.  One of the graphs in this article shows that the eurozone economy was growing rapidly between 2000 and the beginning of the financial crisis in 2008.  GDP growth in the eurozone, and in the US, fell dramatically at the onset of the recession, but growth in the eurozone has been much slower than it has in the US.  I would assume that the structural and competitive issues described in this article existed during the period of rapid growth prior to the recession.  Consequently, its hard to argue that they only became a problem after 2008.  Moreover, much of the trade by members of the eurozone is between other nations in the eurozone.  Northern Europe's competitive advantages over Southern members of the eurozone did not accelerate at the onset of the financial crisis.  The eurozone, as a whole, is still suffering from the damages done to its banking system by the collapse of the real estate market and a huge decline in domestic demand.

The US economy has rebounded faster from the recession than the eurozone.  Is that because the US businesses became more competitive in the global economy than they were prior to the recession?  The modest US recovery has been led by a rise in domestic demand, and not by a rapid increase in exports.

The Shrinking, And Changing, Middle Class In The US

The number of households that satisfy the income definition for middle class has shrunk by 10% since 1967.  The demographics have also changed over time.  Married households with children are no longer the largest segment of the middle class.  Elderly households, with accumulated savings and benefits, is the fastest growing segment of the middle class.  This article provides an excellent description of the changes that have been occurring in the middle class. 

S&P Cuts Russian Sovereign Debt Rating Below Investment Grade

It will become more expensive for the Russian Government to borrow the funds that may be needed to compensate for its loss of oil revenues.  The risk of default, as well as the risk of a further decline in the value of the ruble,  may have been factors in the S&P ratings cut.

The Software Based Economy

Marc Andreesen was one of the developers of the browser (Netscape), which made the Internet useful to ordinary mortals.  Netscape lost out to Microsoft's Explorer when was made part of its operating system and Andreesen moved on to other things.  He is a venture capitalist and has been on the board of Hewlett Packard and other Silicon Valley firms.  In this article, he describes that rapid evolution of the computer industry which has evolved to the point where it is dominated by software.  Companies like Google, Facebook, Twitter etc. are essentially software companies which have taken advantage of the Internet to provide products to billions of users.  Coupling software with the capabilities of the Internet is going to transform the global economy according the Andreesen.  The retail industry has been transformed by Amazon, which is essentially a software company; the music and TV industries are also become software industries.  Eventually the auto industry will become dependent upon software as well as other industries such as education. 

Andreseen is an entrepreneur and a successful VC.  He may envision more "creative destruction" in once stable industries than is likely in the short term but we are long way from tapping into the full potential of the Internet and new applications that are under development today.