Sunday, February 24, 2002

The new American challenge "Something fundamental may be changing in the economic balance between the US and western Europe. ... If the present divergence continues, Europe, already insignificant militarily and politically, will play a declining economic role as well. ... That divergence is itself the result of the US productivity renaissance. ... Also important are hours put in by each worker and the proportion of the population in employment. ... In 2001 ... productivity per hour in the EU was as much as 87 per cent of US levels, but real GDP per head was only 67 per cent. ... the EU's shorter average working hours and ... the smaller proportion of its population at work. ... The apparently good EU productivity performance was partly caused by undesirably large falls in employment." " ... steady divergence between the US and the EU in productivity and standards of living. This ... divergence could slow if the EU were successful in raising employment rates towards US levels. But that would take politically implausible changes in the EU labour market and fiscal structures. ... the US economy could grow by at least 1 percentage point a year faster than the EU's. Such sustained superiority is not implausible. The US does ... possess many advantages ... its greater acceptance of market forces; the superiority of its institutions of higher education ... its domination over most areas of new technology; its relatively youthful population; and its openness to immigration of the best and brightest." "It is always difficult to discern breaks in trends. Trends in productivity growth are no exception. But we may be witnessing such an event. For half a century, western Europe did a wonderful job of dealing with le defi Americain [the American challenge]. But the challenge has been renewed. Can Europe respond?" ... [more] 2:38:21 PM    comment  []

The Betrayal of Capitalism By Felix G. Rohatyn " ... I frequently gave a speech I called "Popular Capitalism in America" ... This is a subject of intense interest to ... most ... Europeans, who envy us our high rates of growth and low unemployment but who often believe that the price we pay for these benefits is an inadequate social safety net, a tolerance for speculation, and unacceptable inequality in wealth and income. They also see the American system as one that inflicts high levels of poverty and unemployment on developing countries by the harsh stabilization measures required by the IMF and other Western-directed financial institutions. I made this speech to dispel some of these notions ... Alan Greenspan's statement that 'modern market forces must be coupled with advanced financial regulatory systems, a sophisticated legal architecture, and a culture supportive of the rule of law.'" " ... analysts made fantastic claims about their favorite stocks ... often supported by creative accounting concepts such as 'pro forma earnings'—a management-created fiction intended to show strong results by excluding a variety of charges and losses and one that was implicitly approved by supposedly independent auditors. A large part of the stock market was becoming a branch of show business ... " " ... The events surrounding the bankruptcy of Enron go beyond the sordid situation of Enron itself and raise the larger question of the integrity of our financial markets. That integrity must be maintained to protect our own investors, to finance economic growth, and to maintain the flow of foreign investment. ... we require about $1 billion per day of capital inflows to finance our trade deficit. A decrease in foreign investment would have seriously damaging effects on the securities markets, the stability of the dollar, and the economy generally. The last thing we should tolerate is a loss of confidence in our capital markets. ... recent events suggest that our regulatory system is failing. ... one of America's leading companies became the symbol of the defects in American capitalism ... Enron's failure is only the latest in a series of events that have cast a shadow on the integrity of our markets and the efficacy of the regulators ... Serious reforms again are needed, particularly to ensure that accounting firms will henceforth act honestly and responsibly." "Unless we take the regulatory and legislative steps required to prevent a recurrence of these events, American market capitalism will run increasing risks and be seen as defective here and abroad. That could have deeply serious consequences not only for our domestic economy but for the world economy as well. Enron's failure was ... part of a general failure to maintain the ethical standards that are, in my view, fundamental to the American economic system. Without respect for those standards, popular capitalism cannot survive." ... [more] 2:24:38 PM    comment  []

French economy contracts "France's economy contracted 0.1% in the fourth quarter last year compared with the third, bringing full-year growth to 2.0%, the national statistics institute INSEE reported on Friday. ... It was the first quarterly contraction in gross domestic product since the fourth quarter of 1996." ... [more] 10:05:12 AM    comment  []

'Tell-all' atmosphere has some feeling uneasy "As more companies come clean, uncertainty will rise among investors unsure of what they'll find." "Heightened anxiety could further erode confidence, already shaken by Enron's accounting scandal. ... 'Now comes the potential for confusion.'" ... [more] 9:57:42 AM    comment  []

One Rule Of Plastic: Recovery Has a Dark Side [Analysis of credit card industry] " ... we are projecting that ... [personal] bankruptcies will [show] an increase of about 10 percent [in 2002]." ... [more] 9:42:56 AM    comment  []