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A Wall Street Journal “Heard on the Street” item plays up the early good news from Greece’s austerity program: In the first half, Greece’s budget deficit came in at €9.6 billion, down 46% from the same period of 2009, the Finance Ministry said this week. Revenues rose 7.2%, while spending fell by 12.8%. Revenue growth remains below target, but not all of the revenue measures have come into effect yet and spending cuts are well ahead. That continues the positive trend identified by the European Commission, IMF and European Central Bank in June’s interim review, and makes this year’s deficit target of 8.1% achievable. The writer’s conclusion is that perhaps a Greek tragedy can be averted after all. This assumes, of course, that the numbers can be believed.

A post in the Wall Street Journal’s Real Time Economics blog notes that counting research and development as investment rather than as an expense would have increased gross domestic product by 2.7 percent between 1998 and 2007 (they refer to new numbers from the BEA). If this were standard national accounting practice, then measured GDP would have grown 0.2 percent faster, or an average of 3 percent annually. It makes some sense to treat R&D as an investment, but this item begs the question: would anyone have been better off if we did?

People often say that the problem in Greece is profligacy. Greece, the story goes, is a nation living beyond its means. Reading the press, in fact, one gets the impression that Greeks must enjoy one of the highest standards of living in Europe while making the frugal Germans pick up the tab. In reality, Greece has one of the lowest per capita incomes in Europe, much lower than the Eurozone 12 or the German level. Furthermore, the country’s social safety net might seem generous by US standards but is truly modest compared to the rest of Europe. As to borrowing, Greece is far from unique in its level of overall indebtedness as a percentage of gross domestic product. So what’s the real problem? It all started when Greece embraced the Euro, which some saw as the country’s salvation. But as is so often the case, what once seemed a strength turns out to be weakness. The same might be said of Greek social programs; once seen as a pillar of the state, in hard times they automatically swell government deficits. Remember that as Europe slid into recession, tax revenue fell and social transfer payments (such as unemployment benefits) rose, opening a larger gap between tax receipts and spending. The same thing happened in the United States. But the United States… Read More

There is no alternative to free-market capitalism, Margaret Thatcher used to say, and about this, like so many things, she was wrong. In fact a variety of alternatives are functioning quite well, and a number of them are succeeding by operating according to the principles of the Solidarity Economy. What is the Solidarity Economy? It’s a movement that has brought hope to a world disillusioned by capitalism and too often unaware that economic activity can be conducted with respect for human decency and the planet on which we live. Its five key principles are solidarity, sustainability, equity in all dimensions, participatory democracy and pluralism. The Solidarity Economy isn’t a new idea, even for the United States. Economic practices that fall under the umbrella of the Solidarity Economy have been happening for a long time. They have been growing in recent years. Most people, often including the people practicing the alternatives, aren’t aware of how much alternative economic practice is already happening around them. The project of the U.S. Solidarity Economy Network (US-SEN, ussen.org) is to bring together the people who are practicing the principles of the Solidarity Economy (solidarity, sustainability, equity in all dimensions, participatory democracy and pluralism), disseminate best practices for achieving these principles, and encourage the deepening of economic practices along all these axes.

Under the new financial reform measure hammered out by Congressional negotiators, mortgage lenders “will have to check borrowers’ income and assets.” Here it is, in black and white. A regular sea change.

They stand out, don’t they? Things have been quiet in the Eurozone lately, but today the cost of insuring Greek government bonds set a new record by surging past $1 million (to cover $10 million for five years). The price is said to imply a 67 percent probability of default in the next five years. The full story is here.

The clock is ticking and right now first-time buyers have to close the deal in six days. The incentive is sweet: up to $8,000 from Uncle Sam. The Internal Revenue Service reported that $12.6 billion was credited to 1.8 million home buyers (the final toll will be higher as transactions in 2010 have not been filed yet, not to mention the inevitable fraud). Calculated Risk, a highly regarded blog that tracks these matters, suggests that six months of inventory is normal in the housing market. For new homes, in May, the level rose to 8.5 months from 5.8 in April as sales plunged. Things are little better in the market for pre-existing homes; there we find 8.3 months of supply, in part due to the non-stop flow of foreclosures and short sales. From the data, it seems that the tax credit program has stimulated the market, at least a little, and for awhile. My question to you is, should our uncle in Washington keep the program going? Pros: Propping up shaky home prices may encourage private spending and support aggregate demand. Aiding the real estate market in lowering inventories may keep prices from falling further and generate some construction jobs. Reaching a “normal” level of inventories may improve everyone’s expectations and thus create a virtuous cycle of self-fulfilling recovery. Cons: The tax credit… Read More

The Bank for International Settlements has released its quarterly review (hat tip EconBrowser). In it, you will find an interesting graph on page 19 (or page 23 including cover pages), titled “Exposures to Greece, Ireland, Portugal, and Spain by nationality of banks”. It’s reproduced here on the left (click on it for a larger view). I am puzzled by the relatively small size of public sector debt compared to the quite significant contribution of private sector debt in the countries discussed. Is fiscal austerity really going to be a solution? I wonder how in the world cautious German and smart French banks ended up with so much exposure to private debt in Spain. Of course, ingenious American banks are disproportionately exposed to financial products rather than straightforward debt. It seems financial reforms of different kinds are required in different places.

The Economist takes a look at European austerity plans and finds…not much. Substantial cuts are happening mainly in the smallest Eurozone countries. Overall the impact is slight, although of course cutting anything at all is still the opposite of stimulus.

Levy public policy scholar Daniel Akst argues in this op-ed that the rise of unpaid internships is exacerbating income inequality. These internships are perceived to offer important professional experience and contacts. Yet young people without money can’t afford to take them, which means kids without money are at a further disadvantage in applying later for desirable paid work.

About a year ago, supply-side economist Arthur Laffer (known for the “Laffer curve,” a graph that depicted tax revenue first rising, then falling as tax rates increased) published an op-ed piece in the Wall Street Journal predicting sharply higher inflation and nominal interest rates over the next four to five years. The justification given for this claim was the rapid growth of the money supply, as measured by the Fed’s monetary base statistic, since the fall of 2008. One year later, inflation has not taken off. Meanwhile, the stock of currency and bank reserve deposits at the Fed has continued to grow rapidly, though growth has slowed markedly over the past year. The chart to the left (click on it for a better look) shows that Laffer’s preferred measure of money-supply growth has trended downward recently. It remained at about 100 percent, year-on-year, in the three months immediately following the op-ed piece. Since then, money-supply growth has remained in the double-digit range. However, there has been no discernible and sustained upward trend in nominal interest rates or inflation. Many recent events have conspired to keep these numbers at low levels. On the other hand, an argument can be made that the money supply itself is mostly a somewhat unreliable indicator of what is happening, rather than a crucial mover of… Read More

Levy research scholar Thomas Masterson has co-edited a new book about the Solidarity Economy, a form of economic organization that emphasizes cooperation over competition and communal well-being over individual gain. From the back cover: “So many of us wish for something more, something different—an economy that we can feel a part of, not that makes us feel like a disposable cog in a mindless, heartless, soulless machine. That something exists and it’s called the Solidarity Economy. It represents new ways of living, of working, of consuming, of banking, of doing business. It represents different ways of doing trade, aid and development between nations. This kind of economy starts from entirely different premises than those of the ruling model of neoliberal capitalism which enshrines individualism, competition, materialism, accumulation, and the maximization of profits and growth. The solidarity economy by contrast seeks the well being of people and planet. It holds at its core these principles: solidarity, equity in all dimensions, sustainability, participatory democracy, and pluralism (meaning that this is not a one-size-fits-all model).”