Currency Devaluation and the Threat of Global Currency War

The rapid devaluation of the Japanese yen has created fresh fears of global currency instability. Citing perennially slow economic growth, Shinzo Abe—the newly elected Prime Minister of Japan—decided to crackdown on deflation through aggressive monetary policy easing that would significantly devalue the yen. However, policy-makers from the EU and the US have decried Japan’s move as an attempt to gain a competitive trade advantage by cheapening its currency so that its goods and services cost less, thereby increasing export trade. The Euro in particular has seen a marked rise that may hurt the EU’s economic recovery if growth and demand for European goods were to slow down.  Japan has stressed that it is not deliberately trying to devalue its currency, saying the yen’s decline has more to do with a market correction following a period of strength. Nevertheless, there has been heated rhetoric demanding that Japan halt, or at least slow down, yen devaluation.

In order to diffuse tensions, the G7 (Group of Seven) countries—comprising the US, the UK, France, Germany, Italy, Canada, and Japan—said they would “consult closely” on any action in foreign exchange markets. Furthermore, the G7 avoided criticizing Japan and stated that “We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates.” Japanese policy-makers were reassured by the announcement and according to Taro Aso, the Japanese finance minister, the statement “properly recognizes that steps we are taking to beat deflation are not aimed at influencing currency markets.”

The statement by the G7 comes ahead of a meeting of G20 finance ministers and central bankers in Moscow on Friday. It is expected that Japan will come under scrutiny for its currency policy. Hopefully, the members of the G20 will be able to reach some sort of agreement to regulate and resolve tensions that have arisen from exchange rate discord in order to avoid a potential currency war.

Posted by: Matthew Goldberg

Sources: New York Times, Reuters, Financial Times, CNN Money, Finance Enquiry

Photo Credit: Forex Money for Exchange in Currency Bank courtesy of flickr user epSos. de

Techonomy Conference 2012: Objectives of Technology-Driven Economic Revitalization

On Wednesday, September 12^th business leaders, political figures, and technology experts came together for the annual Techonomy Conference in Detroit. Hosted by the Detroit Economic Club, the conference’s agenda focused on the role of technology as a vital component of achieving social progress and economic growth.  This single day program is especially committed to the issues of “reigniting U.S. competitiveness and economic growth, creating jobs, and revitalizing cities in a technologized age”. Featured speakers included Grady Burnett, the Vice President of Facebook’s Global Market Solutions, James Dougherty, an Adjunct Senior Fellow for Business and Foreign Policy on the Council of Foreign Relations, and Justin Fox, the Editorial Director of the Harvard Business Review. They addressed the crowd on topics ranging from challenges in the era of globalization to the democratization of finance and product development to the future of manufacturing and its impact on employment. Audience members were also greeted by the founder of Techonomy, David Kirkpatrick, and treated to speeches on individual entrepreneurial development and other related topics.

The conference took a local look at Michigan and Detroit’s economic struggles for revitalization and at the challenges faced auto-mobile industry. Described as the Silicon Valley of an “earlier era”, Detroit is said to represent the larger issues facing American cities, including adapting to changes in education, employment, and infrastructure brought on by an increasingly globalized market society. Some have questioned the conference’s location of Detroit due to current economic struggles. Techonomy’s founder sends a different message, citing Detroit’s troubles as emblematic of cities that have missed the opportunities of technology in the past but have the potential to resolve these issues. Even a recently hurting automobile industry, a defining characteristic of Detroit, stands to make substantial gains from strengthening its tech culture of efficiency and educational achievement.

What were the goals and expectations of Techonomy? The event sought to utilize the revitalization of industry through technological advances, entrepreneurship, and innovation as major strategies for economic recovery. A focus on the increasing globalization of business and industry practices seemed also to be an objective of the conference. Intent on keeping America pushing the technological envelope, speakers discussed the future of expanding innovation and inspiring competitive growth. Complementarily, lecturers represented a diverse background of national industry and intellectual leadership, to address the concern of declining US competitiveness in detail and tackle the issue from unique viewpoints.

What can the public expect to come from this meeting of multi-disciplinary minds? Perhaps policy-makers will be influenced by the incredible support from the business community for this technology initiative as a means of creating jobs and stimulating urban development. Another possible outcome is a renewed emphasis on education for current and future generations to establish a more highly-skilled workforce with improved techno-literacy. Finally, perhaps Americans will see more pressure for regulatory reform easing start-up business restrictions. Ultimately, conference publicity should push technology to the forefront of economic recovery initiatives as a tool for improving US competitiveness and improving urgent urban issues to speed along city development.

Forbes highlights examples of innovative entrepreneurs in the Detroit area who exemplify these aims and serve as best-practice models for aspiring start-up companies. With the help of the Techonomy and its conference speakers, the American public may be able to look forward to more success stories like these.

Posted by: Sophia Higgins

Sources: Techonomy, Forbes, CNBC

Photo Credit: 2010_08_05_techonomy_105 @ Techonomy courtesy of Flickr user dserals

 

You are invited to: The New Advanced Manufacturing Partnership Report

 You are invited to: 

The Program on America and the Global Economy (PAGE) presents:

The New Advanced Manufacturing Partnership Report

Thursday, September 20, 2012

1:00 p.m. – 2:30 p.m.

5^th floor Conference Room, Woodrow Wilson Center

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Martin A. Schmidt, Co-Technical Lead, Advanced Manufacturing Partnership Report; Associate Provost; Professor of Electrical Engineering at MIT

 

Theresa Kotanchek, Co-Technical Lead, Advanced Manufacturing Partnership Report,

Vice President, Sustainable Technologies and Innovation Sourcing, Dow Chemical Company

 

Introduction:

Thomas Kurfess, Prof., Georgia Tech, Assistant Director for Advanced Manufacturing, Office of Science and Technology

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The recently released Advanced Manufacturing Partnership report, Capturing Domestic Competitive Advantage in Advanced Manufacturing, details the unique role that manufacturing plays in the broader U.S. economy-as a direct source of jobs, as a spur to additional job growth across the economy, and as an important force for addressing the nation’s trade deficit.  Most importantly, the report reveals that the nation’s continued strength in innovation depends on sustaining a close, two-way connection between the innovation and manufacturing processes.  “Proximity to the manufacturing process creates innovation spillovers across firms and industries leading to the ideas and capabilities that support the next generation of products and processes,” the report notes.  “In this way, a vibrant manufacturing sector is inextricably linked to our capacity as a nation to innovate.”  At this forum the two technical co-leads for the AMP report will discuss its findings.

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RSVP here or to receive further information, send an email to PAGE@wilsoncenter.org

Directions to the Wilson Center: www.wilsoncenter.org/directions

You Are Invited: Leading the Second Century of Flight

You are invited to:

DIRECTOR’S FORUM

Leading the Second Century of Flight

 

Jim Albaugh

Executive Vice President, The Boeing Company

 With an introduction by

The Honorable Jane Harman

Director, President and CEO

Woodrow Wilson International Center for Scholars

 

Since the Wright brothers’ first flight, America’s leadership in aerospace has helped build our economy and ensured our security. Today our leadership is threatened by budget constraints at home and heavy investment by other nations abroad. In this National Aerospace Week address, Jim Albaugh will highlight what’s at stake and what steps the U.S. must take to lead the second century of flight.

Jim Albaugh is an executive vice president of The Boeing Company. A 37-year Boeing veteran, Albaugh has led the company’s commercial, defense, space and security businesses.

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Tuesday, September 18, 2012

10:00 to 11:00 a.m.

Woodrow Wilson Center

6th Floor, Joseph H. and Claire Flom Auditorium

RSVP here or to receive further information, send an email to RSVP@wilsoncenter.org. Please provide your name and professional affiliation.

Please allow time on arrival at the building for routine security procedures. A photo ID is required.

Directions at www.WilsonCenter.org/directions

Individuals attending Woodrow Wilson Center events may be audiotaped, videotaped, or photographed during the course of a meeting, and by attending grant permission for their likenesses and the content of their comments, if any, to be broadcast, webcast, published, or otherwise reported or recorded.

The Affordable Care Act and the Economy

While our focus here at the PAGE program is on areas such as innovation, education, manufacturing, immigration, and other areas that help America compete in an increasingly globalized economy, health care spending accounts for 18% of this country’s economic output and we would be remiss if we did not briefly examine the Affordable Care Act’s effect on the economy, now that the Supreme Court has ruled on the law and declared that it can be implemented essentially in its entirety.
It terms of the overall economic effect, the ACA will expand coverage to tens of millions of people (the White House estimates 32 million) which will naturally increase demand for health-services and boost health expenditures like hospital visits and medications. This increased spending should fuel growth, at least in the near-term. The legislation is financed partly by additional taxes, especially on higher-earners and their investment income. The tax hit could stifle consumer spending, offsetting the jump in health expenditures. Then again, Americans with higher incomes tend to save more cash, so it’s also reasonable to think taxing them could divert money from savings accounts to spending — boosting the economy. The overall macroeconomic effect will most likely not be discerned as positive, negative or neutral for some time.
Regarding the economic topic of the day, job creation, the effect of the legislation again, is hard to read. As noted above, spending in the health sector is likely to increase if for no other reason than tens of millions more consumers in the market so it is not unreasonable to assume jobs will be created in the health sector. On the other hand, there is much anecdotal evidence (though little empirical, since the Act’s main provisions are not yet in effect) of businesses downsizing or putting off hiring because of the new employer-provided insurance regulations. The incentive and regulation structure for businesses is complex though, with varying rules and subsidies depending on the size and nature of the business so it is hard to forecast how hiring in the private sector at-large will change if at all.
The mostly hotly debated economic factor is how the ACA will affect the deficit. As President Obama reminds anyone who will listen, the Congressional Budget Office scored the legislation as a net deficit reducer (to the tune of $140 billion) over the next ten years although conservatives have quibbled with how the bill was scored. The Court ruled on June 28th that the Federal government cannot force the states to expand Medicaid as the bill had originally intended (specifically, the Federal government could revoke a state’s entire allocation of Medicaid funding if it did not expand Medicaid coverage) so it is possible that conservative governors will not move ahead with expanding Medicaid since they are no longer compelled to. This, no doubt, would be a huge factor in both Federal and state budgets.
Of course, Mitt Romney, Paul Ryan, and the Republicans in Congress have vowed to repeal the Act as soon as they have the chance and should President Obama stay in office, the law will not be fully in effect until 2014 at least. As a result, at this point, the only thing the American people can be sure of is that they and their economy will be affected in some way, simply due to the sweeping nature of the law and the outsized role health spending plays in our economy.
Posted by: Sean Norris

Sources: The New York Times, The Wall Street Journal, The Congressional Budget Office, http://www.healthcare.gov

Photo Credit: Protect the Law courtesy of flickr user Brett Davis

Live Webcast August 8:The Trans-Pacific Partnership and the Future of International Trade

The Program on America and the Global Economy(PAGE), the Asia Program, the Canada Institute, the Kissinger Institute, the Latin American Program (LAP) and the Mexico Institute with the Support of Wilson Center Senior Scholar William Krist Presents:

 The Trans-Pacific Partnership and the

Future of International Trade

Wednesday, August 8, 2012

2:00 – 5:00 pm

2:00 pm – 2:40 pm KEYNOTE:  Ambassador Demetrios Marantis, Deputy U.S. Trade Representative

2:50 pm – 3:50 pm PANEL 1: New and Future Participants
Canada: Laura Dawson, President of Dawson Strategic and a Former Public Policy Scholar, Woodrow Wilson Center
China: Jeff Schott, Senior Fellow, Peterson Institute for International Economics
Japan: Edward Lincoln, Professor, George Washington University
Mexico: Luz Maria De La Mora Sanchez, Professor of CIDE, former Public Policy Scholar, Woodrow Wilson Center
Moderator: Kent Hughes – Program on America and the Global Economy

4:00 pm – 5:00 pm PANEL 2: Key U.S. Interests
Jim Grueff, Trade Consultant and former trade negotiator for the Foreign Agricultural Service
Linda Menghetti, Vice President, Emergency Committee for American Trade
Celeste Drake, Trade Policy Specialist, AFL-CIO
Stephanie Burgos, Senior Policy Advisor, Oxfam America
Moderator: Kent Hughes – Program on America and the Global Economy

Watch the live webcast here.
Posted by: PAGE Staff

Does the Federal Reserve Bank needs to think bigger?

Just before the 4^th of July, Fed leaders struggled to formulate a comprehensive solution to our nation’s economic problems. Atlanta Fed leader Dennis Lockhart proposed extending the Fed’s program of trading more short-term bonds for longer-term ones while Chicago Fed President Charles Evans criticized the extension of “Operation Twist,” by arguing that doing so would only reduce 10-year Treasury bonds by 1/10^th of a percent. Fed leaders continue to present what they consider “balanced approaches” to using monetary policy as means for economic recovery, but fail to pinpoint what the right vehicle is.

That is why Carnegie Mellon economist Allan Meltzer believes that “to get out of our bad economic situation, we need coherent long-term fiscal policy, especially entitlement reform.” Meltzer contends that the Central Bank pays way more attention to the short term rather than the long term, and preachers what Nobel Prize Economist Milton Friedman proposed that “monetary policy operates in long lags.” He stresses that “the problem with the short term is that data reported for today is subject to revision, or reflect only transitory changes.” Meltzer criticizes Chairman Ben Bernanke for panicking when he shouldn’t have, charging Bernanke with the miss-handling of the banks’ $1.5 trillion extra in reserves, and sending much of the cash that banks received when the Fed freed up $600 billion to them in bond-buying overseas.

He believes that the bank’s use of the Phillips Curve is leading to a more inaccurate impression of the tradeoff between the inflation and unemployment rate, suggesting that the bank commit to using the Taylor Rule instead to better gage the interest rate accordingly. Meltzer concludes that “rule-based monetary policy” has brought our economy much better results in years past, and asks the Federal Reserve bank to stop counting on “politicians, the public, businesses and labor” to accept higher interest rates as an accepted force for economic recovery.

Posted By: Jonathan Sherman

Sources: The Wall Street Journal, Reuters

Photo Credit: The Fed 2 courtesy of Flickr user Adam Fagen

Guest Contributor William Krist- Obama’s Goal to Double Exports: A Midterm Analysis

Today’s report on the U.S. trade performance for May 2012 shows that the Obama Administration is roughly on track to achieve the President’s lofty goal of doubling U.S. exports over the five year period ending in 2014.  President Obama made this commitment, which would mean increasing exports from the 2009 level of $1.56 trillion to over $3 trillion, in his 2010 State of the Union address.  The objective of expanding exports is to promote U.S. employment, particularly in high paying manufacturing jobs.

To put this goal in perspective, exports just barely doubled in the ten years from 1999 to 2008. In fact, exports have not doubled over a five year period since the 1970s, and even then the doubling was mostly due to inflation.

Shortly after his 2010 State of the Union speech, Obama created the National Export Initiative and an Export Promotion Cabinet by executive order, giving them the responsibility of increasing U.S. exports.  While the Administration deserves a lot of credit for progress made to date, it needs to be noted that it is difficult to untangle the effects of U.S. export promotion activities from other uncontrollable effects such as changes in foreign demand and global business cycles, and the import policies of other countries.

Additionally, even as our exports have increased rapidly, U.S. imports have grown at an even faster rate. This means that the overall net effect of trade on our economy continues to be negative.  While doubling U.S. exports is a worthy goal, a better goal would be to achieve a balance of our exports and imports over the course of the business cycle.

For a more in-depth analysis of the Administration’s export initiative click here.

William K. Krist is a Senior Policy Scholar at the Woodrow Wilson Center.  He is a former Senior Vice President of the American Electronics Association.  He has written extensively on trade, development, and the environment. Anthony Gausepohl is a Research Assistant at the Woodrow Wilson Center.

You Are Invited: Universities, High-skilled Immigration, and Regulatory Reform: Implications for America’s Economic Future

The Program on America and the Global Economy (PAGE) Presents:

 

Universities, High-skilled Immigration, and Regulatory Reform: Implications for America’s Economic Future

 

Friday, July 13, 2012

12:00 – 1:15 p.m.

B-369 Rayburn House Office Building

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Speakers:

 Joseph Kennedy, Former Chief Economist, US Department of Commerce

Karthick Ramakrishnan, Associate Professor of Political Science, University of California Riverside and Woodrow Wilson Center Fellow

 Jim Woodell, Director of Innovation and Technology Policy, Association of Public and Land-Grant Universities

 Kent Hughes, Director, Program on America and the Global Economy

 ________________________________________________________________________

 A panel of experts will discuss key aspects of the Start-Up Act with a special focus on the provisions designed to accelerate the commercialization of university research, the regulating of start-up companies, and the broadening of opportunities for temporary immigrants with post-graduate degrees in science, technology, engineering, and mathematics (STEM) to eventually quality for permanent residency visas.

________________________________________________________________________

Please RSVP acceptances only to page@wilsoncenter.org

 

 

Posted by: PAGE Staff

The OECD Economic Survey of the United States for 2012

The Program on America and the Global Economy hosted the Deputy-Secretary General of the Organization for Economic Cooperation and Development along with the US Ambassador to the organization yesterday to discuss the newly released OECD Economic Survey of the United States, 2012.  The organization compiles a comprehensive economic report for each member country as well as major non-member countries (i.e. the BRIC’s) every two years.  The focus of the surveys is on the macroeconomic and structural policies and key challenges that could boost economic performance on a sustainable basis in each country.

The 2012 report on the U.S. finds that the economic recovery is gaining momentum, but other key conclusions warn that legislative decisions are needed to avoid the “fiscal cliff” at the end of 2012; unemployment duration is still painfully high, income inequality and relative poverty are among the highest in the OECD, and that innovation performance has weakened.

The gains the U.S. economy has made are noted and moderate growth is expected for the next two years but a further deterioration of the European crisis or the potential for U.S. policymakers to allow for immediate sharp cuts in government spending could jeopardize the outlook, the report said. Specifically, the organization warned that U.S. lawmakers must avoid the so-called fiscal cliff of expiring tax cuts and automatic spending cuts.  A fiscal plan must be put in place to address deficits, but it should be adopted gradually as opposed to the immediate spending cuts sought by some Washington policy makers, according to the report.

To promote job creation and increase wages, the report recommended implementation of various training and re-employment programs outlined in the Administration’s FY 2013 budget and stressed the improvement of education and training overall to reduce labor-force mismatches and reduced wages.  Specifically it suggested “reducing financial and other barriers to tertiary education and providing vocational training opportunities in secondary school”.

The report was perhaps most critical of the high rate of income inequality in the U.S. economy which remains well above the OECD average, and that the level of relative poverty is one of the highest in the organization. The report said the U.S. had the fourth-worst measure of income inequality ahead of only Turkey, Mexico and Chile at the end of the last decade. Among the recommendations offered by the report, tax breaks that mainly benefit the wealthiest should be phased out over time.

“Although the middle class have seen their taxes remain roughly constant, or slightly increase, average income taxes have significantly declined for the most wealthy, especially the 1% top earners,” the report said.

Additionally, the report said the U.S. should do more to fix the educational system, including moving away from the local property-tax based funding process that is prevalent throughout the country. The OECD found that the U.S. is one of only three countries in the organization that spends less on students from disadvantaged backgrounds than on other students, and that the best teachers rarely work with students in the schools that most need their abilities. “The U.S. education system is less effective than those of other countries in helping children realize their potential,” the report concluded.

Also, the report highlighted the importance of research and development for innovation and economic growth and recommended that cuts to R&D funding be as limited as possible.  Patent reform and the increase in students graduating with degrees in STEM fields are growing needs as well.

Look for the video of the event hosted at the Wilson Center later in the week.

 

Posted by: Sean Norris

Sources: Bloomberg, The Wall Street Journal, The Organization for Economic Cooperation and Development

Photo Credit: OECD Conference Centre Entrance courtesy of flickr user OECD