TIME politics

3 Lessons from the French Revolution European Policymakers Should Keep in Mind

Place de Grève at the Storming of the Bastille
Lebrecht/Getty Images Place de Grève at the Storming of the Bastille, Jul. 14, 1789, from an 18th-century engraving by Letourmy of Orléans

The moment has come to diversify our analogy portfolio

History News Network

This post is in partnership with the History News Network, the website that puts the news into historical perspective. The article below was originally published at HNN.

It has become a commonplace to compare today’s economic and political news with interwar Europe. The Great Recession is measured against the Great Depression and Paul Krugman has recently suggested that demands being made on Greece are like those the Treaty of Versailles imposed on Germany. In his new Hall of Mirrors, however, economist Barry Eichengreen argues that repeated comparison of our current moment with the 1930s has resulted in poor policy decisions. Policymakers managed to avert another depression but, once they did so, their mission seemed complete and their hands were tied. Radical reforms—of the type necessary to prevent another recession—proved politically impossible.

The moment has come to diversify our analogy portfolio. What happens, for instance, if we think about the Eurozone crisis in terms provided by the history of the French Revolution? The comparison may initially seem contrived, but it offers significant lessons nonetheless.

Consider: debt dominated public debate in 1780s France as it does in Eurozone negotiations today. For decades, the monarchy had struggled to effectively tax the Catholic Church and the nobility. For decades, as Michael Kwass has conclusively shown, the wealthy and super wealthy branded such efforts despotic; they used the resulting power struggles to their own, political ends. Appealing repeatedly to notions of the public good—new taxes would mean “the loss of our liberty, the destruction of our laws, the ruin of our commerce, and the desperate misery of the people”—they blocked all attempts to spread taxation more fairly. Social elites thereby successfully defended their own riches, made themselves popular spokesmen for the common good, and pushed France further into borrowing (since it could not tax). Norman noblemen and Paris magistrates were the Koch Brothers of their day: bent on conserving their own privileges by fueling grass-roots populism. Their effective depiction of the monarchy’s fiscal crisis as a result of its own opulence—even now, don’t we imagine the money was spent on Marie Antoinette’s dresses and the King’s hunting dogs?—made state finances look like moral, rather than political, issues. (For in-depth discussion of this point, see Clare Haru Crowston’s Credit, Fashion, Sex and John Shovlin’s Political Economy of Virtue).

Like many in the United States and Europe today, these critics of the centralizing monarchy played politics with money. None of these men—all members of the privileged elite—intended to start a revolution. But by blocking needed tax reform, they provoked a political showdown that eventually turned summer 1789 into a social, cultural, and economic crisis of unparalleled proportions.

Lesson One Revolutions are their most revolutionary when no one sees them coming.

Money and debt played a crucial role in further revolutionizing France. In one of the first acts of the Revolution (prior even to the storming of the Bastille), the National Assembly declared France’s existing debt “sacred.” Unlike the later Bolsheviks (who in 1918 defaulted on everything the Russian Empire had borrowed, thereby giving rise to the doctrine of Odious Debt), the French revolutionaries accepted an inherited burden. The formerly royal debt became the national debt, and the new political body faced the same fiscal problems as had the old. At the same time, however, the National Assembly also challenged all existing taxes because they had been imposed by the monarch alone (the French version of “no taxation without representation”). Monetary-fiscal policy at this point was not intentionally revolutionary. The National Assembly was in many ways conservative. Like Angela Merkel’s Germany and other core economies today, it insisted that debts had to be honored and bills had to be paid. Like critics of quantitative easing, its members recoiled from the thought of merely printing money. They demanded that France put “solid assets” behind its promises to creditors.

With debt on the books and taxes delegitimized, a small majority within the National Assembly moved to nationalize and then monetize lands held by the Catholic Church. Here any parallel between the current moment and the 1790s appears to break down. Today, austerity means shrinking the public sector, whereas balancing the budget in 1789 involved expanding it (since the state took over the Church’s traditional welfare-providing role as well as its property). The social effects of the measures, however, were strikingly similar: widespread resistance, popular unrest, and growing political polarization. And, as today, uncertainty and confused expectations led investors to flee risk and seek safe places to put their money. Commercial credit, the backbone of eighteenth-century economic growth, dried up overnight. Lack of confidence in the new regime quickly metastasized into a generalized collapse in trust. All debts came due at once.

Lesson Two Insisting on balanced books and sound money may be conservative rhetoric but it often has radical effects.

Since Maastricht, the EU has tried to use currency to create a stronger sense of European identity. So too did policymakers in 1790s France, who believed widespread use of a new currency (paper notes backed by the value of the nationalized properties) would force people to “buy into” the Revolution whether they supported its politics or not.

Like many Europeans and Americans today, most revolutionaries in the 1790s understood “liberty” as entailing both political freedom and market non-regulation. The majority within the National Assembly therefore embraced free trade in money as they had in grain. Radical monetary liberty—such that any merchant was free to accept the nationally issued paper for less than its face value—pushed both freedom and money to their breaking point.

As does the European Union, the French Revolution emphasized equality, rights, and citizenship. In both contexts, this political rhetoric collides with the social reality of growing inequality to create a feedback loop. A political choice (be it free trade in money or European monetary union) disrupts social-economic life; that disruption makes political ideals (such as liberty) seem all the more desirable and elusive; upholding those ideals causes further economic dislocation and social uncertainty.

Lesson Three Playing politics with money is a sure way to make policy decisions matter to ordinary people. The results are often explosive.

Rebecca L. Spang is the author of “Stuff and Money in the Time of the French Revolution” (Harvard University Press, 2015) and a faculty member at Indiana University, where she directs the Center for Eighteenth-Century Studies and is the Acting Director of the Institute for European Studies. Her first book, “The Invention of the Restaurant: Paris and Modern Gastronomic Culture” was also published by Harvard.

TIME Economy

How Walmart’s Pay Hike Puts Pressure on McDonald’s

A change in hourly wage could have ripples

Walmart just upped the ante on wages.

The announcement Thursday by America’s largest private employer that it will give half-a-million employees a raise could add to the pressure that a host of other low-wage employers are already facing to pay their workers more. Walmart has 1.3 million workers and is the dominant employer in many American communities, which means that it often sets the floor for wages locally.

“For that prospective employee looking at $10 dollars at Walmart vs. $7.25 at McDonald’s, it’s obvious where they are going to want to work,” said David Cooper, an analyst at the Economic Policy Institute, a Washington-based think tank that advocates for a higher minimum wage. “Walmart needs to think about raising wages to hang on to the best people, and to do this in a public way—that’s an added bonus for them.”

MORE Walmart Is Giving Half-a-Million Employees a Raise

The retailer said it would raise its minimum wage to $9 dollars an hour in April and to at least $10 by next February, both of which are above the federal minimum wage of $7.25. The announcement follows months of protests from Walmart’s workers and many Democrats to raise the minimum wage, as well as a growing campaign to raise pay for fast food workers. In last year’s State of the Union, President Barack Obama called on Congress to raise the federal hourly minimum wage to $10.10.

Walmart is not the first big retail company to raise its minimum wage. This time last year, Gap announced it would hike pay to $10 an hour by this year, and last summer, IKEA said it would raise minimum hourly wages to $10.76 effective Jan. 1. But labor advocates said the decision by Walmart, a company notorious for low wages, could put more pressure on employers and policy makers to follow suit.

“I think there will be people that will say: ‘Look, even Walmart, with its record of paying such poverty wages and its record of being opposed to wage increases has recognized that we have to do something raise wage floor,'” said Tsedeye Gebreselassie, a senior staff attorney at the National Employment Law Project.

The National Restaurant Association, an industry group that represents fast-food companies, declined to comment on whether Walmart’s decision would have any impact. “As an Association we can’t comment publicly on what our members plan to do within their own business models,” spokeswoman Christin Fernandez said. McDonald’s, which has been a primary target of advocates campaigning for and organizing strikes of fast food workers, did not immediately comment on Thursday. The median hourly wage at McDonald’s is $9.15, but 13% of employees make only $7.25, according to an analysis of data last year by the website FiveThirtyEight.

MORE Fast-Food Strike Progress Measured in Pennies, Not Dollars

Others said that while Walmart’s decision is certainly good news for works, it may amount to little more than a smart public relations move for a company that, for legal and economic reasons, would have had to raise wages anyway. By 2016, many states will already have raised their minimum wage to $10, meaning that Walmart will soon be legally obligated to pay that rate to many of its employees. And with low-wage jobs continuing to grow in number as the economy picks up steam, companies may need to raise wages to compete for workers and stop turnover in their workforces.

“It’s clever politics on Walmart’s part, ” said Jefferson Cowie, a professor at Cornell University’s School of Industrial and Labor Relations. “The writing is on the wall on this question, given the social pressure. They’ll get a big PR payoff for something they’ll have to do in the next couple of years anyway—its already ticking up in the state level.” Cowie said the wage hike is also likely good business. “I think this is a move towards efficiency for them,” he said, “they want to keep the employees they want, so I think they are also making an investment in a stable and committed work force that’s been dragging them down recently.”

MORE The Wage Warrior

But the work isn’t over for organizers. Taking inflation into account, $10 an hour is still slightly lower than the federal minimum wage was in 1968. The Organization United for Respect at Walmart, an employee group fighting for higher wages, said Thursday that it was “proud” of the raise, but called for a continued push to get $15 an hour.

 

As for whether labor organizers should count this as a victory, Cowie said: “They should be celebrating and then they should immediately get back to work—this is far from over and they have a long way to go.”

Read next: Here’s How Long a Wal-Mart Employee Would Have to Work to Match CEO’s Salary

Listen to the most important stories of the day.

TIME Economy

See How the Wealth Gap Between Whites and Non-Whites Is Getting Wider

117046654
Getty Images

The average white family has accumulated seven times the wealth of the average black family

The average white family accumulated $677,656 in total assets in 2013, more than six times that of Latino families and seven times that of African-American families, according to a new study that shows ethnic minorities slipping behind in the post-recession economy.

The Urban Institute released a series of graphics that shows the wealth gap between white and non-white families widening from a multiple of five in the early 80’s to multiples of six and seven by 2013.

 

WealthByRace-avg

Urban Institute’s researchers highlighted several drivers of disparity, including lower rates of homeownership among non-white families, smaller savings accounts and heavier loads of student debt. Together, these trends suppress lifetime earnings, making disparities toward the end of life particularly acute.

“By their 60s, whites have over $1 million more in average wealth than African Americans (11 times as much),” write the study’s authors.

 

TIME Economy

These Are the States Where the Middle Class Is Disappearing

two-story-house
Getty Images

The average income among middle class families shrank by 4.3% between 2009 and 2013

This post is in partnership with 24/7 Wall Street. The article below was originally published on 247WallSt.com.

The American economy is by many measures well on the road to full recovery. The national unemployment rate was 6.2% in 2013, down from 9.3% in 2009; U.S. gross domestic product grew 5% in the third quarter of 2014; and the S&P 500 recently reached its all time high. And yet the middle class, which historically was the driver of economic growth, is falling behind. The average income among middle class families shrank by 4.3% between 2009 and 2013, while incomes among the wealthiest 20% of American households grew by 0.4%.

Based on average pre-tax income earned by the third quintile, or the middle 20% of earners in each state, middle class incomes in California declined the most in the country. Incomes among middle class Californian households fell by nearly 7% between 2009 and 2013, while income among the state’s fifth quintile, or the top 20% of state earners, grew by 1.3%. Based on an analysis of household incomes among America’s middle class, these are the states where the middle class is suffering the most.

According to Joe Valenti, director of asset building at the Center for American Progress, the American middle class is essential for economic growth because middle income families are spending relatively large shares of their incomes on goods and services. “An additional dollar in the hands of a middle income earner is going to drive a lot more spending than an additional dollar in the hands of someone in that top quintile,” Valenti said. While households in the top quintile are able to spend enormous sums of money, “at some point there’s only so much that an individual can spend, even on all different kinds of luxury goods.”

While the middle class is the most important cohort in terms of spending and has in the past been essential for economic growth, middle income families have been the victims of wage stagnation. Valenti argued that as early as the 1970s, American companies started becoming much more productive. However, because of “a decoupling of productivity and wages,” wages among many workers have remained stagnant, and many in the middle class “have not been able to reap the benefits of higher productivity,” Valenti explained. Instead, returns from higher productivity have gone to owners and investors and not to the workers, he said. Many of the beneficiaries of these returns are likely part of the wealthiest 20% of households, whose incomes have grown in recent years.

Much of the income growth among the highest earning households is likely due to stock market gains. As Thomas Piketty argues in his book, “Capital in the 21st Century,” income inequality results from a higher return on capital — money used to make more money in the stock market or other revenue-generating assets — than wage and GDP growth. With the rich holding a disproportionate share of money in the stock market, their incomes have recovered much faster than those of middle class workers.

In all 10 of the states on this list, the share of total income earned by the bottom 80% of households fell between 2009 and 2013 and was redistributed to the highest quintile. The top 20% of U.S. households held more than 51% of total income in 2013, up 1.14 percentage points from 2009. Even among top earners, income was not evenly distributed. Over that five-year period, the top 5% of households accounted for nearly 75% of income gains in the top 20% of earners.

Income from capital gains may partly explain why the income distribution has skewed towards the rich in recent years. “We have seen the stock market recover quite well for many Americans who do have access to the market and who are investors,” Valenti said. Meanwhile, average workers do not.

According to data collected by Piketty, the average capital gain income of households in the bottom 90% was $558 in 2012. The average capital gains of the top 10% of households was nearly $30,000. And the comparable figure for the top 1% of U.S. households was a whopping $242,000 in 2012.

Several other factors, such as union membership rates and a particular state’s tax climate, such as no income tax or higher sales taxes, can also affect the redistribution of wealth across the nation. “Traditionally, union organizing has stepped in when policy makers have been unwilling to,” Valenti said. For example, depending on the union’s size and its sway, “policy makers may not feel the same pressure to pass or increase a minimum wage” if unions can negotiate a wage increase on their own.

While union organizing was a major component of the middle class’ formation in America after World War II, the level of labor force participation in unions fell from 12.4% in 2009 to 11.3% in 2013. In some states the decline was even more pronounced. Oregon’s union membership, for example, fell by 3.3%, the second largest decrease nationwide.

To determine the states where the middle class is suffering the most, 24/7 Wall St. used data on the average pre-tax income earned by each income quintile from the U.S. Census Bureau. We defined middle class as the third quintile, or the middle 20% of earners. We examined the growth in average incomes in the third and fifth quintiles between 2009 and 2013 to identify income trends in the middle and upper class. The final list was composed of states where middle class incomes fell by more than 4.3% and fifth quintile incomes rose by more than 0.4%, the national aver. Both benchmark figures reflect the national change of their respective quintiles. Because Census income data reflect pre-tax levels, they may overstate the degree of income inequality in the poorer quintiles. However, it is unlikely that the tax burden of the third quintile is significant enough to skew the data.

We also looked at data on the share of aggregate income by quintile from the Census Bureau, and how that share changed between 2009 and 2013. Also from the Census Bureau, we reviewed poverty rates, the share of households making less than $10,000 a year, as well as the share of households making more than $200,000 a year. All data are from 2009 to 2013. Additionally, we considered the Gini coefficient. The Gini coefficient indicates the degree to which an area’s incomes deviate from a perfectly equal income distribution. Scaled between 0 and 1, a coefficient of 0 represents perfectly equal incomes among all people. From the Bureau of Labor Statistics, we looked at annual unemployment rates from 2009 and 2013. The percentage of non-agricultural employees who identify as members of a union came from Unionstats.org. Tax data come from the Tax Foundation’s 2014 State Business Tax Climate Index.

These are the states where the middle class is dying.

10. Massachusetts
> Middle income growth 2009-2013: -4.4%
> Fifth quintile income growth 2009-2013: 1.3%
> Fifth quintile share of income: 51.2%
> Middle class household income: $66,974 (6th highest)

Although the average income of a middle class household in Massachusetts was $14,000 above the national level in 2013, it had nevertheless declined by more than 4% since 2009. By contrast, incomes of the wealthiest 20% of households in the state grew by 1.3% between 2009 and 2013 to $235,246. Nationally, income of the top quintile grew by only 0.4% over the same period. The top quintile of Massachusetts households accounted for more than 51% of the state’s total income in 2013, a substantial increase from 2009. The declining share of middle class income may be related to the loss of worker bargaining power. The percentage of employees who were union members fell from 16.7% in 2009 to 13.6% in 2013, the fourth largest decline in the country.

9. Indiana

> Middle income growth 2009-2013: -4.4%
> Fifth quintile income growth 2009-2013: 2.6%
> Fifth quintile share of income: 49.0%
> Middle class household income: $47,680 (17th lowest)

Middle class households in Indiana had an average income of $47,680 in 2013, down 4.4% from 2009. As in most of the nation, even as the income of middle class households declined, the income among Indiana’s highest earners grew. Yet, just 2.6% of households earned more than $200,000 in 2013, roughly half the comparable national figure. While wealthy Indiana residents had among the lower incomes compared to their nationwide peers, average incomes in the highest quintile grew by more than 2.5% between 2009 and 2013, one of the faster growth rates. As a result, the state’s Gini coefficient, a measure of income inequality, worsened at a faster pace than in most states over that time, moving to the fourth highest nationwide in 2013.

8. Oregon
> Middle income growth 2009-2013: -4.6%
> Fifth quintile income growth 2009-2013: 1.1%
> Fifth quintile share of income: 49.4%
> Middle class household income: $50,425 (23rd lowest)

Oregon’s unemployment rate dropped by 3.4 percentage points to 7.7% in 2013, only slightly higher than the national unemployment rate and a better improvement than in most states. Despite the job market gains, however, income inequality has been getting worse in the state. The highest earning 20% of Oregon households had an average income of nearly $167,000 in 2013, up 1.1% from 2009. Meanwhile, the income of a typical middle class Oregon household fell by 4.6% between 2009 and 2013, more than the comparable national decline of 4.3%. Union membership, which is often associated with middle class health, fell by 3.3% over that time, three times the nationwide decline and the second-highest figure among all states. At the beginning of this year, Oregon raised its minimum wage to $9.25 an hour, one of the highest minimum wages nationwide. Many have argued that raising the minimum wage is essential to addressing income inequality.

For the rest of the list, please go to 24/7WallStreet.com.

TIME Economy

What’s Really to Blame for Weak Economic Growth

The George Washington statue stands covered in snow near the New York Stock Exchange (NYSE) in New York, U.S. Wind-driven snow whipped through New Yorks streets and piled up in Boston as a fast-moving storm brought near-blizzard conditions to parts of the Northeast, closing roads, grounding flights and shutting schools.
Jin Lee—Bloomberg via Getty Images The George Washington statue stands covered in snow near the New York Stock Exchange

Finance is a cause, not a symptom, of weaker economic growth

After years of hardship, America’s middle class has gotten some positive news in the last few months. The country’s economic recovery is gaining steam, consumer spending is starting to tick up (it grew at more than 4 % last quarter), and even wages have started to improve slightly. This has understandably led some economists and analysts to conclude that the shrinking middle phenomenon is over.

At the risk of being a Cassandra, I’d argue that the factors that are pushing the recovery and working in the favor of the middle class right now—lower oil prices, a stronger dollar, and the end of quantitative easing—are cyclical rather than structural. (QE, Ruchir Sharma rightly points out in The Wall Street Journal, actually increased inequality by boosting the share-owning class more than anyone else.) That means the slight positive trends can change—and eventually, they will.

The piece of economic data I’m most interested in right now is actually a new report from Wallace Turbeville, a former Goldman Sachs banker and a senior fellow at think tank Demos, which looks at the effect of financialization on economic growth and the fate of the working and middle class. Financialization, a topic which I’m admitted biased toward since I’m writing a book about it, is the way in which the markets have come to dominate the economy, rather than serving them.

This includes everything from the size of the financial sector (still at record highs, even after the financial crisis and bailouts), to the way in which the financial markets dictate the moves of non-financial businesses (think “activist” investors and the pressure around quarterly results). The rise of finance since the 1980s has coincided with both the shrinking paycheck of most workers and a lower number of business start-ups and growth-creating innovation.

This topic has been buzzing in academic circles for years, but Turberville, who is aces at distilling complex economic data in a way that the general public can understand, goes some way toward illustrating how the economic and political strength of the financial sector, and financially driven capitalism, has created a weaker than normal recovery. (Indeed, it’s the weakest of the post war era.) His work explains how financialization is the chief underlying force that is keeping growth and wages disproportionately low–offsetting much of the effects of monetary policy as well as any of the temporary boosts to the economy like lower oil or a stronger dollar.

I think this research and what it implies—that finance is a cause, not a symptom of weaker economic growth—is going to have a big impact on the 2016 election discussion. For starters, if you believe that the financial sector and non-productive financial activities on the part of regular businesses—like the $2 trillion overseas cash hoarding we’ve heard so much about—is a cause of economic stagnation, rather than a symptom, that has profound implications for policy.

For example, as Turberville points out, banks and policy makers dealt with the financial crisis by tightening standards on average borrowers (people like you and me, who may still find it tough to get mortgages or refinance). While there were certainly some folks who shouldn’t have been getting loans for houses, keeping the spigots tight on average borrowers, which most economists agree was and is a key reason that the middle class suffered disproportionately in the crisis and Great Recession, doesn’t address the larger issue of the financial sector using capital mainly to enrich itself, via trading and other financial maneuvers, rather than lending to the real economy.

Former British policy maker and banking regular Adair Turner famously said once that he believed only about 15 % of the money that followed through the financial sector went back into the real economy to enrich average people. The rest of it merely stayed at the top, making the rich richer, and slowing economic growth. This Demos paper provides some strong evidence that despite the cyclical improvements in the economy, we’ve still got some serious underlying dysfunction in our economy that is creating an hourglass shaped world in which the fruits of the recovery aren’t being shared equally, and that inequality itself stymies growth.

MONEY Currency

Why You Might Not Want to Cheer for a Strong Dollar

Chris Pine in JACK RYAN: SHADOW RECRUIT, 2013
Anatoliy Vorobev—©Paramount/Courtesy Everett Col Don't tell Jack Ryan, but a strong buck is a mixed blessing.

On Wednesday, the euro fell to a near 12-year low against the dollar. That makes foreign vacations cheaper, but selling things to foreigners harder.

The U.S. dollar has strengthened against pretty much every major currency over the past year. That feels like good news—and in some ways it is. It means that investors worldwide are betting that the U.S. economy is strong; it’s also nice if you’ve been planning a get-away to the French countryside.

And intuitively it just feels like a strong U.S. currency is a good thing, and a weak one is bad. Last year, the plot of the action flick Jack Ryan: Shadow Recruit turned on a (mild spoiler alert) Dr. Evil-like plot to tank the greenback’s value.

But at this moment a too-strong dollar may be the bigger worry.

That is the context behind all the headlines you may be seeing these days about so-called “currency wars.” In a currency war, countries don’t try to take down other nations’ currencies. Instead, they cut the value of their own currencies, in order to make their products cheaper and stoke demand. When one currency falls, that means somebody else’s currency has to go up. Lately, the U.S. has been that somebody else.

Currency

 

Why is the dollar going up? Central banks around the world, from Europe to Japan to Mexico, have been doing what our own Federal Reserve did following the financial crisis, buying up bonds and aggressively seeking to hold down their interest rates. They’re not only doing this to lower the relative value of their currencies—nobody has actually declared a currency war—but it has had that side effect. With yields on 10-year German bonds at just 0.3%, U.S. Treasuries that are paying almost 2% look like a better deal.

When investors seek to hold U.S. assets, that pushes up the buck too.

And there’s reason to think the dollar will keep getting stronger for a while, says Wells Fargo Securities senior economist Sam Bullard. The U.S. economy looks pretty good right now compared with the rest of the world. The American gross domestic product, for instance, grew by 4.6%, 5%, and 2.6% over the past three quarters, while the eurozone muddled through with growth rates at 0.3% or lower. Our unemployment rate is down to 5.7%, while in the eurozone it is stubbornly stuck over 11%.

As a result, the Federal Reserve has begun to put out hints that it will raise short-term interest rates sometime in 2015, the first increase since the Great Recession. Again, that should make dollar-denominated assets relatively more attractive. And a strong dollar trend could feed on itself—the more stable the dollar looks, the more people will want to to invest in the U.S. “Investing over here if you’re foreign company committing capital is more attractive since returns will get translated into your home currency at a more favorable rate,” says Bob Landry, a portfolio manager at USAA Investments.

Still, whenever there are winners, there are also losers.

Who’s losing out? For a start, multinational corporations with significant businesses overseas. Procter & Gamble and its shareholders, for instance, endured disappointing earnings last year and announced that the consumer goods behemoth doesn’t expect to enjoy sales growth this year due to the dollar’s strength.

A strong dollar generally makes U.S. exports less attractive—consumers with euros and yen are finding our products more expensive. The ISM manufacturing new export orders index fell in January to its lowest level since the fall of 2012. That’s bad news for anyone who works in manufacturing, or any other business that hopes to sell to global markets.

Overall, Bullard says, a strong dollar should be “a net drag on overall GDP in 2015.” Perhaps Jack Ryan could have saved himself the trouble.

TIME europe

Former Fed Chair Greenspan Predicts Greece Will Leave Euro

Alan Greenspan Addresses Economic Club Of New York
Spencer Platt—Getty Images Former Federal Reserve Chairman Alan Greenspan speaks to The Economic Club of New York on April 28, 2014 in New York City.

'I think it's just a matter of time before everyone recognizes that parting is the best strategy.'

Greece will eventually be forced to leave the eurozone and switch to a new currency, former Federal Reserve chairman Alan Greenspan told the BBC.

“I don’t see that it helps them to be in the Euro and I certainly don’t see that it helps the rest of the eurozone,” he said in a radio interview. “I think it’s just a matter of time before everyone recognizes that parting is the best strategy.”

Read more: Germans Weigh Response to Likely Demands of New Greek PM

The former official added that he doesn’t believe anyone would be willing to lend Greece the money to avoid an exit.

Greece’s newly-elected prime minister, Alexis Tsipras, won his job promising that he would renegotiate the terms of his country’s debt with the powers that be in Brussels, the financial center of the eurozone, and Germany, the eurozone’s largest economy.

For its part, Germany has remained steadfast in its refusal to loosen the terms of a 240 billion Euro bailout given to Greece in 2013.

The impact of a “Grexit” on the global economy is unclear, though many economists believe it would badly rupture the Eurozone.

TIME Economy

5 Plunging Numbers That Explain the World This Week

Greek Prime Minister Alexis Tsipras looks on before swearing in ceremony of the new deputies that were elected in the January 25 national polls, in Athens, Feb. 5,2015.
Yannis Behrakis—EPA Greek Prime Minister Alexis Tsipras in Athens, Feb. 5,2015.

From Greek bond rates to Indonesian approval numbers, these figures tell the story of an unstable world

With spiraling oil prices, crumbling economies, weakened leaders, and intensifying violence in Ukraine and the Middle East, we’re experiencing unusual volatility in markets and geopolitics. Here are five falling numbers that have broad-reaching implications.

1. Down to 1.38%

There’s a huge difference between the current Greek crisis and previous cycles of panic: today bond markets are treating the Greek economy as an isolated patient, swatting away notions of contagion risk to other periphery countries. The numbers tell the story. In the wake of the anti-austerity party Syriza’s victory in Greek elections last month, Spain’s 10-year yield fell to new record-breaking lows, closing at a staggering 1.38% at one point last week. That means Spain can borrow at better rates than the thriving United States. Compare that to Greece’s 10-year yield, which shot above 11% in the days after Syriza took office.

(Source: Eurasia Group, Bloomberg Business: Spain, Greece)

2. -30% Approval

Expectations for Indonesia’s new president Joko Widodo were sky-high when he was elected last summer. (He even graced the cover of this publication in October with the headline “A New Hope.”) But his recent nominee for police chief is a former aide to party powerbroker and ex-president Megawati Sukarnoputri, raising concerns about her influence over the supposedly independent Joko. Just days after the announcement, police chief nominee was named as a suspect in a corruption probe. Joko’s decision to trim fuel subsidies in November was lauded by investors; after all, between 2009 and 2013, Indonesia spent more on such subsidies than it did on social welfare programs and infrastructure put together. But it’s no surprise that a hike in fuel prices didn’t go over as well with the general population. According to an opinion poll by LSI, Joko’s approval rating has dropped 30 points—from 72% in August to just 42% in January.

(Source: Wall Street Journal, The Economist, Financial Times)

3. -$58 per barrel

The price of Venezuelan oil collapsed from $96 in September to $38 last month. That’s not a good thing in a country where oil exports provide more than 95% of foreign exchange. Venezuela needs that hard currency—more than 70% of its consumer goods are imported. Things are getting bleaker. The International Monetary Fund predicts an economic contraction this year of as much as 7% of GDP. Inflation is over 60%. And an economic perk is coming under threat: Venezuelans enjoy the world’s cheapest gasoline, paying the heavily subsidized rate of roughly $0.06 per gallon. This provision costs the government more than $12 billion a year. In a recent speech, President Nicolas Maduro declared, “You can crucify me if you want, but there’s a need for us to go to a balanced price.” Given all the economic woes and the President’s tanking approval ratings, it’s definitely not the easiest time to rake back this subsidy.

(Brookings, New York Times, Wall Street Journal, Bloomberg, International Business Times)

4. -$500,000,000 in military aid

With ISIS rampaging across Iraq and Syria—and Houthi rebels seizing the capital of Yemen and pushing that country into civil war—Saudi Arabia is accelerating its plans to wall itself off from volatile neighbors. In September, the Saudis began construction on a 600-mile wall along the border with Iraq. To the south, they are strengthening fortifications to keep unwanted visitors from breaching the 1,060-mile border with Yemen. Border guards told a CNN correspondent that in just the last three months, they have stopped 42,000 people from crossing a 500-mile section of the border. It’s not just about security—it’s also economic. As of 2013, Saudi citizens represented just 43% of the country’s workers—and only some 15% of the private sector—with the rest consisting of foreign workers. With youth unemployment at around 40% in Yemen, many try to cross in search of work. But even as the spending spree on security continues, the Saudi Kingdom is halting most of its financial aid for Yemen, fearful it could fall into Houthi hands. According to a Yemeni official, the Saudis recently refused to pay $500 million earmarked for military aid.

(Newsweek, Reuters, Bloomberg, CNN, Al Arabiya News, Reuters, Wall Street Journal)

5. -$61,000,000,000 … and -16%

They’re the group of Russians best equipped to weather hard times, but that doesn’t mean they aren’t feeling the burn. In 2014, the 21 wealthiest people in Russia lost a combined $61 billion—a quarter of their net fortune. Those who aren’t losing money are removing it: 2014’s net outflows by companies and banks topped $150 billion. That’s more than double the 2013 figure, and shatters the old record from ’08, amidst the financial crisis. The IMF expects the Russian economy to contract 3.5% in 2015. At least Russians can express their dismay while drinking more affordable liquor: this week, Moscow passed a new measure cutting the minimum price of a bottle of vodka by 16%.

(Reuters, Businessweek, IMF, Washington Post)

 

MONEY Jobs

Why We Should Be Happy With a Higher Unemployment Rate

woman holding "Hire Me" sign
Catherine Lane—Getty Images

A higher unemployment rate in an improving economy means more people are beginning to look for work again.

For the most part, Friday’s jobs report is clearly reason to cheer. The economy added 257,000, making January the the 12th consecutive month employers hired over 200,000 workers. The Labor Department even revised earlier figures, announcing 147,000 more jobs were created in November and December than previously thought.

But in spite of all this great news, one number seemed to stick out: the unemployment rate actually went up, jumping from 5.6 to 5.7 percent.

That’s not a big change but it doesn’t seem to jibe with everything else happening in the economy. How could the unemployment rate still be increasing when hiring seems to be at a post-recession high?

The answer is the official unemployment rate, at least by itself, doesn’t actually measure the economic recovery very well. This metric, also known as U3, is one of six different ways the Department of Labor measures unemployment, and it only includes people who are unemployed and actively looking for work. That means people who are unemployed but too discouraged to look for a job aren’t included in the unemployed population.

This quirk is what Gallup CEO Jim Clifton was talking about when he called the unemployment rate a “big lie,” but it’s actually telling the truth if you know what to look for. When hiring increases, as it has over the past year, people who previously gave up searching for work will once again start trying to find employment. This is obviously a good thing, but for the moment an influx of new job hunters is pushing up unemployment numbers because those who just began searching for work after a long break are essentially treated as newly unemployed.

“I don’t think [Friday’s unemployment bump] is a big deal,” says Elise Gould, a senior economist at the Economic Policy Institute, a left-leaning think tank. “I think that is mostly due to people coming back into the labor force—some of them finding jobs, some of them not finding jobs.”

In fact, as the economy continues to recover, it’s likely the unemployment rate will likely stay the same or even increase. “If had to project the unemployment rate, I would expect it would hold steady and could move a little up, but I don’t think we’re going to see it going down,” explains Gould. “As the economy gets stronger more people will enter the labor force and that will move the unemployment rate, potentially in the wrong direction.”

All this sounds nice in theory, but do we really know more people are entering the job market? The most accurate metric we have to answer that question is the labor force participation rate, which includes everyone who is working or looking for work. Unfortunately, that number can be misleading since many older Americans are leaving the market at the same time job-seekers are re-entering it, leading to a long-term downward trend.

Luckily, today’s report shows enough people started looking for work in January to push the labor force participation rate up a tick. It wasn’t much—less than a percentage point—but even a small increase is meaningful when the demographic tide is flowing the other way.

At least for once, a higher unemployment rate isn’t so bad.

MONEY Jobs

Employers Hired 257,000 Workers in January

150206_INV_Wage_1
Datacraft Co Ltd/Getty Images

The economic picture continues to mend, but workers still looking for better wages.

The U.S. economy added 257,000 jobs in January, the 12th consecutive month employers hired more than 200,000 workers. Meanwhile, the unemployment rate rose slightly to 5.7%.

Employers also added more employees in the end of 2014 than originally thought. The Labor Department revised November’s employment change to 423,000, compared to 353,000, and December’s to 329,000, from 252,000.

The positive monthly employment report is another sign of a building economic recovery. The four-week moving average initial jobless claims recently fell by 6,500 to 292,750 The employment cost index, which measures salary and benefits, increased by 2.3% in the last three months of 2014. And the gross domestic product grew by 2.6% in the last quarter of 2014 after climbing by 5%. This good news, along with cheap energy prices, has also pushed up economic confidence.

The economy still is not back to a pre-2008 definition of normal, however. The headline unemployment rate measures only people who are looking for work. Since the post-crisis recession, however, many people dropped out of the work force, and they have been slow to come back in. Today’s report shows the labor-force participation rate at 62.9%, a marginal increase from a month ago, but still in line with a long-term decline. The rate is five points lower than it was at the turn of the century.

Another sign that the job market recovery remains soft: Average hourly wages in January were only up 2.2% compared to a year earlier. (While that’s an improvement over last month, wages grew around 4% per year prior to the Great Recession.) Long-term unemployment is also still at elevated levels.

fredgraph (1)

Modest wage growth helps to explain why inflation has remained low, even after stripping out the effect of falling prices at the gas pump. Core inflation, which strips away volatile energy and food prices, was up 1.6% year-over-year in December. That’s well below the 2% the Federal Reserve says it is targeting in deciding whether or not to raise key interest rates.

The Fed has been holding short-term rates near zero since the crisis, and is widely expected to begin raising rates this year as the economy improves. But they’ll have to weigh the encouraging signs from the new unemployment numbers against continued low inflation and wage growth, as well as the mounting economic troubles in Europe.

Sam Bullard, a senior economist at Wells Fargo Securities, shares the Fed’s belief that the labor market and economy are repairing, and thinks more hiring will push down the unemployment rate in the months to come, which will result in more money in worker’s paychecks. Eventually.

“Overall, we’re looking at an economy that’s improving,” says Bullard. “The one missing piece is a pickup in wage growth.”

Your browser is out of date. Please update your browser at http://update.microsoft.com