MONEY Economy

The Real Reason Jobs Are So Slow to Come Back

Garden snail
Daly and Newton—Getty Images

It's not tax rates, or too much regulation, or college kids majoring in art history instead of computer science. This is a global slowdown.

Jobs growth has been frustratingly slow in this recovery. The headline unemployment rate is down to 6.1%, but there’s still a lot of slack in the labor market. Wages are stagnant, long-term unemployment is strikingly high, and an unusually large number of Americans are so discouraged about their prospects that they’ve stopped looking for work.

So what’s holding us back from a full recovery? Maybe taxes are too high. Or perhaps regulation is holding us back. Or too many people are going on disability. Or maybe—this theory is especially popular now—there’s something wrong with the workforce we have. Too many liberal arts majors, not enough welders and truckers and computer scientists.

The problem with those theories is that they are way too local. The jobs shortfall isn’t just an American thing—it’s global. Earlier this week, the World Bank released a report on jobs in the “G20″ group of major world economies. Missing jobs and stagnant wages is a story all around the world. Here’s a snapshot from the report, showing how far below the pre-crisis trend jobs growth has been:

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SOURCE: World Bank

So what is it that’s holding almost everyone back? The World Bank chalks it up to a weak “aggregate demand”—but that only gets us halfway to an answer. What’s harder and more controversial is figuring out why demand for goods and services, which is what ultimately convinces employers to hire, has been so sluggish. One possibility is that consumers are too nervous to kick-start a virtuous cycle, where they buy more and thus spur more production and more hiring. The report notes that consumers around the world found themselves mired in debt after the crash, and that the growth in their income has been disappointing. In advanced economies, the share of GDP that goes to employee pay and benefits has declined substantially.

Screen Shot 2014-09-11 at 4.53.46 PM
SOURCE: World Bank

But to bring the story back home to U.S., at least, the anxious consumer alone isn’t a good enough answer anymore. As economist Brad DeLong points out here, consumption in the U.S. isn’t actually down by that much. What is down, he says, is construction and government spending. And on government spending, what’s true in the U.S. has been true with a vengeance in Europe, where policymakers have pursued government austerity policies.

Rethinking education, or how we train the workforce, or tax policy, or regulations might very well help economic growth in the long run. Finding some way to boost the mood of consumers couldn’t hurt, either. But the big-picture view suggests a deeper problem. The economic crisis blew a massive hole in the global economy. And more than five years later, the evidence is mounting that governments around the world just did too little, too late to help mend the gap.

TIME China

China May Be Heading for a Japanese-Style Economic Crisis

CHINA-ECONOMY-PROPERTY
A man walks past a construction site in Beijing on May 30, 2014. After years of boom that have seen prices rocket, the prospect of a bust is looming over China's vast property sector. WANG ZHAO—AFP/Getty Images

Beijing is pursuing policies similar to those Tokyo did before Japan tumbled into financial meltdown

The economic system East Asian policymakers have put in place over the past 60 years has had both spectacular successes and equally spectacular failures. On the positive side, the “Asian development model,” as it is often called, generated what is probably the greatest surge of wealth in human history, wiped out poverty on an unprecedented scale and built industries at a spellbinding pace. On the downside, however, the model — by effectively subsidizing investment — also produces dizzying levels of debt, burdensome excess capacity and enfeebled financial sectors. That has resulted in severe financial crises, like the one suffered by 1990s Japan (the inventor of the Asian development model), from which it has still not fully recovered.

China, too, has followed this same model. In fact, Beijing has put it on steroids, by adding in a degree of state control that the Japanese would never have dreamed up. So that begs the obvious question: Will China face the same fate as Japan?

Strategists Naoki Kamiyama and David Cui at Bank of America-Merrill Lynch say the answer could be yes. “China’s development unfortunately has largely followed the script written by Japan some 30 years ago,” they wrote in a new report. As a result, “China today is facing many similar problems Japan did in the late 1980s and early 1990s — imbalanced growth, government stimulus, overcapacity, an overwrought housing market, and a severely under-capitalized financial system.”

Beijing today, the report contends, is creating these similar conditions by making similar policy mistakes Tokyo did more than 20 years ago. The Asian development model made both economies highly dependent on investment and exports for growth. In the 1980s, when Japanese exports struggled due to a stronger yen and slower global growth, Tokyo tried to keep the system going by flooding the economy with cheap credit. That led, ultimately, to an asset-price bubble.

Beijing has walked the same path. In response to the downturn following the 2008 financial crisis, China pumped up credit at home to offset the collapse of external demand. That held up growth rates, but also led to a scary spike in debt levels, excess capacity, and a surge in the property market. Kamiyama and Cui also contend that Chinese policymakers are repeating the errors their Japanese counterparts made to solve these problems. In Japan, the central bank hiked interest rates to control asset prices, producing a bust in the property market and blowing a hole in the balance sheets of Japanese banks. Then the government was too slow in acknowledging the extent of the problem. China is doing the same. The central bank has been tightening monetary policy to rein in property prices. The Merrill strategists fear that that decision is bursting China’s property bubble. “It appears that the property market seems to be tipping over,” they wrote.

Going further, Kamiyama and Cui make the case that the situation in China is more dangerous than it had been in Japan. “It appears to us that the problem facing China today may be more serious than Japan’s in the late 1980s and early 1990s,” they write. “China’s growth was more imbalanced, its reliance on external demand was heavier, the government’s monetary policy in response to the external demand shock was looser, debt growth was faster, over-capacity was worse, and asset price appreciation had been just as rapid.”

That means, they believe, that the consequences for the financial system in China could be more severe as well. “We suspect that China’s (nonperforming loan) ratio could be higher than Japan’s,” they forecast. “Japan’s reached over 8% some 10 years after the property bubble burst. In fact, judging from past experience in China, we could argue that the ultimate NPL ratio could be significantly into double-digit.”

The Merrill strategists also worry that China’s leaders aren’t taking the action to necessary to confront these problems. They believe the banks need to be given a boost of fresh capital to strengthen and prepare them for an onrush of bad loans, but they aren’t optimistic that Beijing will take such a step anytime soon.

On that point, they appear spot on. China’s leaders seem to be quite content with the current pace of reform in the country. Chinese Premier Li Keqiang told business leaders at the World Economic Forum in Tianjin on Wednesday that “the reform measures we have taken are good for now and make a hard landing less possible.” But there is a growing chorus of voices that argue the pace of reform in China is simply too slow. Jörg Wuttke, president of the European Union Chamber of Commerce in China, complained on Tuesday that even though China’s new leaders “have recaptured some of the necessary reform zeal … it’s now time that China’s leadership walks the talk.”

The fact is that China’s new leaders, for all of their bold statements, have done little to change the basic nature of the Chinese economy. It has been nearly two years since President Xi Jinping and his team began to take the country’s helm, and almost a year since an important party plenum unveiled a much-heralded policy document that promised sweeping change. But beyond some intriguing experiments — a few new private banks have got the greenlight, and there have been some preliminary steps to reform state-owned enterprises—there has been almost no progress towards making the Chinese economy more market-driven and more capable of fairly allocating resources and financing.

A much-touted free-trade zone in Shanghai, launched a year ago as an experiment in freer capital flows, has barely gotten off the ground. In some areas, policymakers seem to have moved backwards—most notably in market opening. The business environment appears to have become more nationalistic. Government agencies, for example, are widely perceived as wielding an anti-monopoly law against foreign companies to an unfair degree. The U.S. Chamber of Commerce recently complained that China’s anti-monopoly actions “often appear designed to advance industrial policy and boost national champions.”

There should be, at this stage, real concern about the ability or will of President Xi, Premier Li and their policymakers to undertake the fundamental reconstruction of the Chinese growth model necessary to avoid a Japan-style economic crisis. The Merrill study just provides more evidence that China is repeating the same mistakes and suffers from the same flaws of other economies that experienced financial crises. There will always be businessmen and economists who dismiss or downplay such concerns. These “panda huggers” argue that China is “different” and isn’t vulnerable to the same problems as other economies — that somehow the laws of economics don’t apply. But remember, that’s what experts used to say about Japan too.

TIME Tax

The Artful Dodgers

Companies that flee the U.S. to avoid taxes have forgotten how they got so big in the first place

If income inequality and the wealth share of the “1%” were the room-clearing economic issues of the past few years, corporate tax dodging is shaping up to be a focus of the next few.

President Obama recently used the word deserters to describe firms that have attempted to lower their tax rate by acquiring foreign firms, chiefly in order to switch to lower-tax jurisdictions. A few days ago, Treasury Secretary Jack Lew upped the ante by pushing Congress to take legislative action against such firms, as well as hinting that the Administration itself might try to regulate away inversions.

The stakes are high. Corporations in the U.S. today are hoarding about $2 trillion in profits overseas, arguing that the U.S. corporate tax rate of 35% makes it too difficult to bring this cash home and invest it here–better to keep the money abroad and pay lower taxes in other countries. Yet the truth is that legions of tax lawyers make sure that most big American corporations never pay anywhere close to that rate. FORTUNE 500 companies on average pay more like 19.4%, and a third pay less than 10%, chiefly because of all the generous loopholes Congress has afforded corporations over the years. Partly as a result, U.S. firms are enjoying record profit margins, making more money than ever before yet paying a lower share of the overall U.S. tax pie than they have in decades.

While there are plenty of creative ways for corporations to avoid paying U.S. taxes by stashing money in Ireland, the Netherlands or the Cayman Islands, inversions go a step further: those companies are more or less renouncing their corporate citizenship to avoid taxes. They want the benefits of U.S. talent and markets but not the responsibilities. This strikes many as grossly unfair, particularly given that taxpayer-funded, early-stage investments in areas like the Internet, transportation and health care research are the reason many of the largest U.S. companies got so big and successful to begin with. That’s a leg up–call it corporate welfare–that most firms conveniently forget when they start looking for places to hide their profits. As the academic Mariana Mazzucato argues in her excellent book The Entrepreneurial State, many of the most lauded corporate innovations, including the parts of smartphones that make them smart (Internet, GPS, touchscreen display and voice recognition), came out of state-funded research. Ditto any number of pharmaceutical, biotech and cybersecurity innovations. “In so many cases, public investments have become business giveaways, making individuals and their companies rich but providing little return to the economy or the state,” says Mazzucato.

Tax inversions that expatriate the gains of American corporations to enrich a tiny managerial caste symbolize a whole new genre of selfish capitalism. Globalization allows firms to fly 35,000 feet over the problems of both nations and workers, who are all too familiar with the reality on the ground–an economy in which wages still aren’t rising, good middle-class jobs remain hard to come by and public deficits remain large, since the private sector won’t spend to fill the void. Economics 101 tells us that when one sector saves, another must spend, but the textbooks didn’t anticipate this.

As a recent Harvard Business School alumni survey summed up the problem, we’re stuck in an economy that’s “doing only half its job.” Says Michael E. Porter, an author of the study, “The United States is competitive to the extent that firms operating here do two things–win in global markets and lift the living standards of the average American.” We’re doing the first but failing at the second. “Business leaders and policymakers need a strategy to get our country on a path toward broadly shared prosperity.”

Pressed on their overseas tax dodging, corporations say they’ll stop looking for better deals abroad only if the corporate rate shrinks. (They also want a tax holiday to repatriate foreign earnings.) While we should cut and simplify our tax code to put it in line with those of other developed countries (25% would be fine), the last time the U.S. offered a tax holiday, back in 2004, most of the repatriated money went to stock buybacks and dividends–not investments in factories and workers.

A new relationship between corporations and the U.S. Treasury is what’s really needed. Treasury’s Lew should push for changes to the tax code that would reduce the appeal of inversions to companies that pursue them. That would mean taking on corporate lobbyists and the money culture that has turned the tax code into Swiss cheese. As the inversion debate makes so clear, it’s about time.

TIME energy

Europe Needs A New Source of Oil and Gas, Fast

Poland fracking gas
Workers in Poland prepare a shale gas well Bartek Sadowski/Bloomberg via Getty Images

The Ukraine crisis underscores the need for a new European energy policy

This article originally appeared on OilPrice.com

Summer is over and many Europeans may have to keep warm this coming winter by thinking about their summer holidays while wrapped in blankets, praying for a short winter or for the world to come to its senses. It both cases, they may well be disappointed.

The never-ending conflicts in the Middle East, mayhem in Libya, uncertainty in the Gulf and a war in Ukraine are all going to take a toll on the energy supplies this winter.

Russia sold 86 billion cubic meters of gas last year, all of which passed through Ukraine. Given what’s happening there now, it is highly unlikely that the Russians would allow their gas to transit a country they are (unofficially) at war with. Just as it is unlikely that Ukrainians would allow Russian gas access through its territory.

Result? Many cold Europeans, many angry Europeans and many very pissed off Europeans. Many Europeans will have to make do without enough gas to heat homes, offices and factories. That’s a bad prospect in northern European countries, where winter is no laughing matter. Winter defeated the armies of both Napoleon and Hitler.

And what does history tell us about cold, angry, pissed-off Europeans? Well, whenever two opposing camps got cold, angry and pissed off enough at each other in the past, they typically went to war.

War in Europe? In our time?

It’s not impossible. If current trends continue, it is not at all impossible. Here’s why:

1. Mounting tension between Russia and the West over Ukraine — a situation that is very likely to worsen as the United States and European Union tighten sanctions on Moscow.

2. NATO forces edging dangerously close to Russian forces.

3. The spread of the violence and reach of the Islamic State. Besides the havoc they are creating in the region, there is the added threat of hundreds, if not thousands, of their supporters who have learned how to fight in Syria and Iraq returning to their home countries in Europe.

4. Turkey, which in recent years has played a stabilizing role in the region, is moving today in a different direction that could well lead to a new point of conflict. From jumping head first into the Middle East conundrum under former prime minister and now President Recep Tayyip Erdogan, the country’s new prime minister, Ahmet Davutoglu, started off by possibly igniting a new fight when he announced — much to the pleasure of Azerbaijan, and certainly to the dismay of Armenia — that “the liberation of occupied Azerbaijani lands would be a strategic goal for Turkey.”

These remarks refer to the conflict between Armenia and Azerbaijan over Nagorno-Karabakh and outlying areas that have been occupied by Armenia since a violent conflagration around the time of the break-up of the Soviet Union. Armenians and Azerbaijani troops have been engaging in exchanges of fire on a daily basis over the past few months.

5: Mounting tension between Iran and Israel, and between Iran and an unnamed former Soviet republic in the region that Iran says allowed Israel to launch a drone from its territory to spy on Iran. Tehran has promised a stern response. The country in question is thought to be Azerbaijan, Armenia or Turkmenistan.

6. Continued mayhem in Libya, where the political turmoil is affecting the flow of oil and gas to Europe.

7. The continued state of unrest in Israel/Gaza and the surrounding area.

All these points of conflict are complicating Europe’s search for more reliable sources of energy. Europe is hoping to solve its gas shortage problems by purchasing Azerbaijani gas, but it’s unrealistic to depend only on Azerbaijani gas, since Europeans would be at the mercy of interruptions to gas and oil flows from this South Caucasus country.

What Europe desperately needs is a source of energy that with not be interrupted by conflict or politics, that can be delivered via pipeline or by sea, but will not need to transit through sea lanes in areas of conflict.

And although EU Energy Commissioner Guenther Oettinger said last week that he is not worried about gas supplies from Russia via Ukraine, that show of confidence did not stop him from going to Moscow to plead Europe’s case with the Russians.

So where does that leave the Europeans other than out in the cold? Trend energy analyst Vagif Sharifov believes the new bonanza of natural gas lies in the Arctic, where more than 1,500 trillion cubic feet of natural gas can be found.

But polar drilling comes with a high cost and huge challenges. Europe might need to keep looking.

TIME Economy

A Global Jobs Crisis Is Coming, Says World Bank

And a new report says there’s no immediate solution in sight for the problem

We are heading for a global jobs crisis, says the World Bank, warning that 600 million new jobs would have to be created by the year 2030 just to keep up with current levels of population growth.

A study released by the organization Tuesday at the G-20 Labor and Employment Ministerial Meeting in Australia indicates there are currently over 100 million people unemployed and around 447 million that live on less than $2 per day across G-20 member nations, reports Agence France-Presse.

“As this report makes clear, there is a shortage of jobs — and quality jobs,” said Nigel Twose, the World Bank’s senior director for jobs. He warns that although progress had been made in emerging economies like Brazil, China and South Africa, wage and income inequality continues to widen in several G-20 countries.

“There is no magic bullet to solve this jobs crisis, in emerging markets or advanced economies,” Twose said, adding that the creation of enough jobs to sustain the growing population calls for “a whole of government approach cutting across different ministries, and of course the direct and sustained involvement of the private sector.”

[AFP]

MONEY

Job Report Misses Expectations, Fewest Jobs Added in 8 Months

The U.S. economy added only 142,000 jobs in August, the slowest employment growth in 8 months.

The economy added 142,000 jobs in August, substantially missing analyst expectations, according to the latest data from the Bureau of Labor Statistics. Economists had predicted another month of high employment gains, with estimates predicting that 225,000 positions would be added. Instead, the August hiring missed that number by almost 40% and signalled the lowest employment growth in eight months. Unemployment remained virtually static at 6.1%.

The report also showed the number of long-term unemployed persons declined by 192,000 to 3 million in August. This group currently makes up about a third of the overall unemployed population, but has declined by 1.3 million over the past year. The labor force participation rate — the percentage of workforce that is either employed or actively looking for work — remained mostly unchanged at 62.8%.

Friday’s numbers were a surprise considering recent economic growth.

One important question is how the Federal Reserve will interpret the report. As MONEY’s Taylor Tepper reports, Fed chair Janet Yellen has made stronger employment growth a core part of her monetary policy, and has signaled the Fed will raise interest rates only when slack in the labor market decreases. Slow job growth may convince the central bank to hold back on rate increases even longer and wait for further employment gains.

TIME Economy

The Worst Stock Tip in History

Stock Market Crash
Messengers from brokerage houses crowd around a newspaper in New York City on October 24, 1929. New York Daily News Archive / Getty Images

Sept. 3, 1929: The market reaches its highest point before the Great Depression

At this time 85 years ago, Yale economist Irving Fisher was jubilant. “Stock prices have reached what looks like a permanently high plateau,” he rejoiced in the pages of the New York Times. That dry pronunciation would go on to be one of his most frequently quoted predictions — but only because history would record his declaration as one of the wrongest market readings of all time.

At the time he said it, in early October, he had good reason to believe he was right. On Sept. 3, 1929, the Dow Jones Industrial Average swelled to a record high of 381.17, reaching the end of an eight-year growth period during which its value ballooned by a factor of six. That was before the bubble began to burst in a series of “black days”: Black Thursday, October 24, when the market dropped by 11 percent, followed four days later by Black Monday, when it fell another 13 percent; and the next day, Black Tuesday, when it lost 12 percent more.

Fisher, consistently bullish, pronounced the slide only temporary.

In his defense, he was not the only optimist on Wall Street. After witnessing nearly a decade of growth, most economists, investors, and captains of industry believed that the market’s natural direction was up. The beginning of the crash struck them not as a sign of financial doom, but as an opportunity for bargains. Following the first of the black days, the New York Times was full of positive predictions: “I have no fear of another comparable decline,” said the president of the Equitable Trust Company.

Many of those optimists, including Fisher, went broke by mid-November, when the Dow had lost nearly half its pre-crash value. Fisher’s reputation likewise plummeted.

He went on to develop a new theory about what had triggered the crash: overly liberal credit policies that encouraged Americans to take on too much debt, as he himself had done in order to invest more heavily in stocks. By then, however, no one was listening. His theory didn’t gain traction until the 1950s, when, years after his death, Harvard economist Milton Friedman pronounced him “the greatest economist the United States has ever produced.” Fisher’s debt-deflation theory found its way into the spotlight again when overgenerous credit lines and huge debts prompted another U.S. market crash — this time in 2008.

Read Niall Ferguson’s comparison between 1929 and 2008 here in TIME’s archives: The End of Prosperity?

TIME Economy

Happy Birthday, U.S. Treasury

Exterior of the US Treasury building.  (
The U.S. Treasury building in 1937 Carl Mydans — The LIFE Picture Collection/Getty Images

You still look like a million bucks

It was 225 years ago today that the still-nascent United States finally decided to get its financial house in order. The Department of the Treasury was established on Sept. 2, 1789, during an early session of the 1st United States Congress. The Department’s duties, according to the founding law, are:

“…to digest and prepare plans for the improvement and management of the revenue…to prepare and report estimates of the public revenue, and the public expenditures; to superintend the collection of revenue; to decide on the forms of keeping and stating accounts and making returns, and to grant under the limitations herein established, or to be hereafter provided, all warrants for monies to be issued from the Treasury, in pursuance of appropriations by law.”

Or, in layman’s terms, the Treasury Department issues savings bonds, prints cash, mints coins, collects taxes through the IRS and enforces laws related to alcohol and tobacco. People often conflate the duties of the Treasury with those of the Federal Reserve, but the two are actually separate organizations. The Treasury is a department of the executive branch and is generally concerned with properly maintaining the day-to-day activities of the government. The Federal Reserve is an independent body that sets long-term fiscal policy in an effort to control borrowing and inflation rates.

Our first Secretary of the Treasury was Alexander Hamilton, a key figure in the development of early American fiscal policy who advocated heavily for a central banking system and the federal assumption of state debts following the Revolutionary War (and no, he didn’t put himself on the $10 bill — he wasn’t added to the currency until the 1920s). The current secretary is Jack Lew, appointed by President Obama in 2013.

In addition to the Treasury’s birthday, we also just passed another significant fiscal anniversary. In August 1971, the U.S. stopped converting dollars held by foreign governments to gold at a value of $35 per ounce. The policy, called the Bretton Woods system, had been put in place following World War II to convince rebuilding countries like Germany and Japan to invest in American dollars. But by the 1960s, the system was placing strain on the U.S. economy as the number of dollars held by foreign countries outpaced the amount of gold the U.S. had on hand. Following a secret meeting at Camp David with this top advisers, President Richard Nixon announced on August 15 a suspension of the policy, transforming the dollar into a floating currency not pegged to any particular exchange rate. Nixon also announced a 90-day freeze on prices and wages in the U.S. and an additional 10% tariff on imports.

Nixon's Economic Gamble
The Aug. 30, 1971, cover of TIME

Collectively known as the “Nixon Shock,” the measures surprised people both at home and abroad. Reporting in the days following the announcement, TIME wrote of foreign leaders abandoning their summer vacations to react to the announcement amid worries that the dollar, no longer tied to a fixed rate, would plummet in value. In the years that followed, countries in Europe and Asia also allowed their currencies to float, making exchange rates more volatile than they had been in the past.

Read TIME’s original 1971 report on Nixon’s controversial decision to abandon gold: The Dollar: A Power Play Unfolds

TIME India

Why India’s Modi and Japan’s Abe Need Each Other — Badly

India's PM Modi shakes hands with Japan's PM Abe during a signing ceremony at the state guest house in Tokyo
India's Prime Minister Narendra Modi, left, shakes hands with Japan's Prime Minister Shinzo Abe during a signing ceremony in Tokyo on Sept. 1, 2014 Shizuo Kambayashi—Reuters

The two Asian leaders are looking to strengthen ties during their meetings in Japan to counter a rising China

Cuddly is not an adjective that comes to mind when describing the Prime Ministers of either Japan or India. Shinzo Abe, like most Japanese politicians, often appears overly formal, while Narendra Modi has a reputation for being demanding and stern. But apparently the two feel warm and fuzzy about each other. Abe made the unusual gesture of welcoming Modi on his five-day official visit to Japan with an uncharacteristic hug. After that, the duo chatted over an informal dinner and strolled through a temple in the historic cultural center of Kyoto.

The leaders of Asia’s two most prominent democracies have good reasons to cozy up. Greater cooperation between India and Japan could prove critical in helping Abe and Modi achieve their economic goals at home and their strategic aims in the region — which means countering an aggressive China. That’s why the two have gushed about the importance of the India-Japan relationship. Modi said in a statement that his visit would “write a new chapter” in relations, while Abe in a Monday press conference said that their bilateral ties have the “most potential in the world.”

They have a lot of catching up to do. For economies of such size — Japan and India are the second and third largest in Asia, respectively — their exchange is still relatively small. Trade between the two reached only $15.8 billion in 2013 — a mere quarter of India’s trade with China. Japanese direct investment into India totaled $21 billion between 2007 and 2013, making Japan an extremely important investor for the country. But recently, the inflows have tapered off amid India’s economic slowdown. Over the past three years, Japanese firms have invested more in Vietnam and Indonesia than India.

That may be about to change. The fact is that the economic interests of the two nations dovetail nicely. Modi is looking to restart India’s slumbering economic growth by upgrading its woeful infrastructure, strengthening its manufacturing base and constructing a network of new “smart” cities across the nation — all of which Japanese money, technology and investment can help make a reality. Abe on Monday pledged $33 billion of financing and investment for India from public and private sources over the next five years. “Japanese trade and investment ties with India are set to strengthen significantly over the next decade and beyond,” Rajiv Biswas, Asia-Pacific chief economist for consulting firm IHS, predicted in a recent report.

Meanwhile, Abe is trying to jump-start a Japanese economy that has been stalled for two decades, and badly needs new sources of exports and revenue for ailing Japan Inc. India, with its 1.2 billion increasingly wealthy consumers and bottomless investment opportunities, can provide just what Japan requires. That is especially the case due to Tokyo’s souring relations with that other Asian giant, China. As tensions have risen over disputed islands in the East China Sea, investment and trade between China and Japan has deteriorated.

China is pressing Tokyo and New Delhi closer together for other reasons as well. Abe is trying to forge ties with countries across the region to contain a rising and increasingly assertive China. Meanwhile, Modi, who has his own territorial disputes with Beijing on India’s borders in the far east and north, is aiming to enhance the country’s military capabilities. Much of a joint declaration signed by the Prime Ministers dealt with strategic cooperation. The two pledged to “upgrade and strengthen” their partnership in defense by regularizing joint maritime exercises and collaborating on military technology.

China wasn’t specifically mentioned in the declaration, but which country Abe and Modi have in mind is no secret. Modi, in fact, took a clear swipe at Beijing in a speech to businessmen on Monday. “Everywhere around us, we see an 18th century expansionist mind-set: encroaching on another country, intruding in others’ waters, invading other countries and capturing territory,” Modi said.

None of this has gone unnoticed in the Middle Kingdom. An editorial in the state-run Global Times written in response to Modi’s comments attempted to downplay the friendly Abe-Modi summit. “The increasing intimacy between Tokyo and New Delhi will bring at most psychological comfort to the two countries,” the newspaper contended. “If Japan attempts to form a united front centered on India, it will be a crazy fantasy generated by Tokyo’s anxiety of facing a rising Beijing.”

Whether closer India-Japan ties are a fantasy will become apparent quickly. China’s President Xi Jinping is due to visit Modi in India later in September. Let’s see if he gets a hug.

TIME White House

Biden Celebrates Labor Day With Call For ‘Fair Wage’

A job's about a lot more than a paycheck. It's about your dignity, it's about your place in the community, it's about who you are."

Vice President Joe Biden celebrated Labor Day with a call for a “fair wage” at a union rally for workers in Detroit on Monday.

“Folks, the middle class is in real trouble now,” Biden said to an enthusiastic crowd. “A job’s about a lot more than a paycheck. It’s about your dignity, it’s about your place in the community, it’s about who you are.”

Biden’s 20-minute speech employed a populist and personal tone as he took on everything from the estate tax to American corporations that have moved operations overseas.

Biden, who is known for his blue collar roots, referenced his family roots and his ties to labor.

“‘Joey, you’re labor from belt buckle to shoe sole,’” Biden said his uncle told him.

 

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