How much have governments committed for bailing out banks and financial institutions? $11.4 trillion, according to OECD estimates . That’s a lot of money – equivalent to the 2007 GDP of Japan, the United Kingdom, Germany and France combined. Or, as Dow Jones explains, about $1600 for every man, woman and child on the planet.
But that number needs to treated with a little caution. In effect, it represents a worst-case scenario for governments based on their current commitments.
$1600 for every man, woman and child on the planet
For example, it includes the cost of government guarantees, some of which will never be called on. It also includes the cost of purchasing assets and equity, the value of which may go up (or down). Because the job of supporting the banks is still a work in progress, the final cost won’t be known for years.
Of course, governments may still need to make fresh commitments in order to support banks. But assuming they don’t, the final bill could well be lower.
A common reaction to the earthquake in Haiti has been to talk about the country as “cursed”. This could give the impression that what happened is somehow beyond human capacity to forestall. But one of the most chilling aspects of the earthquake is the lack of surprise expressed by experts from a number of domains about the scale of the destruction and loss of life.
In his 2009 Mallet-Milne Lecture on The Seismic Future of Cities, Roger Bilham stated that “It should be appalling to the people of the world that in 2009, more than a 100 years after earthquake resistant construction began to be understood and implemented by engineers, that it is possible to write an article forecasting large numbers of future earthquake fatalities from the collapse of cities.
For Professor Bilham and his colleagues, geophysics is only part of the explanation. Loss of life on the scale seen in Haiti is not “natural” in the modern world. A similar quake that hit the Japanese city of Kobe in 1995 caused widespread destruction and even if it killed 6434 people, casualties in this densely-populated area were far less than in Port-au-Prince.
Why did Haiti’s capital collapse? It’s on a well-known seismic fault line and has experienced shocks before, but nothing seemed to be built to resist earthquakes. Even the presidential palace was destroyed. For Bilham, it’s a political question. “In some cities… corruption has effectively replaced governance… Officials and politicians may find themselves being pressured to exercise flexibility in the interpretation of building codes. The resulting structures may contain numerous violations, to be discovered only when the structure collapses.”
But what does governance mean here? An OECD report cited Haiti as a “paradigmatic example” of the severest form of fragile state, where the legitimacy of the state is challenged, where the states’ capabilities and resources are low and where there are only rudimentary or fractured political processes for handling the resultant tensions. (more…)
This post was contributed by Laura Nasr, senior at Mt. Holyoke College (US) who will be part of our new feature column written by university students.
With this in mind, college graduates, faced with record student debt and few job prospects, may decide to go to graduate school to wait out the bad economy.
Those who don’t go to graduate school may be either unemployed or underemployed. Either way, the effect is the same: young adults won’t make a comfortable wage until later in life. Certainly it won’t benefit the economy if a large segment of the population can’t afford to spend.
Even those graduates who find jobs may be crippled by record-high amounts of student debt: in 1999, the last year for which comprehensive data is available, average student debt for students in the United States was $19,400, which was about two thirds of per capita income for that year.
Debt in such high amounts affects the choices—spending and otherwise—that a person will make for years to come.
The economic impact of the recession has been discussed in great depth—as it should be—but it is necessary to consider the human effects as well. (more…)
What – or who – caused the crisis? Slate offers not one but 15 answers to that question here. But if you’d like a more official response, you might like to keep an eye on the Financial Crisis Inquiry Commission (FCIC) in the United States, which is due to begin public hearings this week. The ten-member commission was set up by Congress with a sweeping mandate to investigate the causes of the crisis – everything from the possible role of fraud and abuse in the financial sector to the way bankers are paid.
There are precedents for this sort of probe. In the early 1930s, the U.S. Senate’s Pecora Commission investigated the causes of the Great Depression, and “unearthed a secret financial history of the 1920s, demystifying the assorted frauds, scams and abuses that culminated in the 1929 crash”, according to Ron Chernow. That investigation had a long-term impact on the U.S. financial sector, leading to the establishment of the Securities and Exchange Commission (SEC) and the separation of commercial and investigation banking.
Whether the FCIC will have the same impact remains to be seen, but its chairman, Phil Angelides, has made it clear that he wants the commission to ask – and answer – some tough questions. “You have millions of people unemployed, millions have lost their homes, and Wall Street is having a record year with record profits and record bonuses,” he told ABC News. “People want to understand why.” What questions should the commission ask? The New York Times and The Huffington Post have some suggestions.
The Commission is due to report by mid-December 2010, but members have indicated they plan to post important findings on their website (under construction) before then.
We are publishing From Crisis to Recovery, a new book from the OECD Insights series here on the blog, chapter-by-chapter. This book traces the roots and the course of the crisis, how it has affected jobs, pensions and trade, while charting the prospects for recovery.
These chapters are “works in progress” and their content will evolve. Reader comments are encouraged and will be used in shaping the book.
By way of introduction…
Being forced out of a job is an unpleasant experience. Employers often prefer to use euphemisms such as “I’ll have to let you go” that imply it’s somehow liberating or what the worker wanted. Thomas Carlyle, the man who coined the expression “the dismal science” to describe economics, was much nearer the mark. Writing in 1840, he claimed that “A man willing to work, and unable to find work, is perhaps the saddest sight that fortune’s inequality exhibits under this sun.”
Modern research supports Carlyle’s view. For instance, finding yourself unemployed has a more detrimental effect on mental health than other life changes, including losing a partner or being involved in an accident. A long spell of joblessness has social costs too, whether at the level of individuals and families or whole communities.
Tackling unemployment and its consequences has to be a major part of governments’ response to the crisis.
This chapter looks at the workers and sectors most affected by the crisis and how policies can help workers weather the storm.
There are some signs that the economy is pulling out of the crisis , but when we say that the economy is recovering, what exactly do we mean? That economic activity is on the increase? Markets are up? While these are sure signs that world economies are beginning to regain some ground, there is one indicator that has everyone concerned, and that is employment.
From a 25-year low at 5.6% in 2007, the OECD unemployment rate rose to a postwar high of 8.8% in October 2009, corresponding to an increase of nearly 18 million in the number of unemployed – and the most rapid and sizeable increase in unemployment ever recorded in the postwar period. The latest OECD projections (in the November 2009 Economic Outlook) suggest that the unemployment rate in the OECD area will peak at 9.1% in the second quarter of 2010, but remain at 8.6% even by the end of 2011. Taking into account increases in the working age population, it will take around 23 million jobs to get back to 2007 levels of employment.
Even if the economy rebounds relatively quickly, employment recovery could be slow. It took the US four or five years to reabsorb the sharp rises in unemployment following the 1970s oil shocks, and twice as long in Europe. There are fears that this time round, we could see a “jobless recovery” and that the increase in unemployment becomes structural as many of the unemployed drift into long-term joblessness or drop out of the labour force altogether. So it’s critical for governments to focus on building a “jobs rich recovery”. How can they do this?
In the short term, by offering partial unemployment benefits and allowing for flexible short-time working programs for workers faced with substantial earnings losses. These measures help companies and workers adjust to decreases in productivity without cutting jobs altogether. Job subsidies, recruitment incentives and public sector job creation schemes can also help tackle the worst impacts on employment, but after this damage limitation phase, it is essential to focus on helping people who have been laid off to avoid being left behind, through access to adequate benefits and employment services. The global economic crisis has accelerated changes in the job market, meaning that the demand for certain skills has also changed. So helping people re-train is also critical for employment.
Thanks to Stefano Scarpetta (OECD) for his contribution to this post.