Economy

Why CEOs Are Getting Fired More 

James Surowiecki: “The predicament of modern C.E.O.s may seem surprising, given their prominence and lavish compensation. Top executives everywhere are paid more than they used to be, and the U.S. has led the way; American C.E.O.s earn, on average, two to four times as much as European ones and five times as much as Japanese ones. Yet it’s precisely these factors that make C.E.O.s vulnerable, because the expectations for their performance are higher.”

“In that sense, the increasing willingness of boards to fire the C.E.O. is actually the flip side of a fetishization of the position that began in the eighties. In Ralph Cordiner’s day (and in Japan maybe still), belief in a C.E.O.’s power to transform a company was limited. But today’s cult of the C.E.O. is founded on the belief that having the right person at the top is the key to success—from which it follows that a failing company should show its boss the door.”

Widespread Credit Blemishes May Be Holding Back Our Economic Recovery

Urban Institute: “It is commonly understood that the seven million foreclosures that occurred between 2004 and 2015 fueled the Great Recession and have held back a robust economic recovery. But the role of adverse public records during that same period is just as significant yet rarely discussed.”

“Nearly 35 million consumers had adverse public records between 2004 and 2015, including bankruptcies, civil judgments, and federal tax liens. Combined with the seven million foreclosures, this means more than one in six Americans with a credit record suffered an adverse event during this period.”

“These extensive credit problems are partly responsible for consumers’ slow recovery from the financial crisis. The lingering effects of foreclosures and adverse public records prevent consumers from obtaining mortgages and pursuing homeownership, hinder housing market recovery, limit consumers’ ability to obtain other credit (e.g., auto loans), and reduce consumers’ ability and willingness to spend, all of which weakens the economic recovery.”

The White House’s Top Economist on the Future of Obamacare

Sarah Kliff: “Jason Furman has become accustomed to proclamations of Obamacare’s collapse.”

“‘Having been involved in the [Affordable Care Act] since 2009, I have heard it pronounced dead hundreds of times,’ says Furman, who chairs the White House Council of Economic Advisers. ‘Half of those times were before it was even signed [into law], and half were since then.'”

“I spoke with Furman and his colleague Matt Fiedler, chief economist at the CEA, Friday afternoon about Obamacare’s marketplaces, what the premium increases mean, and why they believe a death spiral would be impossible given the health law’s structure.”

How Digital Readiness Affects Job Retraining for Labor Market Growth 

Stuart Brotman: “The importance of workforce retraining is underscored in a recent report from the Pew Research Center. Its analysis of government jobs data found that for the past several decades, employment has been rising faster in jobs requiring higher levels of preparation – that is, more education, training and experience.”

“Only 17 percent of adults in the Pew Center survey were characterized as ‘digitally ready’ active learners who are confident in their ability to use digital tools to pursue e-learning. They also utilize digital outlets, such as online courses or extensive online research, to a significantly greater extent than the population at large.”

“Policymakers should look at these separate Pew Center analyses in tandem—two critical variables in any equation for sustainable job growth. Unless many more adults move into the ‘digitally ready’ category for e-learning, necessary job retraining may not benefit workers in labor sectors that are being left behind.”

China’s Millennials Are Risk Takers, and They’re Dreaming Big

Bloomberg Markets: “Meet China’s millennials — a generation that’s more risk-taking and idiosyncratic than its predecessor. And they’re dreaming big.”

“Having grown up in a booming economy that grew nine-fold since the turn of the century, China’s 7.5 million school leavers this year are intent on forging paths very different from their parents, who defaulted to the factory floor, construction site or staid state-sector job.”

“‘This is a good sign for the economy as it shows that they are finding new growth engines and the economy is getting more market-oriented,’ said Iris Pang, senior economist for Greater China at Natixis SA in Hong Kong. ‘But in the longer term, startup failure rates are very high, and those who take the risk should bear the risk.'”

Recently on Wonk Wire, a relevant contrast: Millennials Aren’t Big Spenders or Risk-Takers, and That’s Going to Reshape the Economy

Are We Entering a New Chapter of Globalization?

Washington Post: “The sprawling plant is a local landmark, just off the highway unofficially known as Auto Alley. General Motors built it in the 1920s, and for generations it created the kind of blue-collar jobs that defined America’s middle class. But by the time the last SUV rolled off the assembly line here, Moraine had succumbed to the flood of inexpensive imports and cheap foreign labor that battered industrial towns in Ohio and across the country.”

“Now Cho Tak Wong is in charge of the factory. The billionaire chairman of Fuyao Group, the biggest maker of automotive glass in China, Cho rose from rural poverty by riding the same wave of globalization that devastated Moraine — a living example of the reversal of fortune that has turned China into America’s chief economic rival in public debates and political rhetoric.”

“But the next chapter of globalization is already unfolding inside Fuyao’s factory, as the balance of power in the world economy tilts once more. Now it is China that experts fear is losing steam, forcing the country’s wealthy investors and corporations to seek out profits overseas. They are snapping up U.S. businesses at a record rate and employing tens of thousands of America’s workers.”

The World Would Be $1.1 Trillion Richer If It Treated Its Young People Like Germany

Quartz: “Just 10% of people aged 20-24 are out of work or not in school in Germany. As befits Germany’s reputation for efficiency and industrial success, this is one of the lowest levels in the world. If all 35 OECD countries reduced youth unemployment to German levels, the economic gain would be $1.1 trillion, according to a study by PricewaterhouseCoopers.”

“Why do countries like Germany and Switzerland perform so much better? Their governments run “dual educational systems” that incorporate vocational training into formal education to better prepare young people for jobs–businesses also actively target young people. In Germany a Vocational Training Act has provided 500,000 company-based training contracts a year. Finally, Germany and Switzerland recruit people from a wider variety of economic backgrounds by reducing informal hiring and the use of qualifications as a filter in the recruitment process.”

Out of Ammunition to Combat Recession?

Michael J. Boskin: “Unprecedented long-term monetary stimulus and massive spikes in public-debt burdens have left governments poorly equipped to manage the next economic downturn when – not if – it arrives. The next recession probably will not be as bad as the last one, but advanced economies will be far better prepared for it if they undergo gradual monetary-policy normalization and fiscal consolidation in the meantime.”

New A.I. Traffic Signals Could Be a Game Changer

IEEE Spectrum: “Traffic congestion costs the U.S. economy $121 billion a year, mostly due to lost productivity, and produces about 25 billion kilograms of carbon dioxide emissions, Carnegie Mellon University professor of robotics Stephen Smith told the audience at a White House Frontiers Conference last week. In urban areas, drivers spend 40 percent of their time idling in traffic, he added.”

“The big reason is that today’s traffic signals are dumb. Smith is developing smart artificial-intelligence-fueled traffic signals that adapt to changing traffic conditions on the fly. His startup Surtrac is commercializing the technology.”

“In pilot tests in Pittsburgh, the smart traffic-management system has gotten impressive results. It reduced travel time by 25 percent and idling time by over 40 percent.”

Startups Have a Crazy New Idea for Saving Money: Be Nice to Workers

Quartz: “Companies like Managed by Q (office cleaning and services), Juno (a ride-hailing competitor of Uber’s), and a few others are attempting to make a name for themselves as the nice guys of the gig economy. They’re promising better wages and, in some cases, benefits and equity. In Silicon Valley, where efficiency is often prized beyond all else, it might seem unusual to choose to spend more on workers who can be had for less. But what if—contrary to all gig-economy wisdom—keeping workers happier is saving money, too?”

Successful Companies Don’t Adapt, They Prepare

Harvard Business Review: “In 1960, Harvard professor Theodore Levitt published a landmark paper in Harvard Business Review that urged executives to adapt by asking themselves, ‘What business are we really in?’ He offered the both the railroad companies and Hollywood studios as examples of industries that failed to adapt because they defined their business incorrectly.”

“Yet today, the railroads don’t seem to be doing too badly. Union Pacific, the leading railroad company has a market capitalization of over $80 billion, about 60% more than Ford or GM. Disney, the leading movie studio company, has a market capitalization of about $150 billion. That doesn’t seem too shabby either.”

“While nimble startups chasing the next trend are exciting, the truth is that companies rarely succeed by adapting to market events. Rather, successful firms prevail by shaping the future. That can’t be done through agility alone, but takes years of preparation to achieve. The truth is that once you find yourself in a position where you need to adapt, it’s usually too late.”

Are Americans Better Off Than They Were a Decade or Two Ago?

Ben Bernanke and Peter Olson: “Economically speaking, are we better off than we were ten years ago? Twenty years ago? When asked such questions, Americans seem undecided, almost schizophrenic, with large majorities saying the country is heading ‘in the wrong direction,’ even as they tell pollsters that they are optimistic about their personal financial situations and the medium-term economic outlook.”

“While thinking about the question, we came across a recently published article by Charles Jones and Peter Klenow, which proposes an interesting new measure of economic welfare… The bottom line: According to this metric, Americans enjoy a high level of economic welfare relative to most other countries, and the level of Americans’ well-being has continued to improve over the past few decades despite the severe disruptions of the last one. However, the rate of improvement has slowed noticeably in recent years, consistent with the growing sense of dissatisfaction evident in polls and politics.”