Wonkbook: Egypt and the economy
The remarkable uprising in Egypt is beyond Wonkbook's purview. But its roots in the country's recent economic performance and its likely impact on the global economy is not, and so that's the focus of today's top stories.
But there's a general point worth making, too: The chaos in Egypt is the sort of black swan that can roil markets, but that investors aren't very good at building into their models. And we're particularly vulnerable to such interruptions now: The current moment of economic healing is, at least in part, an extended attempt to convince businesses and consumers that the turmoil of the past few years is over and that it's once again safe to invest, spend, hire and plan. Dramatic reminders that events can turn very quickly (and, in particular, that oil prices can turn very quickly), derailing recovery and leaving those who bet on sustained growth holding the bag for the new workers or plants or car they just bought, do not help convince economic participants that they can trust in normalcy again. Rather, they strengthen that little voice that says, "maybe I should wait a couple more months to see how this shakes out." That little voice is, in large part, why the economy isn't adding more jobs.
The potential upside is that if the market weathers Egypt easily, it might convince businesses and investors that resiliency has returned to the world economy, and they can act with more confidence. In recent years, the global economy has been uncommonly fragile, forcing investors to fret over risks that markets could previously have handled. If the reaction to Egypt is relatively calm, it might be a signal that the recovery isn't so fragile at this point, which might in turn get people worried about jumping into the economy too late, as opposed to too early.
The protests in Egypt could have major global economic ramifications, report Chip Cummins and Sudeep Reddy: "The turmoil in Egypt is reverberating around the world, battering stock markets, driving up oil prices and raising questions about whether the rising cost of crude could slow the global economy...The Egyptian economy is relatively small, with total output of just about $217 billion last year. But the nation carries outsize importance as home to the Suez Canal, a key shipping route for oil and other products between the Red Sea and Mediterranean...Canal traffic has continued unhindered through the protests. But if the violence in Egypt spreads to its oil-producing neighbors, crude prices will likely top $100 a barrel, which would damp an economic recovery gaining momentum in many countries."
The Egyptian middle class is feeling the brunt of the protests' economic impact: http://wapo.st/hRVmLZ
Egypt's economic isolation contributed to the current unrest, writes Zachary Karabell: "The mass movement engulfing Egypt exposes a fact that has been hiding in plain sight: In a decade during which China has brought more people out of poverty at a faster rate than ever in human history, in a period of time where economic reform has been sweeping the world from Brazil to Indonesia, Egypt has missed out. A decade ago, IBM ran a series of commercials featuring its global reach. One included a fisherman sailing on the Nile, tapping into a wireless network. It was an enticing image--and almost completely fictional. Few countries have been less integrated into the global economy. The country ranks 137 in the world in per-capita income (just behind Tonga and ahead of Kirbati), with a population in the top 20."
Stocks in Asia are plummeting over concerns about the uprising: http://wapo.st/gcm1xA
The protests are throwing the domestic Egyptian economy into disarray, report Nicholas Kulish and Souad Mekhennet: "An army tank stands guard at the port of Alexandria to make sure no one gets in. The bigger problem is that next to nothing is going out. For four days now, containers arriving on ships have been stacking up at Egypt’s largest port, shipping company employees and truck drivers here said. With distribution networks barely functioning and the Internet down since Thursday night, much of business in Egypt has nearly ground to a halt...'A big part of the production system is government-run, and this is frozen, including many of the bakeries making the subsidized bread,' said Hoda Youssef, an economist at the Arab Forum for Alternatives, an independent think tank, and a lecturer at Cairo University."
Oil prices are rising, but OPEC is relatively calm, reports Alex Lawler and Emma Farge. "Oil prices have spiked following tension in Egypt with Brent crude approaching $100 per barrel on fears instability could spread to the Middle East, which together with North Africa produces more than a third of the world's oil. Secretary General Abdullah al-Badri told reporters in London the Organization of the Petroleum Exporting Countries did not at this stage think it was necessary to call a meeting before its next planned gathering in June but added that the mood was changing due to the situation in Egypt."
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Celebrity cameo interlude: Mark Zuckerberg crashes Saturday Night Live, with Jesse Eisenberg hosting.
Still to come: Obama reorganizing around trade; states and the federal government are heading to a clash on Medicaid cuts; Jeffrey Zients will lead the administration's government overhaul; the EPA is hearing industry concerns on climate rules; and Mark Zuckerberg meets Jesse Eisenberg.
The administration is looking to reorganize around boosting trade, reports Laura Meckler: "The White House is looking at combining a set of agencies involved in trade and exports as it works to implement President Barack Obama's State of the Union call to 'merge, consolidate and reorganize the federal government.' White House officials in recent months seriously considered a plan to combine parts of the Commerce Department with other trade and export agencies, and to have the president announce the proposal during the speech, according to two people familiar with the conversations. They pulled back amid unsettled questions over which agencies would fold into the new department, among other details. But trade, exports and boosting competitiveness remain the focus of White House thinking on a reorganization plan, a White House official said."
Global trade is still growing, despite stalled talks, reports John Miller: "Global trade has doubled and bilateral pacts have sprung up since the stalled Doha round began. While countries say they haven't given up on the decade-long world trade negotiations, the hurdles to a deal, already substantial, have increased recently. A report issued at last week's World Economic Forum in Davos, Switzerland, warned that Doha, named for the Qatari capital where the talks began, would perish if not completed this year...To be sure, some of the dire talk may be intended to create momentum where none exists. Global trade deals routinely stretch on for more than a decade. No major country every truly gives up on a deal because to do so would be to signal that the global trading system--and the era of globalization--may have reached its limit."
House prices are falling at an accelerating rate: http://on.wsj.com/eR3BwX
Chinese inflation is cutting the US trade deficit, reports Keith Bradsher: "Inflation is starting to slow China’s mighty export machine, as buyers from Western multinational companies balk at higher prices and have cut back their planned spring shipments across the Pacific. Markups of 20 to 50 percent on products like leather shoes and polo shirts have sent Western buyers scrambling for alternate suppliers. But from Vietnam to India, few low-wage developing countries can match China’s manufacturing might -- and no country offers refuge from high global commodity prices. Already, the slowdown in American orders has forced some container shipping lines to cancel up to a quarter of their trips to the United States this spring from Hong Kong and other Chinese ports."
Central banks should resist calls for higher interest rates, writes Paul Krugman: http://nyti.ms/fRvvWk
Innovation isn't helping incomes, writes Tyler Cowen: "Most well-off countries have experienced income growth slowdowns since the early 1970s, so it would seem that a single cause is transcending national borders: the reaching of a technological plateau. The numbers suggest that for almost 40 years, we’ve had near-universal dissemination of the major innovations stemming from the Industrial Revolution, many of which combined efficient machines with potent fossil fuels. Today, no huge improvement for the automobile or airplane is in sight, and the major struggle is to limit their pollution, not to vastly improve their capabilities. Although America produces plenty of innovations, most are not geared toward significantly raising the average standard of living."
Job creation is hard, but Obama's approach is working, writes Steven Rattner: http://wapo.st/ic6gmq
The current relationship between rich and poor countries is unstable, writes Steven Pearlstein: "Although developing countries are beginning to shift toward selling more goods and services to their own populations, they remain highly dependent on sales of manufactured goods to wealthy nations where incomes won't be growing and the emphasis will be on paying down excessive levels of debt and caring for aging populations. Unless developing countries can reorient their export machines toward selling to each other - a possibility, yes, but not a certainty - the robust growth of the past two years will be hard to sustain...Moreover, some of the recent growth in developing countries results from a surge of foreign capital flowing into those nations"
Movie cliché interlude: A supercut of movies using the line, "It's showtime!"
A fight might break out between feds and the states on Medicaid cuts, report Marilyn Werber Serafini and Julie Appleby: "Financially strapped governors, Congress and the Obama administration could be headed for a showdown over the Medicaid health care program that covers 48 million poor, disabled and elderly people nationwide. Arizona's governor has already asked for permission to drop people from the joint federal-state program, which states say is eating up huge portions of their budgets. But to do so, they need the green light either from Congress or the Obama administration...The new health care law requires states to maintain their Medicaid eligibility levels for adults until 2014, when much of the law kicks in. In the meantime, federal funds that helped most states maintain their Medicaid programs - part of the 2009 stimulus package --comes to an end in June, even as enrollment remains at an all-time high while the nation struggles to recover from the recession. "
New Chief of Staff Bill Daley is walking back previous criticism of health care reform: http://politi.co/exPpv7
A federal Medicaid panel is off to a rough start, reports Brett Coughlin: "Trying to squeeze better data out of the morass of Medicaid information crunched by 50 different states has taken a toll on a new advisory panel. Tasked with issuing recommendations to Congress, the Department of Health and Human Services and the states and on a deadline to vote on them next month, the Medicaid and Chip Payment and Access Commission (MACPAC) hit the reset button Friday when faced with the complexity and cost of the effort. After a series of draft recommendations were issued, panel members said they were 'nervous' and 'concerned' about the direction the panel was moving and there were also questions about the costs, given the 'brutal' budget situations that states face."
Health care reform will slow the rate of premium growth, not cut premiums: http://politi.co/evTL7U
OMB deputy Jeffrey Zients is leading the administration's government reorganization project, reports Ed O'Keefe: "Jeffrey D. Zients, the federal government's first chief performance officer and a deputy director at the Office of Management and Budget, will lead President Obama's efforts to reorganize parts of the federal government. Zients, who has spent the past two years working on cutting government contract spending, reforming the federal hiring process and making other operational cuts, will focus first on reorganizing how the federal government handles trade and export issues, the White House said Sunday. He will be joined by White House staff secretary Lisa Brown, who led the Obama-Biden presidential transition's review of federal agency operations."
House Republicans are rejecting calls for hearings on gun safety: http://politi.co/fzFgTn
Regulators and industry are facing off on repetitive stress regulations, reports Lyndsey Layton: "The strained muscles that affect millions of American workers, from white-collar professionals who spend hours at their computers to poultry workers who process chickens, are proving to be painful as well to the Obama administration. Labor regulators came into office vowing to press employers to reduce injuries from repetitive motion, an affliction that caused 28 percent of the workforce to miss days on the job in 2009. But the administration has found itself in a pitched battle with industry, which fears that federal involvement in the matter will result in a massive financial and legal burden. The U.S. Chamber of Commerce, which represents more than 3 million businesses, has lobbied vigorously against any additional regulation."
Sen. Tom Harkin is taking to the courts to reform the filibuster: http://bit.ly/h3fbJe
The failed filibuster reform proposal was a bad idea to begin with, writes Jonathan Bernstein: "What the Merkley-Udall-Harkin proposal would do, as I read it, is..make live filibusters the only show in town for a minority that wants to stall and defeat a bill it doesn’t like. But this would be only a mild inconvenience for the minority; its members would theoretically have to speak on the Senate floor for long periods of time, but that’s not really much of an imposition on them. On the other hand, it would seriously handcuff the majority, by bringing its entire agenda to a halt for hours, even days, on end...After the defeat this week, it’s time for filibuster reformers to regroup and prepare for a future battle, which may come soon if, say, Republicans choose to filibuster an inordinate number of judicial nominations. This time, the goal should be to find something smarter."
Glam-rock interlude: Smith Westerns play "All Die Young".
The EPA will take industry views into account in making climate rules, reports Andrew Restuccia: "The Environmental Protection Agency will hold a series of 'listening sessions' in the coming months in order to get input from stakeholders on the agency's plans to implement new greenhouse gas standards on power plants and refineries. EPA is certain to get criticism from a slew of stakeholders who fear the new rules will be a nightmare for industry, particularly during the sessions focused on the electric-power and oil industries."
"Smart meters" are spurring grassroots opposition: http://nyti.ms/f1Ho2A
Obama's weekly address was focused on clean energy, reports Abby Phillip: "President Barack Obama brought his weekly address with him on the road to Wisconsin, using his visit to a plant that manufactures clean-energy lighting systems as an example of how 'America will win the future.' 'I’m here because this business and others like it are showing us the way forward,' Obama said. On Wednesday, Obama toured the factory of Orion Energy Systems in Manitowoc, Wis., a cutting-edge business he said has taken advantage of his administration’s new business incentives and creating jobs. In his address to the nation, Obama used video of the plant and its workers to drive home his message: Innovation supported by the government creates jobs of the future."
The US is switching lightbulb measurement systems: http://wapo.st/gwNrGq
Obama's "don't talk about climate change" strategy is a smart bait-and-switch, writes Hendrik Hertzberg: "Obama’s State of the Union address was a masterly exercise in rear-guard tactics disguised as visionary optimism. A section was devoted to fighting climate change, but under an assumed name: 'clean-energy technology,' for which he proposed new public investments “that will strengthen our security, protect our planet, and create countless new jobs for our people.” (The second of that trio of goals was as close as he came to pronouncing the dread words.) He set a goal of generating eighty per cent of America’s electricity from “clean-energy sources” by 2035...The President has not, in fact, given up on doing something about climate change. If he holds firm, perhaps his efforts will yet make a difference."
Promoting clean energy is no substitute for climate change action, writes David Roberts: http://bit.ly/gFNYlf
A carbon tax would be an effective stimulus measure, writes Alan Blinder: "Jobs follow investment, and we need jobs now. Even if our economy manages 4% growth for several years in a row, unemployment is destined to remain high for years. We have become accustomed to grading stimulus programs on their 'bang for the buck.' The 2009 Recovery Act, for example, was expected to cost $90,000-$100,000 for each job created. The 'bang for the buck' from a phased-in carbon tax would be infinite at first: lots of jobs at zero cost to the federal budget. Furthermore, many of the new jobs will be good jobs with good wages, just what America needs right now. It is probably true, as some critics say, that much of the resulting manufacturing activity will move offshore--eventually. But not necessarily right away."
Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews, Mike Shepard, and Michelle Williams. Photo credit: Linda Davidson / The Washington Post.
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