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The new budget in France is designed around two goals. The first is to take aggressive action to bring the deficit down to 3% by 2013, not a gradual program but one intended to send a strong message to capital markets that France under a Socialist government is dead serious when it comes to the deficit and debt reduction. Every 0.1% increase in France's borrowing rate would mean $260 million going into interest payments on the debt, according to Pierre Muscovici, the finance minister. France's borrowing rate is close to Germany's 1%, and the French are determined to keep it this way. The other goal was stated by Mr. Muscovici: "I don't want a policy of austerity, hitting salaries, weakening the state and turning it into a pauper." The idea being that hitting the common man would mean decline in consumer spending and lower growth and tax revenues that would create the kind of negative spiral facing Spain of declining growth and rising unemployment, worsening deficits, and higher debt payments. The way Muscovici raised the $39 billion- beyond the $9 billion in higher taxes and savings already implemented for 2012- is through $13 billion in new taxes on corporations, and additional $10 billion from new income taxes, including a higher tax rate of 45% on incomes over $193,000. Additional $13 billion will come from a freeze in public spending, so that some ministries take cuts adjusted for inflation keeping the overall budget the same. Spending cuts could come later to balance the budget as growth picks up to 2% in 2014, is the government reasoning, softening the impact. The new budget is well received by German public opinion as showing the resolve of Germany's key partner in the EU. Part of the reason the French are able to get business and people with higher incomes to contribute is that France is unique in that there is a greater consensus than in other countries on the steps needed and a sense that austerity measures targeting the middle class would be counterproductive. The aggressive action with considerations for equity and fairness also gives France the chance for a faster turnaround and avoid the problems plaguing Spain and Italy, which French public opinion and business appears to have grasped and the government's experienced ministers for the economy have successfully presented. ...

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The riots in Athens as the Greek parliament voted to support the passage of an EU plan of austerity cuts, including a 22% cut in the minimum wage, pension cuts and large cuts in the number of government employees. The Popular Orthodox Rally party in the governing Greek coalition withdrew its support, 22 members of the Socialist party and 21 members of the New Democracy party in parliament opposed the measures. Elections are planned for April, 2012. Antonio Samaras, head of the New Democracy party, told parliament that he supported the measure only so that Greece could continue using the euro and have "the possibility tomorrow to negotiate and change the policy that is being imposed on us today."

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The May 6 episode of the stock market plunge of 900 points in the U.S. and then recovering had the effect of rattling investors nerves especially retirees. The impact of this episode is recorded in the experience of one Charles Schwab broker office in Englewood, Colorado. By the end of that day this broker had 50 calls on his answering machine from a fifth of his clients, all seeking to know what happened. Charles Schwab, who helped launch a period of individual investing in the U.S. after 1982 by cutting fees and going after the average investor, (along with others like Jack Bogle of Vanguard Funds), is also on edge. He says he has not seen anything like this since his early days. Schwab confirms Yale Prof. Shiller who says (see link) that his index for markets shows a lot of nervousness. Saying that 98% of people are still very concerned, coming after the May 6 incident, and the Greece and eurozone crisis that impacted US stock markets. One other factor he points out is the constant flow of headlines that suggest certain business people engaged in fradulent practices, something that fuels a lack of trust. Charles Schwab ponders from his office across the San Francisco Bay Bridge, whether words like safety and soundness mean anything anymore. Another factor of concern, Bogle points out, is that institutional investors now own 70% of American corporations, up from 35% in 1975. And the advantage has veered sharply in their direction as institutions, hedge funds, and investment banks trade on their own account, with wealth moving in that direction. This leaves the individual investor and especially the retiree or those about to retire in a severe predicament....

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Krugman says austerity measures alone won't work as the economies in the eurozone shrink in 2012.

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Von Mark Schieritz of Germany's Zeit Online describes the changes underway following the election campaigns in the U.S., and France, and the Brexit vote in Britain, all signalling the discontent of people left behind by the tech, capitalism, trade and globalization changes of the last two decades. The appeal of one time fringe politicians using racist slogans and divisive rhetoric to appeal to those left behind, appealing to people lacking intergenerational mobility, and without much hope for a better future, is a serious concern. People who are gullible enough, lack college education, or racially isolated so that they are not likely to look carefully at what is being offered in terms of programs and change of competing parties, and likely to overlook the hard and difficult road for corrective course of action, because of anger and pentup fears. Schieritz cites as part of this change the unanimously approved conclusion in its final declaration at the G-20 meeting in Chengdu, China- "The benefits of growth need to be shared more broadly within and among countries to promote inclusiveness." Yet this can be a sort of "too little, too late."  Bankers who are cited in an email going around Wall Street lack credibility with groups on Main Street, to people adversely affected by tech, trade and globalization changes that have been persistently ignored for over a decade, close to two decades. More convincing is the tone of Theresa May, the British prime minister's first statement outside 10 Downing Street- who spoke of the "burning injustices" and her determination to make this a top priority of her government. Still more convincing are the programs to invest $275 billion over 10 years in infrastructure put forward by the leading candidate in the U.S. presidential election of 2016, to provide easier access to public universities and colleges to those left behind, as a sure way to create new jobs and address intergenerational mobility. In fact every leading candidate had made the loss of upward mobility their central plank already in 2015, long before Trump and Sanders started their campaign. The real hope lies in western leaders Merkel, May, and Clinton, all keenly aware students of changes, all women by the way who have sensed the injustice and have the ability to come up with something new and promising for the future, after learning the lessons of the past. ...

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U.S. President Obama's 2013 State of the Union address focussed on the problems facing the U.S. middle class, calling it "our generation's task" to tackle this problem. Economic changes have changed the patterns of economic growth and jobs, growth, income growth, that prevailed from the end of the Second World War to about 1989. But he offered few solutions beyond increasing the minimum wage to $9.00 from $7.25 to reduce poverty.

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Krugman points to some striking data in a U.S. Federal Reserve study, showing 47% of Americans do not have the money to meet an unexpected expense of $400 without selling something they own or borrowing. The is the 2nd year of this Federal Reserve study. It shows alarming information about the condition of retirement savings- about 30% of nonelderly Americans say they have no retirement savings or pension, and reported going without some kind of medical care because they could not handle the expense. About 25% say they or a family member experienced financial hardship this year.

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Kristof says social ills- the lack of stable marraiges, drug use, poor day care resources- compound the problems of lack of education beyond high school in America's white underclass. The lack of good manufacturing jobs and lower wages have hit people with only a high school education the hardest. Two decades of decline in good manufacturing jobs with globalization have hit this part of the population in the U.S. hard creating increasing inequality in America. He sounds a Moynihan type call to the plight of America's poorest white communities.

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Strikers at a Honda transmission factory in Hoshan, 100 miles northwest of Hong Kong are asking for raises of $117 or 800 renminbi in cash above the $132 a month or 900 renminbi that they are now paid. About 950 of 1900 workers at the plant are trainees, young people from vocational schools or high schools earn $132 a month. Older employees earn upto 1500 renminbi or $220 a month. The significance of this strike is that the Chinese government is tacitly encouraging the strike as it begins making moves to increase domestic consumption and make the economy less dependent on exports. This requires consumer's having larger purchasing power and higher wages. It also means that China will not remain the low cost manufacturer for manufacture goods makers around the world for very long. Consider the size of the increase and the policy change of the government and this implies a significant shift by China.

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France's central bank chief Christian Noyer, says public spending to create jobs has the drawback of creating yesterday's jobs, but lasting job creation has to look at today and the future for effective job creation. Once government spending crosses a certain level, about 55% of GDP, a level France has crossed, further spending becomes counterproductive, reducing public confidence in the economy, as higher future taxes are anticipated canceling any benefits.

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Brenner of McGill University and Fridson of S&P say the Bernanke Federal Reserve in the U.S. is doing what President Truman and Treasury Secretary Snyder did in the war and postwar years- paying down the U.S. debt as cheaply as possible by inflating the money supply. There are no new monetary insights here, and even though the policy is maintained outwardly as one to promote economic growth and employment, the main focus is to keep the cost of paying down the debt as cheaply as possible with low rates. This hurts savers and retirees earning very little on savings. They cite Bernanke's writings that show he is imitating the policy of the war years when the U.S. held down interest rates and succeeded in doing this for a decade.

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Robert Gordon of Northwestern University describes the problems in American Education and how this is the first generation which will not do better than its parents in educational attainment. The cost says Gordon comes in lower potential economic growth rates.

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The Journal editorial title suggests that Greece chose economic decline. It puts the responsibility for this choice on one political party that lied about its fiscal position, and another party that failed to take strong action. The government unions were uncooperative and resisted making changes. Making matters worse was policy from the EU that misread the Greece situation as a liquidity problem, and not as a solvency problem considering the huge debt Greece has piled up. And austerity measures pushed by the EU are doing little for growth- leading to an acceleration in the economic decline in recent months.

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This article by Gerald Seib in the WSJ says not enough was done to attract white working class voters- critical for Trump in industrial swing states- at the Democratic National Convention. He says only on the last night of the convention did a factory worker, a home care provider and a laid off restaurant worker, appear on the stage. These are the voters who have drifted away from the Democratic Party. The convention draws ironically on Republican themes, defense foreign policy as in the speeches by Leon Panetta and retired General Allen, and in efforts to portray Hillary as more human with frailties but a 40 year public service record that includes exceptional work for children. Actually the appeal to traditional Democratic white working class voters was there always in the background with most of the speakers, as it colored most speakers comments including Biden and Kane, who have the colloquial language and style to appeal to this group. The appeal to traditionally white working class voters is in the party platform with the $15 minimum wage for service industry workers, and in the promise to provide college free tution for people making less than $125,000. The Democrats simply painted this with a different brush. Contrasting the callous attitude to the poor and struggling of billionaires like Trump with those who have fought for pushing people up the ladder since FDR- with the lapses in recent years from the tech boom which left some workers short now being addressed. This was expressed by Hillary Clinton saying to Bernie Sanders voters- "your cause is our cause." For Democrats it was more effective to tackle the traditionally Democratic working class voters first, before shifting to working class voters who are border line Republican because of social issues or those who are so disaffected so as to be beyond reach. ...

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A report from the U.S. Federal Reserve on the impact of the financial crisis of 2008-2009 on the wealth of American households. Between 2007 and 2010 says the report the median net worth of American families went down by 39%, from $126,400 in 2007 to $77,300 in 2010. This had the result of putting Americans back to the level of net worth in 1992. Much of the loss in net worth was from asset value reductions. The median value of stock market based retirement accounts decreased by 7% to $44,000. The biggest drop was in housing values- falling by 42% to $55,000 in the three years. Americans are working down their debt- a quarter of families are debt free, credit card balances declined 16% to $2600 from $3100 from the period 2007 to 2010 of the report. Yet the median level of family debt remains the same as more families support their kids education by taking out college loans. Median income fell about 8% to $45,800 in 2010, with income losses especially large in the manufacturing industries as the U.S. manufacturing sector worked to improve competitiveness. Other factors supplement this picture. The burden of college loans increased to over $1 trillion for middle and working class families. With the burden of college debt young people were more likely to delay buying first homes, indefinitely dealying recovery in the housing market. Seniors on retirement see interest income from savings negligible with low interest rates and higher risk in a volatile stock market. ...

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Prof. Peterson of Harvard and Hanushek of the Hoover Institution, authors with Woessmann of the book "Endangering Prosperity: A Global View of the American School," offer some startling reminders about the importance of education to economic growth and incomes in countries. Simply by raising the math standards in the U.S. to the higher standards in Canada would raise GDP by three fourths of one percentage point. One advantage that the U.S. enjoys comes from its good university systems, open markets, rule of law, tax rates, and open immigration policies, which give it about two thirds of a percentage point in higher GDP growth per year. The estimates are from the authors calculations. For the period 1960-2009, a period of rapid growth in Asian countries Korea, Taiwan, Singapore and Hong Kong, higher test scores in math and reading compared to the wrold average as measured by NAEP test and PISA, have led to 2% higher GDP growth. NAEP shows only 32% of U.S. high school students proficient in math compared to 45% in Germany and 49% in Canada and 63% in Singapore. By contrast to Korea and Taiwan, Peru, Argentina, the Philippines and S. Africa have about 2% less in GDP growth because of lower scores compared to the world average....

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Krugman is critical of ECB president Trichet's decision to raise interest rates in 2010, because of the way it affects Spain, Italy, and Portugal. Increase in interest rates by the ECB affect the entire eurozone and this means, he points out, that inflation in Germany would be extremely low -about 1% for the next five years- and the result being that inflation would be much lower in debtor countries like Spain. A decrease in interest rates with inflation at 3-4 % in Germany would be better for the debtor countries (Spain, Italy, Portugal, Ireland) as this would enable them to cut prices and costs relative to Germany and other creditor countries. The first step taken by the new ECB president, Mario Draghi, was a small increase in interest rates. Krugman asks if the private demand is affected negatively by the end of a debt financed boom in the debtor countries, and austerity programs reduce any growth in the public sector, then where are the new jobs supposed to come from? A policy that reduces the prices of the products of debtor countries relative to creditor countries like Germany- so that exports can generate necessary growth- is needed says Krugman. ...

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Daniel Altman's proposal for a tax on wealth over $1 million. He makes the case for taxing wealth not incomes to reduce inequality as this is where the situation in terms of inequality has worsened for the U.S. in recent decades. To support this proposal Altman cites the change in the U.S. Ginni coefficient, which measures inequality. The Ginni coefficient is anumber from 0 to 100 which goes up with higher income inequality. From the late 70's to the 1990's, the Cnesus Bureau showed this to be in the low 40's. By 1992 the Ginni coefficient went up to the mid-70's, according to the Federal Reserve data. It increased to about 80 in 2010. In 1992 the top 10% in the U.S. population controlled 20 times the wealth of the bottom 50%. By 2010 this figure triples to 65 times. and the graduated income tax even if it redistributes a small share of the wealth does little to affect the trend of wealth extremes from building up and threatening the social fabric of America, reducing mobility and opportunities for the bottom 50% to unprecedented levels since the 1950's. ...

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Like hundreds of thousands of other young migrant workers in China's factories, Yuan Yandong is from a rural area and lived on a farm. Better incomes have brought them to the factories in urban areas. In this case travelling long distance by train from Guangdong province to Shenzhen. As living standards improved across China and the government expressed a keen willingness to encourage workers to exercize their rights to fair wages and working conditons- especially by creating increased awareness of new labor laws in the state run media- migrant workers are becoming restless with conditions they accepted a few years ago. The growing use of cellphones and access to the internet have made news travel faster. A visit to a Foxconn factory shows a young worker, age 24, sitting on a stool 6 nights a week, 12 hours a night, with a quota to assemble 1600 hard drives for American computer storage company EMC, with the pressure to work continuously against the clock for each step in the manufacturing process. Foxconn is known for its highly disciplined nature of work, akin to a military style. Behind the scenes factories like Foxconn employ methods once used in the US at a similiar stage of industrialization, with 500 technical people continuously looking for the most efficient way to organize each step in the production process. Each movement and action of the worker is measured for time taken and process efficiency, according to experts at Tsinghua University in China. This means many factories can use less automation- and so less capital intensive manufacturing- and go to extremes where workers perform like machines. Yuan's ambition is to work only for another 2 years and then use his savings to get into hotel management. His wages are 75 cents an hour, and with the overtime premium about $235 a month. Foxconn announced a 33% raise in wages as a result of worker protests. The mind numbing monotony is becoming less acceptable in a changing China, and worker turnover in such factories is rising. After the initial burst of industrialization in which young migrant workers played a signifcant role in manufacturing, a new chapter in China's development is beginning- one less likely to create the large trade deficits with the US and Europe- which is moving in the direction of a larger domestic market with higher worker wages....

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China's July 2012 exports were up barely by 1%, over the same month prior year. Exports to the European Union declined by 16.2%. A big problem is cost increases for land, labor and electricity. By 2004 China's exports were growing at a peak rate of 35%. Since then prices of inputs have increased- wages by 150%, land by 70%, and electricity prices by 30%, according to Dragonomics. The yuan appreciated by 30%. Productivity is increasing by about 8% a year, according to the World Bank. As a result of the price increases of inputs the competitiveness of China, with products exported mainly on the basis of price, is deteriorating.