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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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Andrew Ross Sorkin points out that investors are sitting on their hands and money is moving out of the stock market. About $171 billion has moved out of mutual funds over the last year, according to the Investment Company Institute. About $208 billion has gone into the bond market in the same period. There are now fewer long term investors and the market is dominated by professionals which increases the volatility. There is a lack of confidence in the economy, the same reason that businesses in the U.S. are sitting on $2 trillion in cash that could be invested, and for investors the feeling that the market is rigged to favor insiders. The Financial Literacy Group surveyed 878 students at 18 high schools in 11 states in the U.S. It found that three fourths of the students agreed with the statement: "The stock market is rigged mostly to benefit greedy Wall Street bankers."

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Lahart says adjusting for inflation the DJIA average in early March 2013 would be about 12,900 instead of 14,254, much less than it was in Oct 9, 2007 peak. If dividends are reinvested the Dow would be at 16,600. With inflation and dividends taken together the Dow would be around 15,000. Lahart does not cite his source. Browning in a separate piece says the DJIA adjusted for dividends, inflation and taxes, according to Bespoke Investment calculations is still below the 2000 level in 1994 dollars, and provides a different view.

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Moritz Kramer, a managing director at S&P, says Spain, Italy, France and Portugal cannot depend on austerity measures and cuts in spending alone to resolve the eurozone crisis. This is only one aspect of the problem facing the countries in southern Europe. The major reason for the problem is the lack of competitiveness in their economies. Nobel winner Stiglitz also points this out and adds that its important to note that the human and natural resources of Europe are the same and the potential just as good today as before the eurozone financial crisis. He says southern Europe has failed to utilize its human and capital resources and improve its technologies in ways that would make it more competitive with Asian countries. Experts point to the decade it took Germany to address problems created by inflexible labor markets, wage competitiveness, and investments in technology and human resources to get to where it is today.

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This New York Times editorial after the Senate passed a bill in October 2011 calling for action on the misaligned Chinese currency, points to ways a misaligned currrency is damaging for China. It cites the Peterson Institute for International Economics estimate that this is costing China $240 billion a year. This is a result of accumulating huge dollar reserves that have a declining value against the renminbi. Higher import prices lead to higher inflation. And low interest rates on savings, to the point that they are lower than the inflation rate, hurt the vast majority of Chinese and reduce domestic consumption. And perversely this leads to money pouring into speculative uses such as real estate, creating unsustainable bubbles in housing. The Times editorial says China is not generating jobs from this strategy, as the export strategy is relying on use of advanced technology in manufacturing and not creating many jobs. It cites a statistic showing employment has increased by only 1 percent a year from 2004 even with GDP growth above 10%. China is beginning to realize the cost of this strategy, and is planning a shift in its five year economic plan. But this rebalancing has many obstacles. The current system dominated by state run companies, banks, local and federal government, is biassed in favor of the old export led strategy, and experts are pessimistic about the possibilities for change. The Times suggests China may be falling back on the export led strategy as the global economy is slowing. The whole system would have to change after three decades of this kind of development, and would require new leadership and major changes....

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Shiller says policy is captured and communicated by metaphors, the most effective being belt tightening for a family. However what works for a family does not work for a country in the same way, especially if not accompanied by other measures and implemented in a strict manner without looking at the real situation. Better suggests Shiller, and more real is the metaphor of "winter on the family farm," where people work to do other chores than planting and harvesting, because a lot of other things need to be done and this is a good time to do it. This would include cleaning up the place, fixing the farm and the barn, fixing machinery, building fences. The farm's members pay a tax in terms of donated labor which goes to do all the work needed and helps the farm's productiveness as the weather changes. Similiarly the Salant-Paul Samuelson balanced budget theorem from the FDR days shows an increase in national output by the amount of a tax, such as the one proposed in France by president Hollande; that would then be invested in hiring more teachers (the labor) and investing in education infrastructure....

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Peters and Wessel provide profiles of middle aged American men in 2014- as tech workers out of jobs as technology shifts and worker skills fall behind, younger men with masters degrees in fields such as public administration where it is hard to find jobs and workers lack retraining, and other men who lost jobs from globalization or the 2009 economic crisis. About one in 6 working age American men 25-54 are without jobs- about 10.4 million. Of this group two thirds are not looking for work either because they cannot find decent paying jobs or are too discouraged looking for work, and are not counted in the unemployment rate calculated by the Labor Department. About three quarters of the working age men not working have only a high school education compared to 55% with jobs. Wages for highschool dropouts have declined by 25% since the 1970's, and 15% for those without a college degree but having a high school diploma- some of these men are going back to school, others lacking retraining are too discouraged to look for work and depending on a spouse or government benefits. It is these people U.S. Fed chairpersons Ben Bernanke and Janet Yellen have in mind as they shape Fed policies since 2009 to not leave them behind....

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The political risk in China as the change of leadership takes place in 2012, and with the removal of Chongqing party chief Bo Xilai. The slowing of manufacturing activity and slowdown in growth expected in 2012-2014. Export growth declines to 6.8% from 14.2% in the fourth quarter of 2011. Quarterly surveys by the central bank shows demand for loans is dropping. And the HSBC purchasing managers index shows a reading of 48.1 in March, declining from 49.6% in February, showing shrinking manufacturing activity in China- anything less than 50 means contraction is taking place.

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Greg Ip provides useful insights into the nature of the economic recovery in Britain compared to the U.S. by 2015. The recovery in Britain has done better than in the U.S. in job creation, but has lagged behind in productivity gains. The labor force participation rate is 72% in Britain compared to 68% in the U.S., going back up to 2007 levels in Britain, whereas in the U.S. it has steadily declined with some older working class Americans too discouraged to look for work and left behind. Stagnant wage growth is a major issue in Britain, more so than in the U.S. where wage growth is slow. Economic austerity is not the main cause of the economic difficulties as the coalition government of prime minister Cameron relaxed earlier goals for austerity by 2012 with tax revenues and growth below forecasts. The structural budget deficit has been reduced by 6.6% of GDP since the peak, and the Office of Budget Responsibility estimates the UK economy was 1.5%-2% smaller by 2013 because of the austerity policies. Britain was also affected by the eurozone crisis to a larger degree than the U.S. Productivity remains a long term challenge- with needed investments in housing, education and infrastructure, improved lending for new business, and higher tech improvement exports....

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A new report, "China: 2030," by the World Bank and the Development Research Center (DRC), has major implications for the course of action taken by new Chinese leaders. The limits to China's economic model with the dominant role of state owned companies has been pointed out in the past. It has now reached a point where China must choose to move to a modified model or face the "middle income trap" of countries like Brazil and Mexico, where income levels and growth reaches a certain level and then decelerates suddenly with little warning. The report makes some major recommendations that would modify the current system. It says the state owned companies should be supervised by asset management firms focussed on commercializing these companies, and not supervised by the State-owned Assets Supervision and Administration Commission (SASAC). The asset management firms would restrict the state owned companies on what areas they participate and sell off businesses to make it possible for private companies to compete. Zoellick says- "China needs to restrict the role of the state-owned companies, break up monopolies, diversify ownership and lower entry barriers to private firms." The state owned companies would be required to pay sharply higher dividends to the government which could then be used for social programs. Currently state owned companies invest in land which is sold by local governments for revenue helping fuel the real estate bubble. Significantly, the report had its origins when it was proposed by Mr. Zoellick, head of the World Bank, during a visit to Beijing in Sept 2010. It was supported by Li Keqiang, then vice premier, and now expected to be the new prime minister of China. The World Bank is widely respected by Chinese leaders because of its assistance during the early stages of reform in the 1980's. The DRC reports to China's State Council, a top governmental institution, and the No. 2 person at DRC, Liu He, is a senior advisor to the Politburo Standing Committee. He helped draft the current five year plan and is close to Li and Xi Jinping, the next president of China. The SASAC has opposed these ideas, especially any shift in its personnel selection of management at the state owned companies, which it shares with the Communist party's personnel department. Respected China economists say China faces large risks of a sudden sharp slowdown because the the state owned companies have largely copied foreign technology and have not generated enough technological advances, which will be needed for the next stage of growth. Lower growth rates could worsen problems in China's banking system leading to a crisis. The Conference Board, estimates China's growth at 8% for 2012, slowing to an average annual growth rate of 6.6% from 2013 to 2016. Barry Eichengreen of UC Berkeley, Donghyun Park of the Asian Development Bank, and Kwanho Shin of Korea University, say the annual growth rate will drop by at least 2 percentage points by 2015....

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The Labor Department reports that there is no U.S. productivity growth in the 4th quarter of 2014 over the prior year. U.S. productivity growth is about 1.3% for the period since 2009, showing a weak expansion. Job gains of 295,000 in February 2015 show an improving jobs picture, yet wage gains are tepid. This is partly due to slack in the labor market not reflected in the official unemployment rate of 5.5% for Feb. 2015, with a large number of part time workers who do not have full time work. The low productivity growth is another reason for low wage gains in this economic recovery. Economic growth is also weak with economists estimating GDP growth for the 1st quarter 2015 at 1.5% annualized. GDP growth is in the 2-2.5% growth range since 2009. Hourly wages are up less than 2% since 2009, with hourly wage growth in Feb. 2015 at 2% over the prior year. Weak business investment is part of the reason for the sluggish economic growth. Macroeconomic Advisors estimates the capital investment for equipment software and buildings is seeing growth of only 0.3% in the last decade, much lower than in the last forty years. With most of the gains from the internet technology advances already made there is less prospect of a sudden increase in productivity....

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Changes to China's five year plan to include critical social goals, reduce income inequality, and provide a social safety net. The influence of local governments in distorting central government policy.

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ECB president Draghi tells a Brookings Institution audience on Oct. 9, 2014 "for governments that have fiscal space, then of course it makes sense to use it," referring to Germany. IMF's Christine Lagarde is also calling on Germany to increase spending. The German statistics office says exports declined 5.8% in August from prior month. Mr. Draghi also emphasized that the survival of European governments depended on getting economic changes right- "if they don't do the right things, they will disappear forever because they will not be re-elected." Germany's respected economic institutes said in a joint statement that GDP growth in 2014 will be down from earlier forecast of 1.9% to 1.3%. In 2015 growth is forecast at 1.2%. For the 3rd quarter 2014 growth is zero and for the 4th quarter 2014 it is estimated at 0.1%. Economic contraction is not ruled out.

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Porter cites a report by Kai Daniel Schmid and Ulrike Stein of the Macroeconomic Policy Institute in Dusseldorf. The report shows the top 10% of Germans having 26% of the country's income before taxes and transfers in 1991. This increased to 31% by 2010. For the same period of about 20 years the bottom half of the population took in 17% in 2010 dropping by 5% from 22%. The growing income inequality in Germany is comparable to what has happened in the U.S. over this period.

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The bleak situation for Americans facing retirement as most people age 65 are likely to outlive their savings. The median financial net worth of an American household is $10,890, according to work done by Edward Wolff, an economics professor at New York University. This estimate is based on 2010 Federal Reserve data updated for the movement in market indexes. Even the ten percent of Americans who have saved $1 million will have difficulty as a 2% withdrawal rate would provide only $20,000 to supplement Social Security income. Earlier generations of Americans could depend on income from bonds. In today's low interest rate environment, the benchmark 10 year Treasury note is at 2.2% in 2013, bonds will provide only a fraction of the income generated in earlier periods. Stock markets are volatile and pose additional risks for seniors in retirement.

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Problems with the old 4% rule for withdrawal from savings for retirees in 2013 include- the decreasing income from bonds, the high P/E 10 ratio of 23 for the stock market in the U.S. in 2013, the timing of entry into retirement and the economic conditions, inflation and unforeseen expenses. The 4% rule needs to be modified in today's conditions.

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A report released by the Organization for Economic Cooperation and Development (OECD) shows growing income inequality in 34 OECD countries. OECD Secretary General, Angel Gurria says: "The social contract is starting to unravel in many countries. This study dispels the assumptions that the benefits of economic growth will automatically trickle down to the disadvantaged and that the greater inequality fosters greater social mobility. Without a comprehensive strategy for inclusive growth, income inequality will continue to rise." Countries with the largest ratios between incomes at the top and the bottom, are the United States, Turkey and Israel, roughly 14 to 1. Germany, Denmark and Sweden have ratios of 6 to 1, with their ratios up from the 1980's. Gaps in Chile and Mexico are at 25 to 1. The study covers the period from 1980 to 2008. Overall inequality went up by 25% in the U.S. from 1980. In 2008 the top ten percent in the U.S. earned $114,000, 15 times than incomes for the bottom 10%. The top 1% of Americans saw incomes go up from 1980 to 2008, increasing from 8 percent to 18 percent. The richest 1% having $1.3 million in after tax income, and the lowest 20% making $17,700. The trends have accentuated an increase at the highest end- the top 1% and top 10% of the people- and a sharp decrease for the bottom 20%, which can be grasped from the $17,700 and the $1.3 million, both at extreme ends. The study attributes the rise in inequality to a growing gap in wages for highly skilled workers as technology advances, a surge in foreign direct investment and a looser regulatory regime that reduces employee protections leading to wage premiums for financial jobs and smaller incomes for workers at the bottom. Income groups and professions and sectors that had the greatest influence in government were able during this period to get the greatest protection for incomes, and able also to maximize their incomes. Incomes in the financial sector increased dramatically in the last decade, as a result of deregulation leading to higher risk and speculative activities in the financial sector, leading to the financial crisis of 2008-2009. Financial crises further depress incomes at the lower end. Similiar income inequality trends can be seen for India and China. China has a Ginni coefficient of 0.5 according to researchers at Beijing Normal University, up from 0.3 three decades ago- a Ginni Coefficient above 0.4 is considered destabilizing. Another factor that played a part in these countries is corruption and lobbying by special interests for favored treatment of sectors or groups. Austerity measures taken in Europe and in the U.S. are likely to widen income gaps by depressing the lower end income groups, creating social unrest, especially in the absence of efforts to stimulate growth....