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Spain's cabinet announced new changes to labor laws to provide incentives to business to hire. Spain has some of the most restrictive labor laws in Europe and high unemployment. The unemployment rate reached 23% in December 2011, and about half of the people under 26 are unemployed. The cost of downsizing is so high in Spain that Spain's representative on the executive committe of the European Central Bank, Jose Manuel Gonzalez-Paramo, says companies prefer to close rather than downsize. The World Bank has singled out the labor laws as one of the main reasons for Spain's rising unemployment rate. New rules will reduce severance payments to 33 days per year of employment from 45 days. Severance packages will be reduced to a maximum of 24 months from 48 months. To encourage companies to hire permanent workers and depend less on temporary workers the new rules say employers must switch temporary workers to permanent contracts after two instead of three years. As an incentive for companies with a maximum of 50 employees to hire young people the rules give a 3000 euros corporate tax break for each new person hired under age 30. If the hired person was jobless he can still collect 25% of previous unemployment benefits for a limited period with 50% of the unemployment benefits going to the employer. Companies having losses for three consecutive quarters are allowed to pay less in severance payments- only 20 days per year of employment. Companies will now find it easier to leave collective bargaining agreements and make deals with their own staff. Luis Garicano, a professor at the London School of Economics, says this is a good step forward. He finds missing from the new rules subsidies to train young and unemployed people given the high dropout rates in Spanish schools. The government approved the rules by decree, but they will be discussed in the Spanish parliament. The government of prime minister Mariano Rajoy was recently elected with an overwhelming majority in parliament. This makes making major changes different from the process in Italy where a consensus has to be established....

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Daily Show host, Jon Stewart, interviews US President Obama. Obama told Stewart that "it was fair" to say that Obama had done his work, in Stewart's words, in "a political manner that has papered over a foundation that is corrupt." Obama says "we got 90% of what we wanted," which reflects a huge gap between how he is seen by people in the U.S., and how he sees his first 2 years in office. Obama's defensive responses, and no efforts to connect with the youthful audience on the Daily Show. Stewart points to the gap between the "audacity" in the rhetoric of Obama, and the "timid" nature of his administration. Stewart made particular reference to the hiring of Larry Summers, a former Clinton administration official, to guide the President on economic policy and the dealings with the banks.

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Taiwanese contract manufacturer Hon Hai is moving quickly to address higher costs for workers at its manufacturing sites in coastal regions of China. After extensive media coverage of conditions at Foxconn factories, a number of suicides, and Chinese government policy that encouraged higher wages for workers in foriegn owned plants, Foxconn has moved to sharply increase wages at its plants. By the end of 2011 production in cities in the interior of China- Chengdu, Chongqing, and Wuhan, where costs are one third less- will be 25% of production, up from 10% in 2010. By 2012, this will be up to 50% of Foxconn's production, according to Yuanta Securities of Taipei. Hon Hai is lowering dividends to finance the shift. Fourth quarter 2010 earnings of Hon Hai were $742 million, down 26% over the prior year, even though revenues went up by 56% to $33.1 billon- reflecting the higher costs. Hon Hai's stock is down 20% in the past year on the Taipei stock exchange. Other locations being considered by Hon Hai are Brazil, Turkey and Slovakia. Brazil's President Dilma Roussef, said that Foxconn is considering a $12 billion plan for Brazil. Hon Hai is the only manufacturer of Apple iPads and one of two manufacturers of the iPhone....

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Countries which ignored the lessons of the 1997 financial crisis are affected to a larger degree in the 2014 emerging markets financial crisis- Argentina, Turkey and Thailand have high government gross debt as a percentage of GDP. Investors are taking a careful look at individual countries this time and there is less contagon. Flexible exchange rates, and higher foreign exchange reserves are reducing the effects in 2014. The effects on the U.S. and Europe are limited to how this affects the global economy.

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China's trade surplus rose to $457 billion at an annual rate in the 4th quarter, 50% bigger than in the same period for 2007. Exports dropped by 13% in the 4th quarter but imports dropped faster by 21%, which explains the growing trade surplus. With the stimulus spending kicking in in 2010 imports should pick up just as exports decelerate fast, reversing the direction of the trade surplus.

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Labor conditions in Chinese factories that supply Walmart, Disney, Dell and other companies and in China's manufacturing in general.

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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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China surpassed Germany as the world's No. 1 exporter in the first 10 months of 2009, with $957 billion in exports compared to Germany's $917 billion, according to customs data compiled by Global Trade Information Services, a Geneva based firm. With the global financial crisis China's exports fell 20.4% in the first 10 months of 2009 compared to 27.4% for Germany and 21% for the USA. Global consumer spending has fallen more than the capital goods and machinery exported by Germany. Yet these numbers suggest that there has been no significant change to the export models of the two countries even after the global economc crisis revealed cracks in the export model.

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Fact checking Apple CEO Tim Cook's statements on the EU Commission ruling for $13 billion in back taxes, shows that CEO Tim Cook's statement that "we never asked for, nor did we receive any special deals," is not true. Ireland let Apple determine what it would pay in tax, and Apple had the benefit of loopholes in Irish tax laws, the fact check by experts shows here. Apple's Cook also says it would hurt investment and jobs in Ireland. Another NYT article showed that the entire healthcare budget of Ireland would be covered by the $13 billion, and 66% of its budget for social support services to the public. Apple has 22,000 employees in Europe and 6000 in Ireland in 2016. Based on the $13 billion owed in taxes, for every job in Ireland the cost to Ireland is 2.17 million euros, and for every job in the EU the cost is 590,000 euros. Apple could turn around and locate in some other place, other than Ireland, in which case Ireland does not get the 6000 jobs. This is Ireland's incentive to give Apple tax benefits. Only if all EU countries had common tax laws would it be possible to avoid this situation, and generate much needed tax revenues at a time of cuts in public spending in healthcare, education, and social services, and invest in infrastructure, worker retraining. The alternative is for the EU to look at other remedies. This is what the EU Commissioner Vestager did when she announced that this was a state subsidy and illegal under EU rules. Because the appeal by Apple goes to the EU Courts the appeal is difficult say legal experts. The EU courts look at the legal aspects of the ruling, was it justified, not at the overall aspect of the ruling by Vestager, as EU Competition Commissioner. This may be why there is so much outcry from Apple, and other digital companies.  ...

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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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Automobile parts imports into the U.S. have increased from $89 billion in 2008 to $138 billion in 2014, up from only $31.7 billion in 1990. In a huge shift in wages with increasing global competition wages at an American Axle plant in Michigan at $10 an hour are about what Target stores and Wal-mart pay for retail workers. An new generation of workers in manufacturing are seeing a shift from being in the middle class during their parents generation to lower class, with this downward pressure on wages as parts are manufactured in places such as Mexico and China.

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A shift in priorities away from focussing on high growth to lower sustainable growth was announced by China's premier Wen Jiabao at the National People's Congress, China's parliament, in March 2012. This shift will reduce investment in infrastructure, power generation and exports, which will affect the level of imports of commodities from commodity producing nations in the Middle East, Australia, Canada and Brazil. It should increase imports of software, computers, entertainment, tourism and high tech goods from the U.S. and Europe. Chinese leaders have said they would make this kind of shift for some years now but growth has consistently increased more than the target rate, and domestic consumption as a percentage of the economy has actually decreased in the last decade. Now 9-10% growth rates may be a thing of the past and the target of 7.5% set this year may be actually closer to the real figure. The Chinese leaders have belatedly realized the need to make these changes now because slowing markets in Europe -which is seeing declining growth and high unemployment- and in the U.S., make the issue impossible to avoid. Wen told the Congress: "Accelerating the transformation of the pattern of economc development... is both a long term task and our most pressing task at present... Domestically it has become more urgent but also more difficult... to alleviate the problem of unbalanced, uncoordinated and unsustainable development." This is his way of saying that its unavoidable and better to start in earnest now, and at the same time recognizing the resistance to change from the stateowned companies and the other interests who have benefitted from surging growth, and now occupy a central role in the power structure. An opinion article in the People's Daily, China's official newspaper, said: "imperfect reforms are to be preferred to a crisis caused by no reforms." The World Bank's president Zoellick is respected by the Chinese leaders. He also urged them to make changes now. The recent report of the DRC, China's planning research arm, and the World Bank, also laid out the new direction away from a focus on infrastructure to domestic consumption. The fear is sudden deceleration in the absence of policy action. The impact of this will be negative for commodities over time, leading to slower growth in Australia, Brazil, and Canada. It should boost imports from Europe and the U.S. of high tech, consumer, pharmaceutical goods over time....

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Indian rating agency Crisil says expeditious settlement of stressed assets in India's banking system is needed for the private sector to play its part in the country's infrastructure development. In the last 4 years much of the effort in infrastructure was undertaken by the government. Crisil CEO Ashu Suyash, says Rupees 50 lakh crore needs to be allocated for capital investment in infrastructure for the 5 year period 2018- 2022. About Rupees 3000 crore investment per day is required. In addition to improving the banking system, other actions needed are new private-public partnership efforts, front ending of projects, and a deepening of the infrastructure financing system. Infrastructure investments have suffered from lack of investment in India and this should be a top priority for the government, say experts. This includes tapping into pension and insurance funds under new arrangements. The central government has announced a 7 lakh crore investment plan to build 83,000 kilometres of highways by 2022. Crisil has developed an "investability index" to track and measure the attractiveness of such projects.   ...

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Max Fisher of the NYT points out the unique approach taken by Canada in the U.S.-Canada relationship - to cultivate a grassroots network of Americans in legislatures, business, and at different levels of government. This has enabled the Trudeau government to build a relationship with president Trump, and at the same time have relationships at different levels of government and with business in the U.S. to tackle issues where the Trump administration has acted in ways unfavorable for Canada. Provincial governments in Ontario and Quebec lobbied against a New York state government provision for Buying American on state contracts worth over $100,000. By emphasizing the $10 billion in exports from New York to Ontario this lobbying persuaded the New York legislature to cancel the provision. Premier Trudeau's popularity helps and the proximity to the U.S. means Canadians can visit quickly and understand the U.S. as a close neighbor. Still Premier Kathleen Wynne of Ontario says Canadian businesses are nervous about the uncertainty from the Trump administration.   ...

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How Martin Feldstein weighs the risks of inflation and of moral hazards in helping those who fueled the subprime crisis with their mistakes with the risks of a sharp downturn, and what thoughts he has on the issue of lowering rates just as the Bernbanke Fed prepares for its policy meeting September 18, 2007. He looks for a cut starting from the current 5.25% to 4.25% or even less depending on the situation as it evolves. Feldstein gives a measure for household wealth that will be lost and what will be lost in consumer spending as a result. His measure is for a 20% cumulative fall in house prices that would reduce household wealth by $4 trillion which would impact consumer spending by about $200 billion, thats about 5% consumers would spend more if they had that $4 trillion. This works out to about 1.5% of GDP which he suggests would tip the US economy into a recession. This is not counting the loss of access to spendable cash that the consumer has used for the last decade in terms of mortgage equity withdrawals which totaled $9 trillion this last decade and financed a lot of the sustained consumer spending, these mortgage equity withdrawals to finance spending would decline significantly in the new conditions. In addition with more defaults and falling prices in a vicious circle the process could accelerate quickly, further impairing the portfolios of banks and financial institutions causing some to collapse. ...

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Feldstein points out that other recent recessions were of short duration because the the Fed tightenend monetary policy to get back to price stability so that the Fed had some control over duration. This time the six years of steady house price increases has created a bubble which is the cause of this recession, and to make things worse it has affected the creditworthiness of institutions, as a cloud hangs over the assets carried by financial institutions because complex securities were created with risky mortgages and dispersed throughout assets of these financial institutions. So there is only so much the Fed can do. Feldstein is pessimistic about how long this recession could last. Feldstein faults the poor supervision and bank examinations of the Fed over banks and institutions they lend to such as nonbank financial institutions.

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The Economist quotes experts saying that drug innovations would not be affected by price controls on drugs. Pricing reforms can accomplish the reverse, spur innovation by doing as Britain and Germany are doing- pioneering comparitive reviews of drugs effectiveness and cost-benefit analyses aimed at reimbursing firms for new drugs based on their performance. Sanford Bernstein, a financial advisory firm, says in its study that a 20% reduction in what Medicare pays for drugs would not kill off innovation, it would reduce earnings per share of big pharma firms by 3-8%. As drug research is now done in many countries, and its a globalized industry, innovation is not likely to be automatically affected by price reductions in one country like the USA, according to Alna Garber of Stanford University and Patricia Danzon of Wharton Business School.

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Inflation in India is at 9.1% in May 2011, compared to the prior year. GDP growth for the first quarter of 2011 slowed to 7.8%, from an annual rate of 8.3% in the fourth quarter of 2010. Other figures show the same trend. Local investment growth for the second half of the fiscal year ending March 31, 2011 was at 4.1%, a decline from 14.7% at the beginning of the year. Foreign investment in the first quarter 2011 declined 32% from the prior year, down to $3.4 billon. Car sales have also declined to the lowest rate in two years.