Political Economist

NYU Stern’s Economic Professor Nouriel Roubini Warns of
Dangerous Economic Waters Ahead

Nouriel Roubini

Nouriel Roubini, professor of economics and international business at the Stern School of Business, is author with Brad Setser of the new book, Bailouts or Bail-ins? Responding to Financial Crises in Emerging Economies, which studies the currency, financial, and sovereign debt crises in emerging market economies in the last decade. The book also explores the efforts made to resolve these crises via policy adjustment, International Monetary Fund (IMF) “bail-out” packages, and private sector involvement.

Roubini, who received his Ph.D. in economics from Harvard, has been a long-time consultant to the World Bank, the IMF, and other private and public institutions. He has published theoretical and empirical policy papers on international macroeconomic issues, the Asian and global financial crisis, emerging markets, and the reform of the international financial system.

Before joining Stern, Roubini was a faculty member in the economics department at Yale University and has served as the senior economist for international affairs at the White House Council of Economic Advisers, the senior advisor to the under secretary for international affairs, and the director of the Office of Policy Development and Review at the U.S. Treasury Department. He is also chairman of Roubini Global Economics, an economic information and consultancy service.

NYU Today recently spoke to Roubini on teaching at NYU and the future of the U.S. economy.

NYU Today: How does your political experience affect your research and teaching at Stern?
Nouriel Roubini: As an academic researcher, you are not just living in an ivory tower but you are involved in what is happening, regardless of whether you are teaching, doing research, or policy consulting. Because I had been writing extensively about the Asian financial crisis of ‘97/’98, I was asked to join the White House Council. For 20 years the Asian economy had been growing very fast, and then suddenly it goes belly up, and no one understood why. Academics, the IMF, Wall Street, credit rating agencies, and policy makers had not predicted it. I worked on reforming the International Financial System to make these types of crises less dangerous.

When I came back to Stern, a lot of what I wrote was related to financial crises in emerging market economies and reform, which affected how I was teaching my courses. There is no separation between being a teacher and somebody who is involved in the real world. When I think about research, I think about current policy questions and not just academia.

You have researched ways to prevent financial crises for years. How can countries do so?
Crisis prevention, like avoiding a disease, is just making sure that you have healthy habits and a healthy diet and that your economic policies are sound. Usually countries that have a large budget deficit, unsustainable exchange rates, large growing current account deficits, too much borrowing from abroad, short rather than long-term borrowing, foreign currency vs. local currency borrowing, or debt rather than equity borrowing, may trigger people to rush to the exits and thus cause a currency, banking, debt or a corporate crisis.

From what you described, it sounds like the United States could be heading down the road to a crisis.
After I wrote my book on emerging market economies, I realized that the biggest emerging market was the U.S. in terms of its behavior. If the U.S. had been any other emerging market that has a twin deficit (fiscal budget deficit and current account deficit) and short-term financing, it would have gone bankrupt a long time ago. So we have an advantage compared to Mexico or Argentina or some country in Asia in that we have some residual credibility. We have never defaulted on our foreign or domestic debt. The U.S. is still the major reserve currency in the world. We borrow in our own currency rather than in a foreign currency. So those elements reduce our vulnerability, but sooner or later, if you keep this budget deficit and this current account deficit we are going to accumulate too much foreign debt in a short time period. Eventually you are going to have a severe crisis of the dollar and a spike in interest rates, which could lead to an ugly, hard landing of the U.S. economy.

In the short term, it seems like we have weathered recent storms, but looking towards the future, what impact will the hurricanes and the rise in oil prices have on the economy?
I am very worried about a severe economic slowdown in the U.S. Today’s U.S. consumer is over-stretched, shopped out, and has borrowed a lot. Income is high, but the savings rate of the household is now negative—people are spending more than their income, so they are running down their assets or they are borrowing. Housing has done well, but people have borrowed too much against their housing value, and if there is a housing market crash then that can hurt. The Fed has increased interest rates from one percent last year to four percent on November 1, so the burden of debt payments is increasing. You have consumers shocked by high oil prices, Katrina, high interest rates, high debt, and nervousness about where we are headed as an economy. If there is a U.S. slowdown, then there will be a global slowdown, which could mean another recession.

Is there anything that we can do to avoid this?
We need to seriously cut the budget deficit. In my view, cutting the budget deficit means that you cannot control only spending. You also have to divert some of the tax cuts. We have cut income taxes, capital gains taxes, estate tax, dividend tax, etc. Think about the hundreds of billions of dollars lost. Revenues today in the U.S. are as low as they were in the early 1950s as a share of GDP. We have revenues that are four percent of GDP less than spending. You cannot have a government that spends 20 percent of GDP and has revenue of 16 percent. Eventually you go bankrupt. So I think that we need to increase taxes. We’ve made tax cuts that are not sustainable.

Link to http://www.rgemonitor.com/blog/roubini

NYT January 22, 2006

In a Country That Craved Respect, Stem Cell Scientist Rode a Wave of Korean Pride

By NORIMITSU ONISHI

SEOUL, South Korea, Jan. 20 - After first gaining attention in South Korea for cloning a cow in 1999, Dr. Hwang Woo Suk, the fallen stem-cell scientist, promised to clone next an animal with deeper meaning to Koreans: a tiger.

A holy animal according to Korean lore, tigers once populated the peninsula but were hunted to virtual extinction during Japanese colonial rule. They are believed to exist today, if they exist at all, in North Korea's Mount Paektu, which Koreans consider their ancestral origin.

"I'll spread the Korean people's spirit by cloning the Mount Paektu tiger," Dr. Hwang said at the time.

From his promise to clone a tiger half a decade ago to his apology for disgracing his country last week, Dr. Hwang never shied away from the strong appeals to nationalism that helped turn him into a hero.

The scientist's spectacular rise and fall, as well as one of the biggest scientific frauds in recent history, took place in the crucible of a country whose deep-rooted insecurities had been tempered by a newfound confidence and yearning for international recognition.

"Dr. Hwang was going to give South Korea the momentum to leap ahead in its position in the world," said Won Suk Min, 26, an electrical engineering student at Korea University here. "A lot of people around me feel empty now. They feel that there is nothing to look forward to."

Last week, an investigative panel appointed by Seoul National University, where Dr. Hwang was a professor, concluded that he had faked the evidence for landmark papers on stem-cell and embryonic research in 2004 and 2005.

The conclusion was a psychological blow to South Koreans, for whom Dr. Hwang's success had appeared to confirm their country's new place in the world. In the past half decade, South Korea had surged forward on different levels, as companies like Samsung overtook Sony, the "Korean Wave" of pop culture spread throughout Asia and the country became the world's most wired nation.

By contrast, in 1999, recapturing South Korea's spirit resonated powerfully in a country that was still reeling from the Asian financial crisis of 1997.

"It was a beacon of light in the dark," said Kim Ki Jung, a political scientist at Yonsei University here.

"Hwang triggered Korean sentiments of nationalistic pride," Mr. Kim said, adding that the sentiments eventually led to a national mood of "blind patriotism" toward the scientist.

Dr. Hwang began drawing the country's adulation when, in February 2004, he became an international celebrity for writing in the leading scientific journal, Science, that he had cloned human embryos. In June 2005, he published a paper, again in Science, to the effect that he had developed a technique to extract embryonic stem cells from fewer human eggs than previous methods required. This further raised the hopes for therapeutic cloning and the possibility of converting a patient's own cells into new tissues to treat various diseases.

The papers transformed Dr. Hwang into a national hero: a handsome 53-year-old scientist who had risen from humble origins to lead South Korea to places it and the rest of the world had not seen. Web sites went up in his honor, women volunteered to donate eggs, Korean Air volunteered to fly him anywhere free.

The government of President Roh Moo Hyun, who had embraced and promoted him aggressively, gave him millions of dollars in research money, made him the country's top scientist and assigned him bodyguards. It issued a postage stamp that engraved Dr. Hwang's promise to make paralyzed people walk through images of a man in a wheelchair who stands up, dances and embraces a woman. The government also extolled his exploits in government school textbooks, describing him in a sixth-grade textbook as a challenger for the Nobel Prize.

"He was going to change our country's image and make South Korea No. 1 in the world in this sector," said Huh Hyun, 37, who was shopping on a recent day at the Carafe megastore with her husband. "We don't have someone to represent us to the world. South Africa, for example, has Mandela."

South Koreans also spoke of Dr. Hwang in terms of national interests.

"Because we are a homogenous people, we identified ourselves with this one individual and overlooked his faults," said Cheon Jeong Seok, 34, another shopper.

Mr. Cheon said the worship of Dr. Hwang was also rooted in the fierce nationalism fostered during the decades of military dictatorship, until the late 1980's. "We were taught constantly about national interests and that the ends justified the means," Mr. Cheon said.

In this atmosphere, Dr. Hwang became untouchable.

"Many of us didn't trust him," Kim Jae Sup, professor of developmental biology at the Korea Advanced Institute of Science and Technology, said of Korean scientists. "But the pressure from the public and government to support him actually inhibited our criticism. We couldn't say anything. That's why scientists posted evidence against him on Web sites. It was anonymous."

A whistleblower scientist also contacted "PD Notebook," an investigative program at the television network MBC, which exposed Dr. Hwang. The producer of the program later said that, in response, " 'PD Notebook' was treated like a Judas who sold off Jesus Christ."

Huge protests and boycotts were aimed at the program.

After Japanese researchers published a paper on dog stem cells, The Chosun Ilbo, the largest South Korean daily newspaper, contended that Dr. Hwang had been preparing such a paper before he was "pestered by 'PD Notebook.' "

The newspaper touched upon one of the undercurrents in the wave supporting Dr. Hwang: South Korea's sense of rivalry with Japan, its former colonial power, and its fixation with elevating its position in the world.

That goal was manifested in what some call the country's "Nobel Prize disease" or its obsession with winning its first Nobel Prize in the sciences. (South Korea's only Nobel laureate, Kim Dae Jung, the former president, won a Nobel Peace Prize.) With Dr. Hwang, the prize had seemed within easy grasp; now there were other worries.

"I hear that this is being reported around the world, in the United States and in Japan," said Park Soon Yeh, a woman in her 60's who sells handbags and suitcases at the Namdaemun Market here. "I'm worried that when young Korean scientists go abroad now, foreigners will not have confidence in them."

As his research imploded in recent weeks, Dr. Hwang grasped at the same kind of nationalistic sentiments that had propelled him to stardom. He said he would keep "fighting in a white robe," a reference to Yi Sun Shin, the naval commander who repelled a Japanese invasion in the 16th century and saved Korea.

Last Thursday, after the government announced that it would discontinue the stamps in his honor and edit out references to him in textbooks, Dr. Hwang insisted that he still had the technology to extract stem cells from human embryos, saying, "This is the Republic of Korea's technology."

He apologized for the fraudulent data in his work, blaming a research partner.

"I was crazy with work," Dr. Hwang said. "I could see nothing in front of me. I only saw one thing and that is how this country called the Republic of Korea could stand straight in the center of the world."

Like many other South Koreans interviewed, Lee Yong Koo, 50, who also sells clothes at the market, said that even if he no longer trusted Dr. Hwang, he was willing to give him another chance. He was not pegging the country's future on him anymore, though.

"I don't expect him to bring foreign money into South Korea or make this country rich," Mr. Lee said. "We have Samsung and other companies to do that."

NYT January 22, 2006

Broad Survey of Day Laborers Finds High Level of Injuries and Pay Violations

By STEVEN GREENHOUSE

The first nationwide study on day laborers has found that such workers are a nationwide phenomenon, with 117,600 people gathering at more than 500 hiring sites to look for work on a typical day.

The survey found that three-fourths of day laborers were illegal immigrants and that more than half said employers had cheated them on wages in the previous two months.

The study found that 49 percent of day laborers were employed by homeowners and 43 percent by construction contractors. They were found to be employed most frequently as construction laborers, landscapers, painters, roofers and drywall installers.

The study, based on interviews with 2,660 workers at 264 hiring sites in 20 states and the District of Columbia, found that day laborers earned a median of $10 an hour and $700 month. The study said that only a small number earned more than $15,000 a year.

The professors who conducted the study said the most surprising finding was the pervasiveness of wage violations and dangerous conditions that day laborers faced.

"We were disturbed by the incredibly high incidence of wage violations," said one of the study's authors, Nik Theodore of the University of Illinois at Chicago. "We also found a very high level of injuries."

Forty-nine percent of those interviewed said that in the previous two months an employer had not paid them for one or more days' work. Forty-four percent said some employers did not give them any breaks during the workday, while 28 percent said employers had insulted them.

Another of the study's authors, Abel Valenzuela Jr. of the University of California, Los Angeles, said: "This is a labor market that thrives on cheap wages and the fact that most of these workers are undocumented. They're in a situation where they're extremely vulnerable, and employers know that and take advantage of them."

In some communities, tensions have soared over day labor sites, with complaints that the workers interrupt traffic, block sidewalks, trespass on store property and litter. In addition, the laborers have become the target of groups opposed to illegal immigrants.

Nine percent of day laborers reported having been arrested while waiting for work, while 11 percent reported receiving police citations and 37 percent reported being chased away. Nineteen percent said merchants had insulted them, and 15 percent said merchants had not let them use their bathrooms or make purchases.

The survey found that 59 percent of day laborers were from Mexico and 28 percent from Central America, while 7 percent were born in the United States. Sixty percent of the immigrant workers said that day labor was their first occupation in the United States.

While waiting for work Friday morning near a Home Depot in the Pico Union section of Los Angeles, Cesar Ramirez, a 46-year-old immigrant from Mexico, said he had been hired only one day in the previous week.

He said he makes $15 an hour when he works on plumbing or electrical jobs, but $8 or $10 an hour when hired to do landscaping. Many weeks, he said, he does not earn enough to support his six children.

"I come here every morning and sometimes I leave at 3 p.m. without work," said Mr. Ramirez, who said he had worked as a day laborer since arriving from Oaxaca, Mexico, four years ago. "I keep doing it because I can't find a permanent job. I'd like to find something better."

He said a contractor had recently failed to pay more than $500 due him after he had spent five days doing electrical and plumbing work. Mr. Ramirez asked a workers' rights group to help him get paid, but he was unsuccessful because he did not have the contractor's name, telephone number or address.

"Sometimes they take advantage," Mr. Ramirez said.

Nearly three-fourths of the day laborers surveyed said they gathered at day labor sites five or more days a week, with the average laborer finding work three to three-and-a-half days a week. In good months, day laborers earn $1,400, the report found, and in bad months, especially winter months, $500.

The study said that the number of day laborers had soared because of the surge of immigrants, the boom in homebuilding and renovation, the construction industry's growing use of temporary workers, and the volatility of the job market.

"For many workers in cities with declining employment prospects, day labor provides a chance to regain a foothold in the urban economy," the study said. "For others, it is a first job in the United States and an opportunity to acquire work experience, skills and employer contacts. For still others, it represents an opportunity to earn an income when temporarily laid off from a job elsewhere in the economy."

The study found that 44 percent of those surveyed had been day laborers for less than a year, while 30 percent had done that work for one to three years, suggesting that many moved to jobs in other sectors of the economy. Twenty-six percent said they were day laborers for more than three years.

The report said that 36 percent were married, while 7 percent were with living with a parent. Two-thirds said they had children.

The study found that 73 percent said they were placed in hazardous working conditions, like digging ditches, working with chemicals, or on roofs or scaffolding. The report said that employers often put day laborers into dangerous jobs that regular workers were reluctant to do - often with minimal training and safety equipment.

One-fifth said that in the past year they had suffered injuries requiring medical attention, and 60 percent of that group said their injuries caused them to miss more than a week of work.

"Day laborers continue to endure unsafe working conditions, mainly because they fear that if they speak up, complain, or otherwise challenge these conditions, they will either be fired or not paid for their work," the report said.

Among day laborers injured on the job during the previous year, 54 percent said they had not received the medical care they needed, mostly because they could not afford health care or the employer refused to cover them under the company's workers' compensation insurance.

The biggest hope for day laborers, the study said, are the 63 day labor centers that operate as hiring halls where workers and employers arrange to meet. These centers, usually created in partnerships with local government or community organizations, often require workers and employers to register, helping to reduce abuses. The centers provide shelter, bathrooms and water - sometimes even English lessons - while workers wait. Many set a minimum wage, often $10 an hour, that employers must pay the laborers.

"The first thing to do to improve things for day laborers is to have more of these centers," said Pablo Alvarado, national coordinator of the National Day Laborer Organizing Network, an advocacy group for such workers. "The second thing is to have the government enforce the labor laws more consistently."

The Real Cost of the War: Stiglitz Calculates
  
Iraq war could cost US over $2 trillion, says Nobel prize-winning economist

· Economists say official estimates are far too low
· New calculation takes in dead and injured soldiers

Jamie Wilson in Washington
Saturday January 7, 2006 The Guardian (UK)

The real cost to the US of the Iraq war is likely to be between $1 trillion and $2 trillion (£1.1 trillion), up to 10 times more than previously thought, according to
a report written by a Nobel prize-winning economist and a Harvard budget expert.

The study, which expanded on traditional estimates by including such costs as lifetime disability and healthcare for troops injured in the conflict as well
as the impact on the American economy, concluded that the US government is continuing to underestimate the cost of the war.

The report came during one of the most deadly periods in Iraq since the invasion, with the US military yesterday revising upwards to 11 the number of its troops killed during a wave of insurgent attacks on Thursday. More than 130 civilians were also killed when suicide bombers struck Shia pilgrims in  arbala and a police recruiting station in Ramadi.

The paper on the real cost of the war, written by Joseph Stiglitz, a Columbia University professor who won the Nobel prize for economics in 2001, and Linda Bilmes, a Harvard budget expert, is likely to add to the pressure on the White House on the war. It also followed the revelation this week that the White House had scaled back ambitions to rebuild Iraq and did not intend to seek funds for reconstruction.

Mr Stiglitz told the Guardian that despite the staggering costs laid out in their paper the economists had erred on the side of caution. "Our estimates are
very conservative, and it could be that the final costs will be much higher. And it should be noted they do not include the costs of the conflict to either Iraq or the
UK."

In 2003, as US and British troops were massing on the Iraq border, Larry Lindsey, George Bush's economic adviser, suggested the costs might reach $200bn. The White House said the figure was far too high, and the deputy defence secretary, Paul Wolfowitz, said Iraq could finance its own reconstruction.

Three years later, with more than 140,000 US soldiers on the ground in Iraq, even the $200bn figure was very low, according to the two economists.

Congress has appropriated $251bn for military operations, and the Congressional budget office has now estimated that under one plausible scenario the Iraq war will cost over $230bn more in the next 10 years.
According to Mr Stiglitz and Ms Bilmes, whose paper is due to be presented to the Allied Social Sciences Association in Boston tomorrow, there are substantial future costs not included in the Congressional calculations.

For instance, the latest Pentagon figures show that more than 16,000 military personnel have been wounded in Iraq. Due to improvements in body armour, there has been an unusually high number of soldiers who have survived major wounds such as brain damage, spinal injuries and amputations. The economists predict the cost of lifetime care for the thousands of troops who have suffered brain injuries alone could run to $35bn. Taking in increased defence spending as a result of the war, veterans' disability payments and demobilisation costs, the economists predict the budgetary costs of the war alone could approach $1 trillion.

The paper also came amid the first indications from the Pentagon that it intended to scale down its costly presence in Iraq this year.

Last night, Ayman al-Zawahiri, al-Qaida's number two, said in a video that hints of the American withdrawal amounted to a "victory for Islam".

The unforeseen costs of the war have been blamed on poor planning and vision by the architects of the invasion. In a frank admission yesterday, Paul Bremer, the first US administrator of postwar Iraq, said the Americans did not anticipate the uprising that has persisted since flaring in 2004. "We really didn't see the insurgency coming," he told NBC television.

But the economists' costings went much further than the economic value of lives lost. They factored in items such as the higher oil prices which could partly be attributed to the war. They also calculated the effect if a proportion of the money spent on the Iraq war was allocated to other causes. These factors could add tens of billions of dollars.

Mr Stiglitz, a former World Bank chief economist, said the paper, which will be available on josephstiglitz.com, did not attempt to explain whether Americans were deliberately misled or whether the underestimate was due to incompetence.

But in terms of the total cost of the war "there may have been alternative ways of spending a fraction of that amount that would have enhanced America's security more, and done a better job in winning the hearts and minds of those in the Middle East and promoting democracy".

http://www.guardian.co.uk/international/story/0,,1681078,00.html

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