The year in economy: 5 stories you missed in 2010

More than two years after the implosion of Lehman Brothers and the commencement of the financial crisis and more than a year since the official end of the recession, the economy continues to be a heavily covered topic in the news. But as we look back on a year that included the passage of major regulatory reform in the U.S., a eurozone in full-blown crisis and the looming specter of a global currency war, we thought it was important to highlight five important economy stories that got lost in this past year’s headlines.

1. Where is Basel, anyway?

On the banks of the Rhine river in Basel, Switzerland. Photo: Flickr/slack12

While Rep. Barney Frank (D-Mass.) and Sen. Chris Dodd (D-Conn.) were burning the midnight oil and building consensus in Washington to pass financial reform, the real drama was overseas where “a shadowy international network of financial elites who gather in secret meetings at a small town in Switzerland to decide the fate of the world’s financial system,” as Alex Blumberg of NPR’s Planet Money memorably described the Basel Committee on Banking Supervision, which was busy writing new rules this summer.

In September of 2010, the so-called “Basel III” rules were announced, and for some commentary on the new rules, check out the tireless Felix Salmon. But for a great primer on the process, check out this Planet Money podcast from August.

2. Which U.S. state is the next Greece?

California Gov.-elect Jerry Brown. Photo: AP

California Gov.-elect Jerry Brown is seen at a public discussion of the state budget on the campus of UCLA in Los Angeles. Photo: AP

While the eurozone was possibly disintegrating into mass protests over budget crises and austerity measures, some commentators were looking at the same phenomenon a little closer to home. According to the National Conference of State Legislatures, states closed a cumulative budget gap of $83.9 billion in their FY 2011 budgets and estimate an $82.1 billion gap in FY 2012 for 35 states and Puerto Rico. And for some states the situation is particularly dire: California’s budget gap may reach $28 billion over the next 18 months.

These large gaps lead to the inevitable question: could a U.S. state default and require a bailout out by the federal government? The Financial Times has a great in depth package called “U.S. States of Emergency,” which includes a great interactive on budget gaps across the U.S. and how the bond market views individual states. But given the budget constraints that states operate under – they cannot run a deficit – default is not as unthinkable as once was. The Economist even war-gamed out the possibility at a conference earlier this year.

3. The rich own what?!

Lurking just beneath the surface in many of the discussions about our economic woes is a larger story about the growing discrepancy between the poor and the rich in this country. And make no mistake: the income inequality between the rich and the poor in the U.S. is huge, and much larger than it used to be. The top 1 percent of earners now makes nearly a quarter of all income in the United States.

Most observers agree that income inequality is an extremely worrying trend in our society, but as Timothy Noah explains in his extremely thorough Slate series on Inequality, no one is quite sure on how to reverse it.

4. Buy, China!

Shoppers outside of Prada in Shanghai. Photo: AP

“If only China would buy more” is a refrain that became part of the global economic community’s lexicon this year. As David Leonhardt explains in his profile of a nation in transition for The New York Times Magazine, “a Chinese consumer society would improve the lives of hundreds of millions of people.” And “for the rest of the world, the Chinese consumer is one of the best hopes for future economic growth.”

But can this transformation take place? Leonhardt explains how the continued rise of China and the transition to a consumer-driven society is not quite as inevitable as we may think.

5. Degrees for dollars

A University of Phoenix billboard is shown in Chandler, Ariz. Photo: AP/Matt York

We see the ads for them on subways, the sides of highways and even football stadiums: The proliferation of for-profit colleges, including the University of Phoenix, has been hard to miss. As Frontline reported earlier this year in their report, “College, Inc.,” “nowhere is this more true than in one of the fastest-growing — and most controversial — sectors of the industry: for-profit colleges and universities that cater to non-traditional students, often confer degrees over the Internet, and, along the way, successfully capture billions of federal financial aid dollars.”

In addition to Frontline’s report, Sharona Coutts at ProPublica has written extensively about how private for-profit colleges have been a large recipient of federal dollars while becoming targets of criticism for delivering “poor results and for leaving many students with unmanageable debts.”

 
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Comments

  • guest

    #3 – “no one is quite sure on how to reverse it.” …. revolution?

  • http://www.hgfrtymnfre.com/ Yuri Laperuta

    Last of all! A relevant,brilliant write-up in regards to a theme . With thanks for the purpose of discussing it artistic and additionally educated comments together with the marketplace.

  • mc

    California economy has changed from bad to worse, that too city of Los Angeles even worse.
    Councilmen are worried about balancing the budget but the executives on the other hand are winding up the establishments in Southern CA and moving to Northern CA. I don’t understand the logic behind that. How will that help anyone balance the budget?
    If we wind up the business in Southern CA, where will the revenue go and how will the City and County generate their Revenues? We need to think about it seriously before moving elsewhere.
    Those tactics adopted by the so-called Corporate Executives do not work now. We should let the qualified people takeover and handle the situation which will improve the economy. These executives are only putting the cart before the horse.
    California is the second largest in the US Economy and the seventh largest in the world.
    We should make things work and should let things happen.

  • Guest 5

    If you cannot run a deficit, how can you get into debt? I know the answer you issue bonds to cover long term investment projects. Problem is the debt ( bond issuance) grows because these investments did not “payback” as planned, and the future income projections did not cover interest costs.
    The constitution gives states a lot of latitude, but they then act irresponsibly or more correctly politically, and do not run the state like business, where the analogy is:-
    1) Companies make a profit including paying investors a return on shares or bonds and still have carefully controlled capital expenditure budgets they can fund out of retained earnings and cash flow.
    2) States are too busy balancing the budget and inadequately making providsion for future investment that pays back for the state, covering the 1 above equivalent elements.
    3) Business when they have a problem increase prices/ reduce costs to get the money needed in the right proportion for 1 above. States on the other hand avoid the issue and do not raise state taxes C’mon people roads railways, fire police etc (And services and benefits) have to be paid for. Those in parenthesis have to be reasonably controlled along with minimising the cost of state governance.
    For the revolution guest is looking for I suggest a federal VAT levy nationally, the initial objective of which is to pay down state debt, and after that is applied to national debt or alternative energy development.
    The next bit is a federally set Gasoline tax but the revenue is collected at state level into an Infrastructure development fund at state level ( 80 %) with 20 % going to a national infrastructure plannaing agency to link in each states plans especially on High speed rail (national plan maglev please) and new interstate highways.
    Regards,
    Guest 5

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  • Guest

    If the Global Economy is not so good as expected and the State of California is going through serious Budget Crisis, how in the World did City of Bell staff members get so much in Salary?
    That itself is a Miracle.
    Besides the foreclosure scandal, even the day to day banking should also be on the watch list.
    Some months ago, we had been to Wells Fargo Bank to do some transaction and the teller said that they could not do any cash transactions since their computers went down. So we simply deposited the check and left. It was not just Wells Fargo even Bank of America had the same problem.
    Customers came to that branch to withdraw some money but could not since the bank computers were down. The ATMs would not work. The Bank Manager and other staff members simply turned the clients away from the branch as they could not do any cash transactions, either deposits or withdrawals. We have our money in our bank accounts still we cannot withdraw from our own account. There was no other alternative. The bank branch could have looked at the previous day transactions register and paid cash but even that could not be done. That was scary. Many customers were upset and angry. Nobody in the branch knows how to fix the problem

    We talk so big about computer systems and claim that we live in an information superhighway. But whenever there is a computer problem or a computer glitch like this, nobody, literally no one, knows how to fix this.

    Poor bank people depend on some programmers who have remote access but cannot do anything to help the customers. Americans should remember that Wall Street is not a holy place.
    They make us so dependent on computers as if we cannot do anything without them.
    But whenever there is some serious glitch or transactions problem, nobody knows how to resolve the issues.

    I think we have to go back to the olden days, with ledgers, passbooks, and withdrawals

  • guest

    Where are we?  Are we better off today than we were four years ago? Are we able to generate more revenue or singing the same song of budget crisis? Politicians are extremely busy working on winning their election than trying to fix the problems on hand. We spend so much time and money on Entertainment and Sports. Why not we spend a fraction of that on improving the education and creating jobs?