Hello, and welcome to Stephanomics, the podcast that brings the global economy to you. Both this week and next, we're going to be talking a bit about education. Oscar Wilde said you could never be overdressed or over educated. But in his day, people didn't like to wear black tie without the tie, and white trainers with absolutely anything at all, and he probably never found himself being served by a waiter with two pH d s. Victorian times, only a
tiny fraction of the population had degrees. But in most rich countries today, at least a third of the adult population has graduated from university, and many of those heavily credentialed workers feel distinctly under employed. Over education is a particular problem for Greece. It turns out a country you'd think already had its fair share of economic challenges to deal with. We have a report from our europe Economy reporter,
Jeanette Newman on that. In a moment. We'll also have an update from the annual gathering of the Economist Great and Good of the American Economic Association. But first you'll remember we ended rather less worried about trade wars. Now two weeks into there's been fear of a real war breaking out in the Middle East thanks to US action on Iran. Ziad Our, chief Middle East economist, has been sitting in Dubai thinking about the economic impact of all this. Yea,
thanks for joining us. In the past week, we've seen a very muted market reaction to what could be a major ratcheting up of tension in the region. Markets haven't moved much, and although the oil price did rise a bit at first, I see it's now below where it was at the start of the year. Do you think this calm reaction is justified? And maybe you should remind us what's at stake economically in the region, what it might mean for the global economy and oil supplies if
things take another negative turn. The market reaction has been muted, so basically, financial markets currently expect all prices to revert to an average of sixty five dollars per barrel in twenty so they expect any geopolitical tensions to recede and any supply disruption to be temporary. Are they right? Well, potentially there are certain sources and scenarios in which markets could be surprised by a longer last thing supply disruption.
We identify three Basically, the first one is the potential of U S sanctions on Iraq. Iraqi is of the second largest producer uh It produces four point seven billion brows of oil a day, and US sanctions on your luck that could prevent the export of Iraqi oil could lead to much higher all prices that's not currently priced and in the market. The second potential source of risk is attacks on on oil facilities in the Gulf by Iran.
We've seen an attack on Saudi around call last Denver, which took five percent of global all supply of market immediately. Saudi Arabia is able to restore that very quickly, but we can imagine a scenario in which the damage is longer lasting. And finally, we could also envisage a scenario in which oil trade routes in the Gulf might be disrupted.
We have twenty percent of global all supply goes through the Gulf and the Strait of Hormos, and if if there is an escalation in geopolitical tensions, if there are attacked on all tankers in in in that area, then that could surprise markets with a much harder or price because simply the amount of bales of all at risk are very large, I guess what I mean, we're used
to thinking it. Certainly, you know, in the old days spike in oil prices, I mean, famously in the seventies, but also since then, you know, it really had a devastating impact on the global economy. I mean, one of the things I've struck by in the research that you've done, and and the chief a mere economist, Jamie Rush, is that the impact of big oil price rises not like it was, I mean, not for for a number of reasons, I guess. But we shouldn't. We don't fear it in
quite the same way, do we. No, we don't at all. What was hundred dollar or price in twenty two thou two thousand and eleven, that would not feel like a hundred dollar or price to day. It would feel more like a seventy six dollar or price. And that's simply because the you know, over time, the prices of other goods and services have gone up, so the real value
of hundred dollar barrel of oil is less than that. Also, because of energy efficiency, we need less oil to produce each unit of global g d P. And because of that, you know, the impact of the global economy of a spark in all prices is also less significant now. But also we've seen a structural shift in the oil market. The world's largest economy, the US, is producing a lot more all these days, as spark in all prices tends to shift income from all exporters to all imports the globe.
As largest economy, the US has is producing more oil and therefore the impact of our our prices is less adverse in the global economy because it's less adverse on on the US. So all of these factors. You put all of these factors together, if you get an increase of nominal are prices from seventy dollars stay two hundred dollars, the impact of global on global growth is something like twenty to thirty basis points by the beginning of twenty two,
So it is quite muted. It's not incredibly significant as we've had in so if the world was going to grow three percent, it might grow two point seven two point eight, although I guess we could guarantee that people would still complain busily about the prices they were paying at the pump. Yeah, I think we'll probably end up talking about this again. And stephonomics in certainly a hell of a year for Saudi Arabia to be leading the
g twenty summit later on in the year. I wonder how whether how that meeting will go down, or even if it happens, if tensions continue to be so so high. But until then, Ze, thanks very much, thank you. Now onto Greece. It's no longer in economic free fall, but it's still living with the legacy of the financial crisis, and one problem it's facing is that there are more educated Greeks than there are jobs to give them. Here Jeanette Newman, this is a peaceful stretch of green on
the outskirts of central Athens. It's the site of one of the Western world's first institutions of higher learning, Plato's Academy. Now it's a park where neighbors walk their dogs. Marble slabs from Plato's time lies scattered in the grass. If it weren't for a tiny shack of a museum built a couple of years ago, he would have no idea that this place was home to a forefather of the modern day university. But in Plato's homeland, the modern university
system has become somewhat antiquated. Out of step with the challenges facing present day Greece. Here in Greece and many other countries, enrollment and higher education has shot up over the past several decades. Many parents and their children equate more studies with more job opportunities, but the number of young workers with graduate studies has outpaced the number of
jobs that require those degrees. The mismatch is particularly acute in Southern European countries such as Greece, which are still recovering from the region's devastating economic crisis. That's led to a problem that academics have given the somewhat bewildering name over education. Over education is described as a situation whereby individuals are employed in a job where the level of education required either to get or to perform that job in question, is below the level of edge occasion held
by that worker. So an example would be a graduate in a non graduate job, such as perhaps a waiter or bartender. That's a Dell Wheeland, a researcher at the Economic and Social Research Institute in Ireland, the word over education sounds like it's judging you for getting that PhD. In nineteenth century comparative French literature, it's not. We'll leave that to your friends. But the issue does tend to be overlooked by policymakers. I'm Constantas. I'm an expert specializing
in issues of vocational education and training. Constantinos Pulakas thinks he knows why. He studied the topic at the European Center for the Development of Vocational Training. That's an agency based in his native Greece. He estimates that as many as were in ten young Greeks with a university degree could be over educated, meaning they work in a job that doesn't require that degree. There was a long period where even mentioning the term over education was was something
that was frowned upon. If you if you're saying that over education is a problem, there's a fear that, you know, some families, some young people may interpret that as basically saying, you know, you shouldn't be pursuing more education, or that getting a higher degree may be useless. In fact, workers who have an advanced degree are overall better off in terms of employment rates than those without one. They also make an economy more productive and innovative. But over education
still has a cost. Let's say you have an m b A, but you work. In a job that doesn't require an MBA, you will earn on average, around fourteen percent less than someone who is required to have an MBA in her job. She's matched. Now, you will still learn more than someone in your company who has less
education than you do. You will learn more than a colleague who has, for instance, a bachelor's degree compared to your m b A. But over educated workers tend to feel that their skills and studies aren't being put to use.
Individuals who are over educated have lower levels of job satisfaction, and what happens in terms of this is that individuals who have lower levels of job satisfaction they are much more likely to move jobs, and there's costs of the firm associated with this cost of the individual and costs of the firm. Greece provides an extreme example that illustrates how overeducated workers are more likely to jump from job
to job. During the past decade, as Greece's economic crisis deepened, an estimated four hundred thousand Greeks with a university degree or higher left the country a massive brain drain. Even before the crisis, Greek universities have been pumping out graduates at a rate that's out of whack with the demand for those higher degrees. Their universities aren't good at preparing them for the job market, and apprenticeships aren't as institutionalized
in Greece as in other European countries. Pulakas, the Greek over education expert, says the crisis also laid bare other deep seated problems. Many Greeks say job offers are based more on personal connections than professional merit. It can also be hard to lay off under performing workers. In a healthier economy, workers would have greater opportunities to find a job that matches with their degree, and he wouldn't have incentives or she wouldn't have incentives to go outside of
the country to manage to get these opportunities. So, in a sense, they over education and the brain drain phenomenon or inter linked in my In my view, ironically, the exodus of so many highly skilled workers has created a problem for the Greek economy, a lack of qualified workers that's getting in the way of the country's nascent economic recovery. To address the shortfall, the Greek government has launched an initiative with a curious but catchy name it's called Rebrain
Greece platforms. That's a Greek government officials speaking at a conference in Athens in early December. Hundreds of people had gathered, buzzing with ideas about how to bring brains back to Greece. At the conference, Greece's Center right government announced details of its rebrain plan. Officials are offering salaries of around three
thousand euros per month or about thirty three dollars. They're offering it to Greeks who returned from abroad and take vacant technical jobs that companies are already having a hard time filling. The Greek government will pay about two thirds of that. The company that employs the right ane will pay the rest. Officials based this salary on an analysis of what mid level Greeks ages forty are already earning
in major European cities. The government will initially target a group of about five hundred Greeks who will receive the subsidized salaries for two years. Non Greeks can also apply, but they are required to speak Greek so that they can work more efficiently. Other countries that suffered brain drains are also trying something similar. Portugal launched a program in July to give as much as six thousand, five hundred euros to Portuguese who return home. Spain subsidizes the salaries
of some scientists who come home. Those countries, as well as Greece, are also facing rapidly aging populations. That adds an additional urgency to bring back younger workers. Dmitris Panopolis, one of the economists at the Greek Labor Ministry working on the Rebrain project, told me at the conference that the program is overdue. This is the first public initiative, I mean governmental initiative targetting directly to the people living abroad.
This is the first one. Panopolis himself has felt the cost of Greece's brain drain. Several years ago, Panopolist did his MBA in Greece with a group of five friends. The only one stayed in Greece was me. The other five lift as a labor economist and data analyst. Panopolis says the numbers show that he, like his friends probably should have left Greece in search of better opportunities. To a logical some logical people would go, and the data
show that you should. But okay, if everybody leaves the ship, somebody should say, I don't know. Panopolis says he knows that it's one thing to bring talent in Greeks home to urgently fill some job vacancies. It's another thing to keep them here. And it's also a challenge to keep
young graduating Greeks from leaving in the first place. That's why the government is also trying to foster the conditions to create better jobs increase that would help encourage qualified workers to return on their own, and it would also ensure that there are worthwhile positions for the over educated who have remained in the country. Officials are trying to
streamline bureaucracy. They are considering cutting the cost to higher workers. Also, they're providing financial incentives to companies that are creating jobs, such as in software engineering. Otherwise, well educated Greeks who return could slip once again into the vicious cycle of over education, getting trapped in jobs that don't match their qualifications.
If you don't have adequate incentives for you know a lot of new and high skilled jobs being created in the economy, and you can only do this by investing in dynamics sectors of the economy, ensuring that you have entrepreneurship within your economy. If you don't have that part of the equation, you may still end up having a high incidence of over education. You must still end up seeing a high share of your graduate labor force working in jobs where they would be considered to be non
graduate local level jobs. Government officials talk a lot about the lack of skilled workers and how graduates need to do a better job preparing for the coming robot replacement revolution, as the case of Greece shows, though there's talent already out there, so countries also need to make sure their economies are creating jobs suited to those workers skills. Let's call it a good match for Bloomberg News and Jeanette Newman.
We're going to talk more about education and the economy next week with a report looking at education policy from the standpoint of a single US state, Maryland. But right now I'm going to catch up with DC based Federal Reserve reporter Chris Condon on the annual meeting of the American Economic Association, which is just back from I think
this year it was in in San Diego. Chris. That is a is a massive gathering of the American Economic fraternity, lots of sort of academic stuff that happens there, people delivering their their papers and their research, but also some pretty big figures in the world of economics. Tell me what the big themes were this year and the sort of highlights for you, sure you're you're absolutely right. It is a boundless experience with papers and panels on every
imaginable topic under the economic sun. Disneyland is you pick your favorite ride and you go plug down your ticket
and you go for that one. UM. And it was a bit of its slow start, just sort of gathering some sort of recognizable theme, but it really um kind of exploded on Sunday morning, the last day of the conference, when we had two star packed panels, one talking about the the concept of Japanification, that is, is the US and Europe headed for a phenomenon as we've seen in Japan with very long term low interest rates and low
inflation and getting stuck there. Uh. Followed immediately by a panel of very senior central bankers from around the world from major central banks UM talking about that topic as well and what lessons they've learned from the crisis. A lot of talk about inflation, and through all of it, a lot of talk about fiscal policy. In other words, what central bankers cannot do? Um? Are they running out of ammunition? And who must ride to the rescue um. So that's really where it kind of all focused at
on the last day of the conference. I mean, I noticed it's been a theme since then as well, because the Bank of England Governor Mark Connie has also talked one of his sort of final interviews before he leaves office, he's talked about sent traw banks kind of running out of tools to respond to shocks. I mean, it's something we've talked about quite a lot. I mean, Larry Summers has been sort of talking this up for for a while.
But do you think it had reached another another level or is it just that more people now agree that it's that it's true that we're in what he would call a kind of liquidity trap where when you, you know, you put push interest rates down, but you're you're pushing on the famously on a piece of string. You're not able to get the money into the economy and get
the get the economy moving. Do you think it's more people who kind of agree with that view now or is it just absolutely absolutely I think the Larry's idea of secular stagnation has moved beyond the stage of debate. It is very widely accepted now, and now the debate is what can we do about it and who must do that action. And let's remember too, when we talk about imploring fiscal policymakers to act in a certain way,
central bankers have to be very cautious. UM. It's not really in the best interest of say, the Federal Reserve to lecture Congress about what its job should be, when, of course Congress is the is the authority that grants the central bank its own independence. So it's a touchy thing to go around talking about what, you know, what Congress is doing wrong in what they should do. But more and more central bankers are dropping that caution slowly
and imploring legislators around the world. In Mario Dragi, you know he has done that. UH in the US are doing it more and more. In Japan they're they're a bit further along that stage UM in in trying to get uh UM taxing and spending policies UH and in some cases coordinated with monetary policy working in a way that will help not only counteract, say the next drop in demand, the next recession, but also help lift us out of this this rut. We're stuck in a very
low growth, low trend growth, low inflation, low productivity. UM So, yes, the the urgency is rising. The volume of those arguments has risen, I think, and we've got to I know that Christine Regard as she comes into the europe now in the European Central Bank, has got to navigate that now. And she says I heard her resist the notion that Europe was facing Japanification. But she too is going to face this dilemma about how much to push the fiscal
argument with European governments. I guess the assumption is she will be able to push it a bit more because of her close relationship, having previously been a finance minister. But it's funny because you go all the talk of Japanification, which used to be quite an obscure term, has now become more more mainstream if you go to Japan, of course, it feels like the sort of barely one percent growth they've had there has actually served them reasonably well. They don't.
It doesn't feel like a super depressed economy, but they have. It's got a shrinking labor for UM and a much more extreme demographic aging issue than either even than Europe and certainly than the US. I've always it would certainly cause much more of a fuss I think, and be much more of a problem politically in the US if
you had that kind of one percent growth there. I did mention earlier that as well as these sort of blockbuster sessions with central bankers, there's lots of economists on the edges of these a A meetings talking about their research,
and it can be pretty interesting. Which one court which was your sort of favorite economic paper that caught your eye, Chris, I would have to point to the paper written by Eric Brynhilson, he's a professor at m I T, along with I think it was four other co authors, and they attacked the problem that economists face in measuring g d P in an age when new technologies have produced so many new free or at least in terms of money free goods and services. GDP, as you know, Stephanie,
is based on the costs of goods and services. So if something is free, then you can't add it to GDP, and and for the same reason you can't add it to measures of productivity that creates a huge problem for economists, and and GDP is further supposed to be a rough proxy for measuring overall welfare in our society. So how do we know that whether our our lives are being enriched in some way by these new technologies if the
price tag is zero? So bring Hilson came up with a very interesting set of experiments in which they asked groups of people, um, would you be willing to give up, say Facebook, for a month for fifty dollars? And they as different subgroups different amounts of money, and they ended upcoming UH. For for US Internet users, they came to a median UH valuation of something around forty two dollars a month for Facebook. So now they have a dollar
figure they could assigned to Facebook. And they created an alternative sort of index of g d P and found that by some estimates, if you if you did it this way, Facebook could reasonably add up to about zero point one one percentage points to GDP within this index. So that's that's quite an extraordinary amount really for one product.
And you could apply this to many other things, perhaps more practically to things like GPS mapping services, which really do have a utility help us be more productive, and so that kind of points the way. I'm sure there'll be a lot more work on this. The points economists in a direction where they might be able to better measure how these new and quote unquote free technologies are actually contributing to the economy and contributing to productivity. That's
very interesting. I suspect there will be some people who have my thought of you know, how much would would I pay someone to take Facebook away from me and take some of these others. But I mean it's a more serious point actually, although they you might find that kind of addition of sort of hidden consumer welfare or hidden g d P if you like, from the value people put on Facebook. But if it is getting in the way of people's productivity day to day, then there
could be hidden costs in there as well. So it's I suspect that the debate will go back and forth on this, but it will certainly be grist to the mill of people who say we are not measuring what matters in the economy today. Chris Condon, thank you very much, my pleasure, thanks for listening to Stephanomics. We'll be back next week with more brilliant insights into the global economy in the meantime. You can find us on the Bloomberg Terminal, website, app,
or wherever you get your podcasts. We'd love it if you took the time to rate and review our show so it can reach more people. And for more news and analysis from Bloomberg Economics, follow at Economics on Twitter, or you can also find me at my Stephonomics. The story in this episode was reported and written by Jeanette Newman. It was produced by Magnus Hendrickson and edited by Scott Lamman,
who is also the executive producer of Stephanomics. Special Thanks this week to see a dowd Chris Condon and Andrew Atkinson. Francesco Levy is the head of Bloomberg Podcast