Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary "reading list" which will include very brief summaries of why each item has gotten our attention. Suggestions from readers for "reading list" items are gratefully reviewed, although sometimes space limits the number accepted.
Giant Laser Complex Makes Fusion Advance, Finally (Kenneth Chang and William J. Broad, The New York Times) Successful control of a nuclear fusion reaction could effectively end the energy limitations of the planet earth.
It may sound like a perpetual motion machine, but it is theoretically possible to get more energy out of a thermonuclear fusion reaction than is put in to start it. That is because "trapped energy" within two hydrogen atoms is released when they fuse to produce a new helium atom. This is the enormous energy which has been demonstrated for the last 60 years in astoundingly destructive hydrogen bombs. The NYT article reports on a paper in Nature with 22 authors from the Lawrence Livermore (CA) and Los Alamos (NM) National Laboratories. The team has obtained more energy from a laser powered hydrogen fusion reaction than was put in, apparently establishing the first controlled thermonuclear fusion. There is still a long way to go for practicality, however. They got more power from the reaction than reached the hydrogen atoms involved, but only 1% of the laser's energy actually got to the reaction site, leaving a needed improvement of a factor of 100 before a useful energy production process is realized.
The Empathy of Self-Interest (Wendy McElroy, The Daily Bell) Hat tip to John O'Donnell. Wendy McElroy argues (correctly in Econintersect's opinion) that progress comes from the pursuit of self-interest. But she also argues (incorrectly in our opinion) that "any attempt to impose central planning runs counter to social harmony". This would appear to rule out the coordination of the commons and to deny the possibility of return on coordination, where the total of a community is greater than the sum of the individual parts. And another point: For McElroy's narrow definition, which depends on the "Theory of Moral Sentiments" and the "Social Nature of Man", to produce a maximization of progress shows naivite in our our opinion. We have read that 1-2% of humans are sociopaths and as many as 10% in high positions in finance suffer from that character flaw. Such people do not seem to be included in McElroy's view of the human population. How many sociopaths does it take to destroy the harmony of a village?
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Each regime was trapped into a deficit path created by the previous administration?
Presidents don't have first order control over deficits?
These comparisons are total political palaver nonsense?
None of the above?
All of the above?
The Vampire Squid Strikes Again: The Mega Banks' Most Devious Scam Yet (Matt Taibbi, Rolling Stone) Hat tip to Roger Erickson. The latest theme addressed by Taibbi is the banks take-over of everything. And it has come to pass through obscure lines in legislation that no one thought about (except possibly incipient vampire squids?) at the time the act was passed and signed into law.
Banks, however, were never really regulated under those laws [laws like Sherman and Clayton anti-trust acts]. Only the Great Depression and years of brutal legislative trench warfare finally brought them to heel under the same kinds of anti-trust concepts that stopped the robber barons, through acts like Glass-Steagall and the Bank Holding Company Act of 1956. Then, with a few throwaway lines in a 1999 law [Financial Services Modernization Act of 1999aka Gramm-Leach-Bliley Act] that nobody ever heard of until now, that whole struggle went up in smoke, and here we are, in Hobbes' jungle, waiting for the next fully legal catastrophe to unfold.
U.K. Warns Scotland: Vote To Secede, Lose Common Currency (Krishnadev Calamur, NPR) Chancellor George Osborne has announced that if Scotland votes for independence from the UK later this years they will also divorce the pound sterling. Scottish leaders had indicated they would keep the British currency if the civil separation was approved. Econintersect notes that what the Scots wanted to do would create a miniature version of the current euro zone fiasco.
Spinning wheels and shaky deals (Steve Keen, Business Spectator) Steve Keen has contributed to Global Economic Intersection. Toyota has closed its Australian auto production plant leaving the country with no domestic auto manufacturing. Keen attributes the outcome to poor government policy, which was mislead by common economic textbook logic, which happens to be wrong. (Econintersect: Quelle surprise!) The blind spot was the assumption that the classical model that fixed costs are just that, fixed, and the marginal cost of production is determined by the variable costs (labor and materials) - commonly called the marginal costs - which start to rise per unit once the fixed capital is fully utilized and additional labor and material costs are incurred which cannot increase production. This leads to some optimal level of production that minimizes cost per unit.
In reality, Keen points out, fixed costs are not actually fixed but are normally scaled with increased production as marginal costs are added. This produces a graphic much different from the one above. In the real world, the more you make the lower the unit cost.
Read the article - Keen has a simple illustrative example that explains the classical conceptual blind spot. And a complete description of all the central planning failures that went into the sad outcome just realized. [For examples of the fixed capital blind spot see here, here and here.] As with many teaching examples, the logic is impeccable. It's the assumption that the conditions represent reality that are off base.
Who Anticipated the Great Depression? Gustav Cassel versus Keynes and Hayek on the Interwar Gold Standard (Douglas A. Irwin, Journal of Money, Banking and Credit) Hat tip to James Hamilton, Econobrowser. Forget the Keynes-Hayek debate about The Great Depression, Irwin argues that both were out-thought and out-analyzed by an economist named Gustav Cassel who did a much better job of anticipating how the 1920s and 1930s would unfold in advance and gave a reasoned analysis of how to correct for the mistakes that he foresaw. This is a follow-on to the paper posted at GEI Analysis in 2010 which argued that France's hoarding of gold amounted to the destruction of global currency and triggered massive deflationstarting in the late 1920s and extending intothe early 1930s. The following two graphs are from the 2010 article.
Chinese History X (Peter Cai, China Spectator) Virtually every person in China today under the age of 70 was taught in school the official government line that the Chinese Communist Party was the primary force in China contributing to the defeat of Japan in World War II. This contrived version of history ignores the deaths of 3.2 million Chinese Nationalist soldiers (including 210 generals) incurred during the bulk of the resistance to the Japanese occupation of China. Now a groundswell in China is pushing for recognition of the Nationalist war heroes. Less than a year ago the government finally issued an order recognizing the veteran status of former Nationalist army soldiers. But little more has yet happened beyond that.
Money makes people right-wing and inegalitarian (Andrew J. Oswald and Nattavudh, Voxeu) Interesting experimental result but a more interesting factor would be to understand why. Can it be as simple as poor people want rich people's money and rich people don't want them to have it? What then separates humans from other animals?
Six China shadow banks threatened with default over coal firm exposure: paper (Gabriel Wildau, Reuters) Not only are there $824.6 million in loans from firms in the now infamous "trust firm" category, but another failed entity, Jilin Trust, has wealthy investors looking to seek repayment from government owned China Construction Bank. It is a question of implied government backing of non-government agency paper. Americans, does it sound like Fannie and Freddie?
The Dollar and the Damage Done (Barry Eichengreen, Project Syndicate) Barry Eichengreen has contributed to Global Economic Intersection. While it is unfair to dump all the emerging markte turmoil blame on the Fed, Eichengreen says that Bernanke's crowd cannot be held entirely blameless either. One way to mitigate damage that might lie ahead would be for the U.S. to increase monetary support for the IMF, he says.
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