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What We Read Today 18 February 2014

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.

"The Chinese government will adopt a quiet approach to deflating the dangerous real estate bubble, given the huge impact a crash could have on the economy."

  • Driving Past Japanís Speed Bump (Aaron Back, The Wall Street Journal) Back says there are areas of strength in Japan's disappointing GDP report, large revisions are common and exports, the weakest number in the GDP report, should rise significantly in 2014. See also GEI News.

There are 11 articles discussed 'behind the wall' today, with two more each on the China credit situation and employment/productivity/health considerations.

Please help support Global Economic Intersection a one-year subscription to 'Behind the Wall' - only $25 for the entire year!

  • Self-determination (Frances Coppola, Coppola Comments) Frances Coppola has contributed to Global Economic Intersection. Coppola asks: "What opinion, if any, do I - a British citizen living in the south of England - have a right to express?" She asks the question after being criticized for speaking out against the separation referendum being held in September. She explains:
I am no constitutional lawyer, but it is clear to me, at any rate, that the UK must continue in some way after Scottish independence. I am a citizen of the United Kingdom, and I have no vote in this referendum. Is my citizenship to be revoked on the say-so of the Scots? Is the country in which I was born and to which I have given my allegiance to be broken up without my agreement? The claim by some that Scottish independence would mean the end of the UK cannot be allowed to stand. Breakup of the UK would need the agreement of ALL its citizens. The very fact that the Scots have been allowed to have their own referendum is a clear indication that the UK would continue in some form after Scottish independence. A "Yes" vote would be secession, not breakup. Comparisons with Czechoslovakia are moot.

Coppola says clearly the UK would still exist, but in a diminished form.

  • Soros doubles a bearish bet on the S&P 500, to the tune of $1.3 billion (Barbara Kollmeyer, MarketWatch, The Wall Street Journal) Soros increased his put position on the S&P 500 ETF (NYSE:SPY) in the fourth quarter to $1.3 billion, up from less than $500 million three months earlier. He is also has a large holding of puts on the energy sector ETF (NYSE:XLE). The SPY puts are the largest holding (11%) in the Soros portfolio and the XLE position is the second largest. It is not clear how much of these positions are hedges and how much are simply bearish bets. Data details can be dug out of

  • The U.S. Middle Class Is Turning Proletarian (Joel Kotkin, Forbes) Kotkin sees the biggest economic for the U.S. as income distribution. He attributes the latest stages of the problem to be the "drying up of opportunity".
Roughly one in three people born into middle class-households, those between the 30th and 70th percentiles of income, now fall out of that status as adults.

Solutions? Most suggestions are bromides, according to Kotkin. He thinks that those who profit from asset appreciation (rentiers, takers) should be taxed more and those who profit from the sweat of their brow (producers, makers) should be taxed less. (Note: The inflammatory definitions of makers and takers are by Econintersect, not Kotkin.)

  • EU law on market benchmarks faces delay for months (Huw Jones, Reuters) A situation that has a simple solution seems to be evading political processes in the EU. The simple solution in Econintersect opinion? Make CEOs and all intervening levels of management above a "fixer" subject to criminal felony charges for market rigging by anyone in their organization.
  • Get a Life (C.W. and A.J.K.D., The Economist) Work less, do more.


Econintersect has created a graphic to show how differently structured work weeks fit on the regression line of the above graph:


Do not misinterpret the graph we created. It does not mean that someone working 60 hours a week can be replaced with two people working 30 hours and productivity per hour will go up 4X or 5X. That would be comparing apples to oranges and both to cow patties. (Or should we create a strong insinuation and refer to bull patties?) For example a two janitors working 30 hours a week each may well do more than one janitor working 60 hours. But even an improvement in productivity of 25% might be a stretch.

It is a mistake to give any kind of micro economic interpretation to the data.

However, a trend toward higher productivity with reduction of hours worked is a very logical result. Econintersect has not heard the expression recently that was very popular 30, 40 and 50 years ago: "Work smarter, not harder."


  • China Development Bank Proposes Taking on Sole Local-Lender Role (Judy Chen, Bloomberg) A proposal has been made to make the government owned China Development Bank the sole lender to local governments. This would consolidate control as the government tries to keep mounting local government debt from creating a debt default problem. The bank is using a different rationale: The centralization would help promote urbanization. Econintersect: This sounds like bureaucratic double-speak.
  • Chinese credit semantics (David Keohane, FT Alphaville) Confusion reigns supreme among the "experts" when it comes to the state of credit markets in China. Keohane has quotes from eight individuals with assessments all over the map.
  • Information asymmetry, bad incentives and Taibbi (Izabella Kaminska, FT Alphaville) Izabella does a hatchet job on Matt Taibbi's hatchet job on banks which we had on a reading list a couple of weeks ago. At the core here Izzie criticizes Taibbi for saying that banks were banksters for taking advantage of information asymmetry, which she says (probably correctly) is not illegal. She comes to the conclusion that the banks are merely responding to the incentives of the system, and that the incentives are skewed. Kaminska is probably technically correct and Taibbi technically wrong. But that doesn't make the system right. And who is doing more to bring the shortcomings of the system to light in this exchange?
  • What Americans Don't Know About Science (Eleanor Barkhorn, The Atlantic) The most recent National Science Foundation study of knowledge about science found that more than 1/4 of Americans think the sun revolves around the earth. Another example of American exceptionalism is shown in the graphic below:


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