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What We Read Today 20 April 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 included.

  • In Many Cities, Rent Is Rising Out of Reach of Middle Class (Shaila Dewan, The New York Times) In 90 metro markets median rent is higher than 30% of median gross income, the maximum affordable level. In many markets median rents approach or exceed 40% of median gross income. In the year 2,000 many markets had median rents comfortably below 30% of median gross income.

  • Fired Yahoo exec gets $58M for 15 months of work (AP, CNBC) Hat tip to Marvin Clark. Henrique de Castro recently left his position as COO (chief operating officer) of Yahoo, just 15 months after he was hired by CEO Marissa Mayer. Supposedly Mayer fired de Castro after he failed to build Yahoo's ad growth revenue, his primary responsibility. The plan he was executing was Mayer's. Yahoo's board said that most of the $58 severance was related to the cost of "luring de Castro from his previous job at Google". What a black eye for Mayer.
  • Flight 370 search: Probe of current area should be done in a week, official says (Ed Payne and Tom Watkins, CNN) Hat tip to Alun Hill. Continuing revelations about the missing Malaysian Airlines flight seem not to have rational explanations. One of the latest items is that the off-course flight climbed abruptly to near maximum flight altitude and remained at that height for 20 minutes before descending to lower altitude again.

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  • Profit Margins: The Death of a Chart (Jesse Livermore, Philosophical Economics) The fallacy of a graph used by John Hussman and others to argue that the U.S. stock market is overvalued has been discussed here before, but this is by far the best analysis and discussion of the changes in the relationship between U.S. corporate earnings and U.S. GDP in recent years. I one word? Globalization. But read this article - it is excellent; don't take our (one) word for it. :-)

cpatax-gdp-ratio-phil-econ-2014-apr

  • It's Time to Ditch the Consumer Price Index (CPI) (Charles Hugh Smith, Of Two Minds) Charles Hugh Smith contributes to GEI. The CPI seriously underestimates medical costs and education costs and also is low on housing. The middle class, already under pressure by income squeezes, is suffering the brunt of the inflation not accounted for properly by CPI.

cpi-components

  • How Not to Do Macroeconomics (Unlearning Economics, Pieria) An economics student lays out the emperor's wardrobe and finds nothing there. His description of what he prescribes for future direction sounds like the work of Marc Lavoie, Wynne Godley, Steve Keen and others but none of those people are mentioned. Perhaps this student has not been exposed to stock and flow accounting macro modelling and sector balance analysis work that has been gaining devotees over the past two decades?

day-care-vs-college

  • Profit Margins: The Epicenter of the Valuation Debate (Jesse Livermore, Philosophical Economics) Hat tip to Michael Hartig. Another great analysis and discussion about the misconceptions concerning corporate profit margins. Analysts have been falling into a trap of considering multiple sources of data indicating overvaluation of stocks based on earnings when the multiple sources are actually not linearly independent. Another factor is the mistaken application of historical means for reference when in fact those means are not constant overtime and also may be further distorted by catastrophic one-time events.

corp-margins-phil-econ-2014-apr

  • The State of American Beer (John Tierney, The Atlantic) Budweiser, Coors and Miller hold half of the domestic beer market while Corona, Heineken and Modlea have more than half of the U.S. imported beer market.
  • Census Survey Revisions Mask Health Law Effects (Robert Pear, The New York Times) The U.S. Census is changing the questions they will ask this year concerning health care insurance coverage making comparisons to previous years impossible. Conspiracy theorists step forward, please.
  • Social Security and Medicare Taxes and Benefits over a Lifetime 2013 Update (C. Eugene Steuerle and Caleb Quakenbush, Urban Institute) Hat tip to Joe Firestone, New Economic Perspectives. This study shows that on average some groups of people pay more in Social Security taxes than they receive in benefits starting in the time frame of 2005-2010 (age of turning 65) and that is projected to be true as far as the study goes (out to turning age 65 in 2030). Groups who receive more than they pay in taxes include one-earner couples and low income two-earner couples. For those turning 65 before the early 2000s, benefits received are larger than taxes paid. Most of the scenarios tabulated show considerably more Social Security taxes paid than benefits received going forward. Medicare shows significantly more benefits received than taxes paid in all cases. See Q&A with C. Eugene Steuerle: Estimating Social Security and Medicare Taxes and Benefits over a Lifetime (Urban Institute) for details on methodology.

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