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What We Read Today 22 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.

  • Student debt holds back many would-be home buyers (Tim Logan, Los Angeles Times) The National Assn. of Realtors recently identified student debt as a key factor in soft demand for home-buying this spring. A recent study by the trade group identified student loans as the top reason many home buyers delayed their purchase. This should be no surprise. Six months ago GEI News identified a very conservative estimate of 2 million home sales that may be precluded in coming years because of college debt.
  • Class warfare justified? (Robert J. Samuelson, The Washington Post) Samuelson equivocates in this discussion about Thomas Piketty's new book Capital in the Twenty-First Century. In spite of the indecision this is still a very readable brief summary of the book. More about the Piketty boon 'behind the wall'.
  • CHART OF THE DAY: The Escalating Game Of Chicken Between China And Japan (Sam Ro, Business Insider) Most of the tension is over the ownership of an uninhabited group of islands in the East China Sea, called the Senkaku (Japan) or the Diaoyu (China). The primary interest is in potential oil and gas resources. The islands are actually closer to both Taiwan and Okinawa Prefecture, Japan (each 170km) than to China (330 km). The Taiwanese name for the islands is Tiaoyutai, and the island nation also claims the islands. There is more on the significant economic fall-out from this dispute 'behind the wall'. It appears that it is a serious problem for China, not so much for Japan.


Today there are 14 articles discussed 'behind the wall'.

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  • Exodus Of Japan Inc. Slams China (Wolfgang Richter, Testosterone Pit) The fallout of the islands dispute is hitting China particularly hard. Combined with China's reversion to a more pro-active WW II compensation position by Chinese courts recently, much needed FDI (foreign direct investment) by Japan in China is diminishing. First quarter 2014 saw FDI by Japanese companies in China fall by nearly 1/2 from the prior year. Japan's FDI is now growing in other areas of Asia such as Vietnam.


"The central point that emerges from our research is that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy," they write, "while mass-based interest groups and average citizens have little or no independent influence."
A Nobel laureate complained that ''the watered-down encyclopaedia which constitutes the present course in beginning college economics does not teach the student how to think on economic questions. The brief exposure to each of a vast array of techniques and problems leaves the student with no basic economic logic with which to analyze the economic questions he will face as a citizen.'' That was George Stigler, writing as long ago as 1963.

Click on chart for large image at Rick's Picks.

  • N Korea: Not so 'Stalinist' after all (Andrei Lankov, Al Jazeera) There is actually a market economy (albeit rather inefficient) in North Korea according to this professor. Maybe we should try to get a report from Dennis Rodman?
A tech war has raged in China, and a winner seems ready to emerge. It's Tencent--a controversial, $139 billion company with nearly a billion users, which functions like Facebook, Amazon, Twitter, and Uber all rolled into one. Now it's gunning for global expansion.
  • Beyond the Laffer Curve — the case for confiscatory taxation (Matthew Yglesias, Vox) Very high marginal tax rates won't increase tax revenues; they will reduce very high marginal earnings. Why would one want to collect a $20 million salary if the second $10 million was subjected to a 90% income tax (which was the top bracket percentage when Eisenhower was president). Some may argue that the high earner will just stop producing before he gets to the highest bracket(s). Econintersect suggests that would be behavior contrary to human nature. The high performer will continue to perform but he will look for forms of compensation not subjected to the confiscatory rates. Such compensation might be increased equity share of the business (or expanded business operations for a sole proprietorship). If high current income is confiscated then the strategy would be to create a much longer-term income stream at the lower tax rates. Such is the thinking presented by Yglesias.


  • Marx Rises Again (Ross Douthat, The New York Times) Douthat, an economist and conservative columnist, takes issue with the dark projections Pikitty makes for the continued rise of inequality in the future. Douthat suggests that even with the current assessment that Pikitty's assessments may understate the actual "income" gains of the lower income groups.


  • China E-Commerce Company Alibaba Finds No Business Like Show Business (Marlene Y. Satter, Think Advisor) Alibaba's new product won't be investing directly in entertainment vehicles, at least at first. Instead, the money but will be channeled through insurance and wealth management products offered by Shanghai-based insurance company Guohua Life. The China Securities News has already criticized the product for a lack of transparency. Wealth management products in China have had considerable bad press recently as some have experienced significant losses and required bail-outs from sponsoring financial institutions.


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