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What We Read Today 25 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.

  • The Republican Who Saved Civil Rights (Todd S. Purdum, Politico) Fifty years ago John Boehner's congressional district in Ohio was represented by another conservative Republican, Bill McCulloch, ranking member on the House Judiciary Committee. The way Purdum tells the story, the Civil Rights Law of 1964 might have come to passage without Jack or Bobby Kennedy, without Martin Luther King or without Lyndon Johnson. But not without Bill McCulloch.

A new Rasmussen Reports national telephone survey finds that 53% of Likely U.S. Voters think it is fair to say that neither party in Congress is the party of the American people. That's up six points from 47% last October and matches the previous high foundin June 2012 during the last national election cycle. Just 28% disagree, while 19% are not sure. (To see survey question wording, click here.)

But a plurality (47%) believes the Democratic Party has a plan for where it wants to take the nation. That's up slightly from the low 40s in prior surveys back to February 2010. Thirty percent (30%) think President Obama's party does not have a plan for the future. Twenty-three percent (23%) are undecided.

By contrast, 38% think the Republican Party has a plan for where it wants to take the nation, but slightly more (40%) disagree. Twenty-two percent (22%) are not sure. This is generally in line with past surveys. Belief that the GOP has a plan for the future jumped to a high of 54% in June 2012 but fell back to previous levels after that.

  • Chinese company uses 3D printing to build 10 houses in a day (Loz Blain, gizmag) In the U.S. these would be called "cabins". They might be used for hunting camps, lakeside cottages, temporary worker housing, cheap motel units and the like. In China they may be used for low income housing. The cost assembled can be as low as $4,800.


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  • Moving in with parents becomes more common for the middle-aged (Walter Hamilton, Los Angeles Times) Hat tips to John O'Donnell and Mike Shedlock. The long-term unemployment problem has a byproduct: More adults age 50-64 are moving back in with their parents than ever before. From 2005 to 2012 the number swelled by 2/3 to more than 190,000 just for the state of California. These moves were almost entirely for economic reasons and not because the parents needed care. Although the number of 18- to 29-year olds moving in with parents is much larger (1.6 million for California) the increase from 2006 is only half the rate ( 1/3) of the older cohort. Long-term unemployment is almost certainly a significant contributor to the increase in moving back with parents. The 55 and older age group has increased long-term unemployment by 500% since the end of 2007. See also immediately previous article.
  • Adam Smith is not the antidote to Thomas Piketty (Deborah Boucoyannis, The Washington Post) Piketty's primary proposition is that if r, the rate of profit growth, persists with larger value than g, the rate of growth of the economy, the system will collapse. This is exactly opposed to Marx's proposition that the collapse of a capitalistic system would come because of the declining rate of profit. The accusations of many that Piketty is Marxist seem quite ludicrous once this distinction is realized.

Boucoyannis points out that the will of the body politic, especially in the U.S., is ill disposed to deal with failure as predicted by Piketty:

But the problem for the reception of his [Piketty's] argument in the U.S. is not (only) that it is confused with Marxism. Rather, his policy prescriptions attack a foundational American belief about the "free" market, that its outcomes are fair, and attempting to reverse them creates distortions and undermines productivity. Only 17 percent of the population believe addressing inequality should be a government priority. Among the groups that "count" (the better off), the majority believe government is already doing "too much" in the economy.

Boucoyannis sees the U.S. perception of a conflict between equality and justice on one hand and efficiency and "freedom" on the other. She says that these beliefs are based not on evidence but on belief and on

"foundational narratives and, as even economists are now admitting, on moral arguments about how the world, and the market economy, should work."

Boucoyannis says that the conflict perceived between Adam Smith and Thomas Piketty derives from selective reading of Smith. She suggests that when Adam Smith is read in entirety and all is considered in context, Piketty's assertions closely parallel Smith.


  • I’m Shocked, Shocked! (James Kwak, The Baseline Scenario) Hat tip to Lee Adler, The Wall Street Examiner. Yesterday, the Wall Street Journal reported that the FCC is about to release proposed regulations that would allow broadband providers to charge additional fees to content providers (like Netflix) in exchange for access to a faster tier of service. Kwak maintains that this would allow cable providers to "to lock in the current set of incumbents that control the Internet, ushering in the era of big, fat, incompetent monopolies." Kwak says this would be bad for consumers (loss of choice) and bad for innovation (higher cost of entry) and would benefit a parasitic and entrenched monopoly (Econintersect words). Why is this happening? Kwak says that the FCC and the communications industry has established a good ol' boys club with a revolving door between the industry and the agency. So, more government capture by oligarchy.
  • Beware the Summer Swoon (Dave Gonigam, 5 Min. Forecast) Gonigam says that Barry Ritholtz sent this chart which argues against David Einhhorn's contention that there is a new tech bubble.


  • China steps up crackdown on illegal fundraising (Jiang Xueqing, China Daily Europe) The government is tightening regulation of new forms of financing and promoting their standardization. China established an inter-ministry task force to tackle the problem and the CBRC (China Banking Regulatory Commission) is leading research on how to regulate peer-to-peer lending.
  • The Ubiquity of “Lost Decades” (R.P. Seawright, Above the Market) Hat tip to Barry Ritholtz, Bloomberg. Over the past 200 years there have been ten decades with one or more years having ten-year total return close to zero, zero or negative. Twice the years have come in bunches (1860s and 1970s) so that the total number of individual years is closer to 20 (10% of the sample). Good thing to remember: Losing money on stocks over a ten year period is not an impossible occurrence.


  • Why I Will NEVER Buy Another Bank Stock (Adam Fischbaum, Street Authority) Fischbaum thinks that three financial stocks with dividends ranging from 2.4% to a lofty 11% will return more in the next couple of years than banks will in the next decade. The three are PennantPark Investment Corp (NASDAQ:PNNT), Aflac (NYSE:AFL) and AllianceBernstein (NYSE:AB). An equally weighted holding of all three would have a dividend yield of 6.5% and madian forward P/E of 11.3. Read the article to get more details.


  • Why The IRS Is Limiting The Number Of IRA Rollovers (Reuters, Financial Advisor Magazine) The IRS issued the ruling and will revise the applicable Publication 590 rules to prevent what a California couple did in 2008. In that case they used a series of three indirect roll-overs (which can be held for up to 59 days by the owner before depositing in a new IRA account) to get what amounted to a 5-month interest-free loan for $65,000. In January a federal court upheld the IRS assessment of $61,558 in income taxes, interest and penalties for those transactions. That was an expensive loan!
  • Skittering Below the Tops‏ (William Kurtz, email newsletter, Candelaabra) Bill continues to see weakness at the top. This view aligns with Jeff Pierce who warned before the market opened Thursday that a strong close would be needed to reinforce a continued market advance. Instead Thursday saw a gap higher opening, a sharp reversal and then a day that went nowhere.


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