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What We Read Today 14 May 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.

  • Modi rose as Chindia sank (Simon Denyer, The Times of India) Hat tip to Sanjeev Kulkarni. India is looking for a pathway out of the "quiet trauma of a decade when the Indian dream was junked". It appears the country has elected as premier Marendra Modi who has been Chief Minister of the state of Gujarat since 2001. (Continued...)

In Modi, many Indians hope to end years of underachievement under desperately weak leadership. Under his rule, Gujarat's economy has grown more than 10% a year, more than two percentage points above the national average, corruption has been kept in check and industrial investment has arrived. Poverty has fallen faster than the national average, electricity and clean drinking water delivered to villages and girls' dropout rates from schools slashed. It may not be the miracle some of his supporters pretend, but Modi's economic achievements cannot simply be brushed aside.
  • Xi Says China Must Adapt to ‘New Normal’ of Slower Growth (Helen Sun and Nerys Avery, Reuters) Chinese President Xi Jinping continues to insist that the Chinese economy must slow and the government must take "timely countermeasures to reduce potential negative effects". But he did not change the objective for 7.5% GDP growth this year which seems at odds with the stated objective.
  • Schooled (Dale Russakoff, The New Yorker) When big bucks (in this case $200 million, including $100 million in matching grants from Mark Zuckerberg) are involved it is a mistake not to have a plan before you have the money. In this case Zuckerberg, former Newark mayor Corey Booker and New Jersey governor Chris Christie are the subject of the title: They got schooled. Although there has been some progress in Newark schools, it is far from what the three envisioned when they started the ambitious effort to reform the education system in that high-poverty city over four years ago.

They started with a concept of improving community control, encouraging more parental involvement and moving toward school choice. The New Yorker article does give details of some improvements in Newark schools but reform would hardly be the proper description. Some experimental changes would be more accurate.

The article also gives details of how significant amounts of money (tens of millions) was spent on studies, consulting firms and other efforts to move from conception plan; they say that more than 10% ($20 million) was spent on consultants, some upwards of $1,000 a day.

Econintersect wonders how this might have turned out if the money had been available in small amounts at the beginning and only to be used to define the plan, with further funding applied after when parties involved (school boards, teachers' unions, parents' groups, state department of education and others) all agreed. Instead of using the money to fight for their individual interests they would have been forced to define a plan to get additional money.

  • Why Nigeria cannot defeat Boko Haram (Andrew Walker, BBC) Hat tip to Roger Erickson.. A poorly trained military, a disorganized government and a president who is not involved are three of the reasons. The incompetence involved is represented by the following graph showing how an 18-month tend toward fewer deaths reversed to twelve months of rising fatalities after martial law was declared May 2014.

BOKO-HARAM-DEATHS

Today there are 17 articles discussed 'behind the wall'.

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    1. Well integrity
    2. Water
    3. Greenhouse gas emissions
    4. Land impacts and seismic events
    5. Human health
    6. Monitoring and research

Click on map for larger image.
shale-mp-na-600x430

  • U.S. Is No. 1, China Is So Yesterday (Josef Joffe, Bloomberg) This article is a very well written continuation of the PPP adjusted GDP story which we discussed yesterday. The next article is a repeat of the discussion item from yesterday.
  • Purchasing Power Parity - PPP (Investopedia) PPP is an adjustment of the international exchange rate for a currency to account for the domestic purchasing power of each currency. This adjustment can be calculated for example by taking a CPI (Consumer Price Index) basket in one country (valued in the first countries currency) and buying the same basket in a second country. This has been criticized because it is biased by living custom differences between countries, local prices in one country with little relationship to another country, and variable availability of items in different countries. Thus there is often a significant disconnect between the PPP calculation and the international transactions for major mercantile and commodity exchanges. In fact, PPP is often used as a tool to study currency inflation/deflation characteristics rather than for GDP adjustment. The following two references are seminal discussions from one to three decades back discussing PPP:

1. Purchasing Power Parity (Roger Dornbusch, NBER, March 1985)

2. The Measure of GDP Per Capita in Purchasing Power Standards (PPS): A Statistical Indicator Tricky to Interpret (Word doc) (Francois Magnien, OECD, 2002)

  • This time Chinese property will bust (Houses and Holes, Macro Business) The author says the correlation between credit and housing in China makes a housing bust inevitable. The crackdown on credit markets combined with over building (see second article following) have the outcome set in stone . That will lower economic growth (see third article following) below government objectives.

china-housing-cycles-mb-2014-may-14

china-vacancy-rates-china-daily-2014-may-13

  • What Is Social Insurance? Take Two (James Kwak, The Baseline Scenario) Kwak says that after writing a book chapter on social insurance he has discovered things are somewhat more complicated than hes has presented in the past. He thinks that there are different answers depending on the perspective and circumstances of each individual. If one is young and believes a contract he pays on today will not be there in the future for his benefit the he is likely to oppose the program. Kwak points out that those who are against social insurance for ideological reasons spend a lot of time working to convince young people that Social Security will not be there for them when they retire. He says the argument is made because Social Security is both redistributive and risk-spreading. (And how it works out over time is subject to political risk. Econintersect statement, not Kwak.)
In other words, I think a crucial feature of social insurance is that it is redistributive in the short term (in an ex ante sense, not the trivial ex post sense that is true of all insurance) but risk-spreading in the long term. I happen to think that the world would be a better place if we considered the long term and, therefore, decided to maintain these programs. But I don't think it's obviously true that a lifetime perspective is correct and a one-year perspective is incorrect.
  • Employer mandate repeal won’t relinquish employers from ACA compliance (Melissa A. Winn, Employee Benefit Advisor) If the employer mandate were eliminated all employer provided health plans would still have to be ACA (Affordable Care Act) compliant. However, some companies with largely low-wage employees may chose not to offer a sponsored health plan if the mandate is withdrawn. "For such firms, workers may benefit more from premium tax credits than they do from the tax benefits from employer-based coverage. " This is the assessment of the Urban Institute, a non-partisan organization for economic and social policy research. The conclusion of the study of the employer mandate:
In summary, eliminating the employer mandate would eliminate labor market distortions in the law, lessen opposition to the law from employers, and have little effect on coverage. Alternative sources of revenue would have to be found to compensate for the federal loss of penalties. Both the elimination of the mandate and creating a new source of revenue to replace it will require legislation. Current legislation before Congress proposes to move the employer requirement from employers of 50 or more workers to employers of 100 or more. While this approach would help those firms between 50 and 99 employees and decrease the exposure to adverse incentives within that group, it shifts the threshold where labor market effects could take place to a different point and does not address the concerns of large, low-wage firms. The individual mandate, together with the Medicaid expansion and income related subsidies, is, as we have shown elsewhere, critical to expanding coverage under the ACA; the employer mandate is not.

Eliminating the employer mandate would have a small impact on health insurance coverage, reducing the estimated number insured in 2016 by 200,000 (out of 251 million). It would also increase the government cost of ACA by an average of $4.6 billion over ten years.

Read the full reports from the Urban Institute (pdf): Why Not Just Eliminate the Employer Mandate? (Linda J. Blumberg, John Holahan, and Matthew Buettgens).

aca-employer-mandate-urban-inst-2014-may-09-600x400

  • Defending the Open Internet (Jeff Sommer, The New York Times) The author reports on his discussions with Tim Wu, the inventor of the term "net neutrality", the idea that no one should be discriminated against as a user of the internet. Now that content purveyors like Google, Netflix and Facebook are looking for higher speeds at higher bandwidth, the companies that deliver the content, the ISPs (internet service providers) want to charge a premium for the extra "service". That, de facto, creates two classes of net citizens and flies in the face of net neutrality. Econintersect thinks that competition should be a good tool to preserve net neutrality and still allow extra fees for "extra-wide loads". The problem is that the carriers and ISPs have been allowed to establish monopolies - competition doesn't exist. Maybe it's time for the Justice department to start polishing of the antitrust statute books and start action break up the new monopolies.

Click on infographic for large image at Bloomberg.
cap-ex-ritholtz-2014-may-13-600x700

  • Why Housing Lending Growth Is Flat (Martin North, Digital Finance Analytics) Morth highlights a divergence in Australian housing: Prices are continuing to rise but lending growth is not. North suggests that since buyers have maxed out their credit for home purchases (graph below) the price rises may have to stop, perhaps prices may even decline. But North does use the word "eventually" in his statement.

Click on graph for larger image at Digital Finance Analytics.
australia-house-financing-digital-fin-anal-2014-may-14-600x400


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