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What We Read Today 15 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.

  • The Numbers Behind India's Epic Election (Henry Austin, NBC News) Hat tip to Sanjeev Kulkarni. An election with 814 million eligible voters, over 1,600 political parties, 935,000 polling stations, more than 101 million new voters registered since 2009, 8 million election workers, possibly more than 500 million votes cast - now that is an election! Results will announced Friday 16 May.

  • U.S. would welcome Modi as India leader despite past visa ban (David Brunnstrom, Reuters) Hat tip to Sanjeev Kulkarni. Analysts say likely incoming Prime Minister Narendra Modi is certain to be issued a U.S. visa. He has been banned from travel to the U.S. since 2005 as a reaction to riots in the state of Gujarat where he has been chief minister since 2001. The riots in 2002 were religion based with more than 1,000, mostly Muslims, killed.
  • EUís Google Ruling is Institutionalized Censorship (Steve Tobak, Fox Business) A ruling by the European Union Court of Justice (which is final and cannot be appealed) requires that Google (and presumably any search engine) block any content on the web from being reported in a web search on a person's name if said person so requests. So anything you don't like about yourself appearing on the web can be excluded from a Google search if you live in the EU and so request. Let's do a thought experiment and combine this ruling with Citizen's United that implies rights of a person for corporations. If the EU ruling and the U.S. ruling were combined then virtually every entity would be able to block anything they wish from a Google search. No longer would Googling a name be able to divulge links to crime, fraud, unethical behavior, customer dissatisfaction or complaints or any web posting that the "name" requested be blocked. Sexual predator listings would no longer be searchable. Criminal records could be effectively removed from ready access. From Steve Tobak's article:

But when you stop and think about it, when you let the implications of this unassailable ruling sink in, the idea is so wrong and its implementation will have to be so subjective that it will undoubtedly threaten - not just the integrity of the Internet - the integrity of what used to be a free society.

Consider this: Should we erase an entry from the Library of Congress for any reason? We wouldn't burn any books - Fahrenheit 451 style - but just delete the references so we can make believe they don't exist - that the events they chronicle never really happened - and make everyone search through thousand of shelves to find them.

And which references to which books would we erase? The Rise and Fall of the Third Reich. You've got to admit, that was some pretty evil stuff. I'm sure there are white supremacy groups that would love to see that go away. How about Ball Four, the blockbuster that embarrassed Major League Baseball and tarnished Mickey Mantel's pristine reputation? Or The Smartest Guys in the Room, about the Enron scandal? What about novels like Atlas Shrugged? I know an awful lot of people that would kill to see all references to Ayn Rand's controversial and politically charged work simply vanish into thin air.

The EU's highest court says we all have "the right to be forgotten," that events from the past - however lawful and accurate their representations might be - simply stop being relevant or become excessive, in time. We should all have the right to move on with our lives and let the past be forgotten. Let bygones be bygones.

  • MERS Cases Highlight Risk to Healthcare Workers (Robert Lowes, Medscape) A global pandemic might result from the spread of the latest coronavirus known as NERS (Middle East Respiratory Syndrome). Even if the virus remains short of pandemic status, the virus poses a serious risk to healthcare workers because most human-to-human transfers have occurred in healthcare facilities and healthcare workers comprise 20% of all 538 cases reported. One out of four afflicted (138) have died.

Today there are 11 articles discussed 'behind the wall'.

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  • Australian fiscal statement Ė attacks the weakest and will undermine prosperity overall (Bill Mitchell, billy blog) Hat tip to Roger Erickson. Bill Mitchell dissects the illogical nature of the Australian government's proposed austerity budget. This is an excellent review of sectoral balance economics as applied to Australia, one of the areas where economics is an exact science (and one of the areas ignored by many economists and virtually all politicians). Don't miss the first comment as well; it provides some logic (although it is logic unrelated to the economic efficacy of the proposal).


  • The Inequality Puzzle (Lawrence H. Summers, Democracy Journal) The former Treasury Secretary finds fault with some details but not with the effect that Thomas Piketty's book Capital in the Twenty-First Century is having on the world. He says the book is "perfectly matched to its moment" in spite of the shortcomings he cites. But Econintersect was disappointed with Summers' discussion because he did not address more deeply the way Piketty has defined capital. After criticizing the use of the word "capital" rather than a more correct term "wealth", Summers did not go into the question of productive use of wealth in sufficient depth. After recognizing that wealth and capital are two distinct things (capital is a subset of wealth), he never makes the logical connection to "useful wealth" (capital) and not useful wealth (not capital), where capital is defined as wealth devoted to production. This was so very well discussed by Jamie Galbraith is his review, discussion repeated next from a couple of days ago.
  • Wrongly conflates physical capital equipment with all forms of money valued assets whether they are in productive use or not;
  • Does not explain the economic pattern differences of various countries;
  • Does not explore what his data clearly shows: that profit based incomes are far more important to building inequality than are changes in wage structures.

Galbraith says that the "fundamental law" proposed by Piketty (r>g) is neither fundamental nor a law but an artifact of the conflation of productive and non-productive wealth; And furthermore that market value (driven by bubbles) rather than physical volumes of capital is a dominant factor in his relationship, marginalizing the entire argument for a "fundamental law".

According to Galbraith, Piketty is essentially a born-again New Deal Democrat in philosophy. Galbraith says that it would make no sense to go back that system now. He (Galbraith) sees instead a different path involving less expansion of the social welfare state and more implementation of such reforms as higher minimum wages, continued low tax on earned income but higher tax on unearned income (he calls it rentier income). If need be, the state can impose regulation to force less oligarchy and more free market competition.

Galbraith agrees with Piketty's position on raising estate taxes. But Galbraith says Piketty has the wrong reasoning; estate taxes are not for redistribution or raising tax revenue but to prevent the formation of dynasties.

Galbraith's conclusion:

In sum, Capital in the Twenty-First Century is a weighty book, replete with good information on the flows of income, transfers of wealth, and the distribution of financial resources in some of the world's wealthiest countries. Piketty rightly argues, from the beginning, that good economics must begin-or at least include-a meticulous examination of the facts. Yet he does not provide a very sound guide to policy. And despite its great ambitions, his book is not the accomplished work of high theory that its title, length, and reception (so far) suggest.

Read also reviews of Capital in the Twenty-First Century by Philip Pilkington and by Hunter Lewis.

  • On the complexities of introducing ScotlandCoin (Izabella Kaminska, FTAlphaville)n If Scotland votes for separation from the UK in September the financial system repercussions for the Scots will be very complicated. A new Scottish currency will be very highly correlated with oil which would create the need for rigorous inflation targeting by the government, restricting fiscal flexibility.


The French government has issued a decree allowing it to block foreign takeovers of French firms in "strategic" sectors, throwing up a potential roadblock to General Electric's (GE.N) $16.9 billion bid for Alstom's (ALSO.PA) energy assets.

The decree, extending an existing 2005 law relating to the defense and other industries, was published in the official state gazette on Thursday and gives the state much-increased powers to block foreign takeovers in the energy, water, transport, telecoms and health sectors.

  • Inside Europeís Plan Z (Peter Spiegel, Financial Times) This is the middle article of a troika which meticulously traces the various pathways taken and not taken in the great crisis surrounding the Greek debt restructuring.
  • Jeff Gundlach's Crazy Treasury Market Prediction Has Been Spot On (Sam Ro, Business Insider) If you are investing in bonds you better follow Jeff Gundlach. He went bearish on bonds when the 10-year was near the top (yielding 1.48%, July 2012) and bullish when the yields moved above 2%, March 2013. He had to back-track and went bearish when yields moved up to 2.15% June 2013. He finally went bullish again near the recent bottom in January (10-year yields around 3%) - see chart below. Note: After this chart was published the 10-year yield plunged to 2.52% on 14 May, closing at 2.54%. See also last article today, below.


  • Russian space threat may boost US rockets (Robert Wright and Mark Odell, Financial Times) In retaliation for sanctions against it by western countries in response to Russia's role in the Ukraine crisis, Moscow has said it might block rocket technology export to the U.S. The U.S. has been depending on Russian rockets for key military applications, having shut down the domestic rocket development and manufacture with the end of the manned U.S. space program. Analysts are quoted as saying that it would take the U.S. years to reestablish a rocket production program. Econintersect would point out that globalization of sourcing of any military weaponry is a strategic blunder by any country. The U.S. decisions to move in this direction have been implemented by the last four presidents, demonstrating that stupidity is an equally shared political trait.
  • Monsanto plans to patent genetically modified marijuana brand in Uruguay (all voices) Hat tip to Russell Huntley. With Uruguay's new legalization of marijuana just going into effect, Monsanto wants to get its HMO hooks into the pot business with a patent application in that country for its "improved" products. It has been suggested that genetically modified strains may be developed with characteristics preferred for the treatment of various diseases. How this will affect recreational use is not clear. But one might ask if Monsanto could end up in a position because of cross-pollination to be able to make it theft for a weed grower to harvest his own seeds, as has been the case with some agricultural crops in the U.S. Read also the article about the government controlled marketing of pot in Uruguay with a price of $1 a gram. This compares with prices in Colorado up to $28 a gram now and up to $100 a gram before legalization: There's A Lot More To Uruguay's Legal Weed Than The $1-A-Gram Price (Roque Planas, Huffington Post)
  • The bond bull market that just won't die (House and Holes, Macro Business) The author says that the history of the bond market is not characteristic of a bubble, but of an orderly bull market in steadily falling yields. He doesn't see prospects for a sudden reversal to be very good. Can you spot any sign of a bottom in the 30-year yield chart below?


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