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What We Read Today 23 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.

  • Russia’s Oil Spills Dwarf Gulf Spill (Clare Delaney, EcoFriendlyLink) Hat tip to Roger Erickson. Author claims Russia spills 6x as much oil as BP's Deepwater Horizon spill in the Gulf of Mexico in 2010 every year. Delaney says remote spills of 30 million gallons are in relatively remote areas, unpublicized and not cleaned up, creating some environmental nightmares.

  • Gundlach: Golden Age of Housing Is Over (Janet Levaux, ThinkAdvisor) Bond guru Jeffrey Gundlach says he is surprised at the enthusiasm for single-family housing. He notes that "data is no better than they were at the so-called trough of the recession". Keith Jurow has been analyzing data and reaching the same conclusion for the past three years. See Keith's latest GEI Analysis article on the difficulties in CRE (commercial real estate) markets.
  • Minyanville’s Harrison: Online Media Model Is ‘Broken’ (Paul Vigna, MoneyBeat, The Wall Street Journal) After 13 years, Todd Harrison is putting Minyanville up for sale. He says the ad-based business model doesn't work and he wants to get his creation into hands that will pursue a different business model. Here is a great quote: "The Internet is the most deflationary invention of all time."

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  • This Happened Twice Before, And Each Time Stocks Crashed (Wolf Richter, Testosterone Pit) Three times in the last 15 years margin debt surged to a new high and then dropped sharply by more than 5%. The two previous margin peaks came 3-6 months before a Dow 30 peak that was followed by a major bear market.


  • Corrupt companies face fines of 400% of illicit profits (Caroline Binham, Financial Times) Author says the move is to create "fines comparable with those meted out in the US, where penalties can be as high as hundreds of millions of dollars." Well, in the U.S. such fines are just considered the cost of doing business.
  • Why Republicans Love Taxing the Poor (Jonathan Chait, The New York Times) This short Op Ed will anger quite a few. Chait accuses the GOP of being "monomaniacally focused on redistributing income upward".
  • Risk of disappointment from the ECB in June remains high (Walter Kurtz, Sober Look) The risk that the ECB will do nothing in June because of continued expansion in the aggregate would ignore that some countries, headed by France, are contracting again. The fragile Eurozone economy needs very little to sucumb to deflationary pressures and head south again.


  • Has Thomas Piketty met his match? (Evan Davis, The Spectator) Davis says he has. She is Diedre McClosky, Distinguished Professor of Economics, History, English, and Communication, University of Illinois at Chicago and Professor of Economic History, Gothenburg University, Sweden. In essence, McClosky criticizes the analysis of wealth and income distribution without characterizing what is productive and what is parasitic. The two characterizations in bold are made by Econintersect, not Davis or McClosky. The question of productive and unproductive wealth has been discussed here before. See next article.
  • 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.

  • Employment Scars of the Housing Bust (Atif Mian and Amir Sufi, House of Debt) Housing is key to the economy. What the authors don't emphasize is that housing represents a colossally unproductive use of capital. Houses produce no useful good or service once you get past the basics of minimum living space (say 100-200 sq. feet per person) plus small common spaces for food prep and sanitary waste disposal. Everything else is conspicuous consumption.


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