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What We Read Today 25 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.

  • Mexico to Grow at a Slower Pace than Expected this Year (Lindsey Taylor, FX Empire) Mexico slashed its growth forecast for this year to 2.7%, down sharply from the previous projection of 3.9%, after its economy grew at a slower pace than expected in the first quarter due to a tax hike that weighed on consumer demand and weaker export growth. The 1Q 2014 GDP growth estimate came in at 1.8%, up from an even lower 0.7% in 4Q 2013. All rates are year-over-year.

  • Alibabaís American Aspirations (David Gelles, Hiroko Tabuchi and Michael J. de la Merced, The New York Times) Alibaba is going right at the heart of e-Bay, the sales commission. U.S. website set up by Alibaba to compete with e-Bay, 11 Main, has a vendor commission of 3.5% compared with the almost 10% charged by e-Bay (comparable to the traditional auction sellers' commissions in the U.S.). Alibaba is also taking stakes in American businesses to compete with Uber (Lyft), and others. Read more about Alibaba's huge August ADR IPO in Aura Gilham's article at GEI Investing.
  • Minnesota Bans Triclosan, Ingredient in Antibacterial Soaps (Michelle Schoffro Cook, Care2) Minnesota is the first American state to ban triclosan, an antibacterial ingredient used in consumer hygiene products. Researchers at the University of Minnesota have found the compound in lake sediments in the state and documented the breakdown into dioxins which can harm marine ecosystems. They have also found the compound linked to the presence of a staph superbug in human nasal areas. This superbug is associated with food poisoning which in severe cases causes death.

Today there are 11 articles discussed 'behind the wall'. There are 3 more articles are about the way data was used by Thomas Piketty in his new book, Capital in the Twenty-First Century. Another three articles were discussed yesterday.

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  • Information Technology and the Distribution of Inventive Activity (Chris Forman, Avi Goldfarb, and Shane Greenstein, NBER Working Paper No. 20036) The authors found a tremendous amount of scatter for the extensive data collected (see graph below) which suggests that stronger correlations might exists for segregated subsets of the data. This has not been attempted in this paper. What the authors have extracted from the aggregated data is a conclusion that the incidence of increased internet usage does correspond to a slowing of previous increasing patent activity trends toward more geographic concentration. Econintersect suggests that, as in many gross aggregation studies, there may be valuable information masked by the process of mass aggregation. The authors appear to have tried to do that to a limited extent. See also GEI Analysis by these authors. Here is the abstract for the paper:
We examine the relationship between the diffusion of advanced internet technology and the geographic concentration of invention, as measured by patents. First, we show that patenting became more concentrated from the early 1990s to the early 2000s and, similarly, that counties that were leaders in patenting in the early 1990s produced relatively more patents by the early 2000s. Second, we compare the extent of invention in counties that were leaders in internet adoption to those that were not. We see little difference in the growth rate of patenting between leaders and laggards in internet adoption, on average. However, we find that the rate of patent growth was faster among counties who were not leaders in patenting in the early 1990s but were leaders in internet adoption by 2000, suggesting that the internet helped stem the trend towards more geographic concentration. We show that these results are largely driven by patents filed by distant collaborators rather than non-collaborative patents or patents by non-distant collaborators, suggesting low cost long-distance digital communication as a potential mechanism.


  • That Big Financial Times Story on Errors in Piketty's Data is Overrated (Danny Vinik, New Republic) See also the next article below. An interesting article that discusses data details. The discussion about data inconsistencies is focused on wealth data. Vinik says that it (wealth data) is much more imprecise than income data. And Vinik quotes sources that say the Financial Times critic (Chris Giles) and Piketty use data that have different imprecisions. The most specific criticism that Vinik has is that Piketty "deemphasized the imprecision". Vinik's bottom line might be considered coming from "Scott Winship, an inequality scholar at the Manhattan Institute and frequent critic of Piketty":
" ... when I look at these charts, to me, if you imagine margin of errors around any of these data points, it sort of looks like nothing has changed much."

Thomas Piketty's Capital in the Twenty-First Century is a moving target. The book contains foundational theoretical problems, a misreading of the empirical literature that blows up his whole case, sloppy and absurd factual errors concerning tax rates and minimum wage hikes, and shocking quotations that reveal he has no desire to actually raise government revenue with his massive soak-the-super-rich schemes, but instead merely wants to prevent the formation of fortunes in the first place.

I am now beginning to suspect that this is the Frenchman's rope-a-dope strategy. By this point, after I (and others) have been harping on one problem after another, the poor blogosphere reader is too fatigued to take it seriously when Chris Giles at the FT alleges that Piketty's most important scholarship-the thing that supposedly warrants Piketty a Nobel Prize, according to Larry Summers-is not only wrong, but contains deliberately fudged data. Uh oh.

  • Mistakes (Simon Wren-Lewis, Mainly Macro) Wren-Lewis discusses some famous errors (including the most recent Piketty and Reinhart-Rogoff occasions) involving data and treatment of data in economics research. Several errors have appeared devastating at first blush and have been found less all-encompassing upon further examination. With the Piketty case, the data problems seem especially narrow to Wren-Lewis.
  • Are Mortgage Credit Conditions "Tight"? (Mike Shedlock, MISH'S Global Economic Trend Analysis) Shedlock quotes a Bloomberg article referencing "still-tight credit conditions" and decided to look at the data. What he found for prime mortgages was almost three years of persistent tightening (see graph below). Data for subprime shows significant tightening over the past 18 months but there is no data for 2009 through 3Q 2012.


  • The other pivot to Asia and why success in China is not all it seems for Putinís Russia (Richard Connolly, The Conversation) The foreign direct investment that Russia needs will continue to come from Europe and not from Asia. And increased energy exports from Russia to Asia will require large infrastructure investments for things already in place for Europe. The author suggests the energy deal between Russia and China has really backed Russia into a corner more than opened a new frontier.
Making up policy in a crisis is fraught with dangers, and macroeconomic rationality can easily give way to vested interests and biases, as we discovered in 2010. The whole point of fiscal rules and fiscal councils is to overcome those interests and biases, and they apply at least as much in a crisis as in normal times.
  • Rent or Buy? The Math Is Changing (Neil Irwin, The New York Times) In many areas today buying is the wrong economic choice because house prices have rebounded so much over the past 3-4 years. But the decision is always specific to an individual's plans and the local costs of purchase, upkeep, property taxes and rents. There is a detailed interactive calculator which runs all the numbers for all the variables involved. Click on graphic below to access the calculator.


  • Found: the dinosaur that survived mass extinction (Jon Tennant, The Conversation) It has been commonly believed all dinosaurs (except for the ancestors of birds) expired at about the same time about 66 million years ago. New fossil discoveries in Argentina prove that some of the "big boys" also survived what was otherwise the last mass extinction for dinosaurs.
  • A Growing Number Of American Homes Are Now 'Obsolete' (Matma Badkar, Business Insider) A house may be obsolete for many reasons, among these: (1) it doesn't have the "fit and function" that buyers want (old and needs updating, (2) it's in a location buyers don't want to live (area blight, poor school district, etc.) or (3) it may lack the utilities that buyers demand (water, sewer, cable service, broadband, etc.). Thus housing experts such as Mark Fleming at CoreLogic say that true inventory is much tighter than the nearly 2.3 million homes listed for sale. A significant number (not specified) are not what buyers want, he says.

DOM (days on market) is presented as a measure of obsolescence: the higher the ratio of DOM for homes not sold to the DOM for homes that are sold is supposedly a measure of obsolescence. When they are the same (ratio 100%) most homes are "desirable". The higher above 100% the greater the number of obsolete homes according to the theory.

Econintersect sees a problem with this logic: No evidence is presented (other than population growth) that demand for homes should be higher than what is sold. The "theorists" have not removed the possibility that a high DOM is reflecting a glut of houses for sale. The unsatisfied buyer theory of CoreLogic is a continuing theme: See latest GEI News report from CoreLogic.


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