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What We Read Today 28 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.

  • Hard Evidence: how much power can the far right wield in European parliament? (Sofia Vasilopoulou, The Conversation) With all the talk about an earthquake in the EU, some far-right parties also lost ground. Although the number of seats for the far right increased almost 50% from 49 to 72. the author points out that these parties are largely nationalistic and will not form alliances with delegates from other countries. They also have a history of being disengaged from the work of the European Parliament and the fact that they comprise almost 10% of the body will probably go largely unnoticed.

How the far right parties fared.

  • From a diverse group of judges, a unanimous opinion on same-sex marriage (Robert Barnes, The Washington Post) Political philosophy appears to have faded from judicial actions regarding gay marriage, as have questions of individual morality, while civil rights have become the dominant consideration. The U.S. has seen "an unbroken wave of victories across the country to supporters of same-sex marriage".


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  • Is the fate of the stock market in the IRS’s hands? (Simon Constable, MarketWatch, The Wall Street Journal) Mergers and acquisitions activity drive the stock market (see graph below). These are dependent on, among other things, low financing costs, and changes to reduce tax liabilities. The first may be damaged when the Fed starts raising interest rates (expected in 2015) and the second may be more difficult if the IRS increases actions to limit tax advantaged moves.


  • China's Key Growth Industries (Susmita Das, Research Associate, Emerging Market Innovation, Frost & Sullivan, Asian Century Institute) Energy, environmental protection, and healthcare are three key growth industries in China. Sound more like the U.S. than what China has been until now? See also next article.
  • Emerging Asia's Retarded Service Sectors (John West, Asian Century Institute) John West contributes monthly to GEI. A recent OECD study criticizes the big emerging economies of China, India and Indonesia for very high restrictions on their trade in services. The result is very low productivity in services and holding down quality of living for citizens.
  • The Entire Debate Over Record-High Profit Margins Has Pivoted (Sam Ro, Business Insider) ROE (return on equity) is at a very reasonable level when normalized to GDP. Book Value is very high on a historical basis. Econintersect suggests that book value should bear an inverse relationship to interest rates and perhaps that analysis should be done.


  • Data on cost of Scots government ‘misleading’ (Kiran Stacey, Financial Times) Patrick Dunleavy, politics professor at the London School of Economics, says the Treasury had manipulated his research to make the one-off costs of setting up a new government look ten times larger than they were likely to be. Dunleavy called the government's figures "bizarrely inaccurate".
  • Kyle Bass: The Looming Crises in Asia (Robert Huebscher, Advisor Perspectives) Robert Huebscher has contributed to GEI. Hedge fund manager says China is already contracting in spite of the 7.5% GDP report which is inflated by non-productive spending. He says the collapse will devastate the Asia-Pacific economy. Econintersect: Is it time to short Australia?
  • Housing drives construction rebound (Leith van Onselen, Macro Business) Construction in Australia had an unexpected increase quarter-over-quarter and year-over-year for the January-March quarter 2014.


Science is messy, and the social sciences are messier than the hard sciences. Research findings based on relatively new and novel data sets (like Piketty's) are subject to one set of problems - the data itself will have been less well scrutinized and is more likely to contain errors, small and large. Research on well-worn datasets are subject to another. Such data is probably in better shape, but if researchers are coming to some new and novel conclusions from it, that may reflect some flaw in their interpretation or analysis.

The closest thing to a solution is to remain appropriately skeptical, perhaps especially when the research finding is agreeable to you. A lot of apparently damning critiques prove to be less so when you assume from the start that data analysis and empirical research, like other forms of intellectual endeavor, are not free from human error. Nonetheless, once the dust settles, it seems likely that both Piketty and Giles will have moved us toward an improved understanding of wealth inequality and its implications.

  • China’s ‘Golden Era’ for Property Over, Vanke President Says (Bonnie Cao, Bloomberg) China's biggest property developer says it is shifting focus from investor properties to building for owner-occupiers. The company's president says it's approach is "cautiously optimistic" in the face of a real estate market slowdown. The China Vanke stock is down about 25% over the past 12 months.


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