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.
Paul Krugman to Leave Princeton in 2015 to Take Role at CUNY (Lisa Wolfson and Rich Miller, Bloomberg) This was news in February but has been put in the spotlight again today. (See next article.) Nobel Laureate Paul Krugman is leaving Princeton after 14 years to join the faculty of the Graduate Center of the City University of New York as a professor in the Ph.D. program in economics and to become a scholar at the Luxembourg Income Study Center. He will spend a year as a distinguished scholar, starting this month and assume his faculty role in August 2015.
How a 12-Year-Old Girl’s Science Project Changed the Way Scientists See Lionfish (Crystal Shepeard, Care2) A sixth grade science fair project has totally changed the way the invasive lion fish is being dealt with. Lauren Arrington discovered that the fish could live in fresh water, a question not considered by professional marine scientists. Until now, of course, as they have definitely turned their attention to the risk posed to freshwater habitats as a consequence of her middle school science project.
Three New JPMorgan IT Deaths Include Alleged Murder-Suicide (Russ Martens and Pam Martens, Wall Street on Parade) The Martens continue to follow the story of multiple premature deaths of JP Morgan employees and executives. They fold this into the estimate that the firm has as much as $180 billion in life insurance on key employees with benefits payable to the bank.
BlackRock ETFs Near $1 Trillion, But Losing Ground To Vanguard (Reuters, Financial Advisor) Blackrock iShares, with almost 40% of the $1.8 trillion ETF market ($690 billion) has a comfortable lead over second place Vanguard ($370 billion). But Vanguard is growing faster. So far this year Vanguard has added $30.3 net new ETF money compared to Blackrock's $24.7 billion. Since the end of 2009 Vanguard has increased market share from 11.7% to Blackrock has slipped from 47.7% to 38.9% over the same time period.
There are 13 articles discussed today 'behind the wall'.
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Rising to the Challenge of Stagnant US Wages (Robert Keenan, Geopolitical Monitor) Real median household income at the end of 2012 was about the same as in 1995 and 7% lower than in 1999. The official data for 2013 will not be reported by the Census Bureau until December. But average hourly wages have been rising at an accelerating rate since the second half of 2012 and this may be reflected in higher median household income for 2013 when that is announced. See next article.
Wage Inflation Is Coming (Sam Ro, Business Insider) This is repeated from yesterday (behind the wall). Sam is showing some graphs produced by Deutsche Bank economist Torsten Slok. The first purports to show that wage uptrends last for 4-5 years. Econintersect has added a red ellipse right in the middle of the graph to show that statement is not always true. The second graph suggests that unit labor costs and rates "historically have correlated so well". We have added a green ellipse right in the middle of that graph to show that the correlation is far from perfect at all times. Precedence can be a bitch! The jury must remain out on the divergences to see which precedence will be followed.
Debt settlement companies, which offer to help borrowers lower their monthly loan payments for a hefty upfront fee, have long been fraught with problems. But federal and state regulators are spotting new instances of abuse as the companies shift away from their traditional targets - credit card and mortgage debt - to zero in on student loans. The companies are coming under fire for potentially questionable tactics.
In fact we don't even know what we mean by inflation. As the Cleveland Fed entertainingly discusses, inflation originally meant expansion of (paper) currency in a manner that resulted in higher prices. But over time, that definition has widened to mean anything and everything that raises prices, not just monetary expansion. And not only consumer prices, either. We now talk about inflation in asset prices, profits and wages as well. Keynes could be blamed for this - he talked about different "types" of inflation. But it is probably fair to say that he was simply tapping into commonly-held beliefs about inflation in his time.
Walgreen Tax Inversion: Masking A Weak Business? (Jeff Bailey, YCharts) Walgreen is expected to acquire the 55% of European drug store chain, Alliance Boots, not already owned. The acquisition may be more for tax maneuvering than for improving the overall business:
In a tax inversion, a U.S. company acquiring an overseas concern essentially swaps its headquarters and taxing locale to get a lower tax rate than it enjoys in the U.S. Yes, it's legal. And it's all the rage in recent weeks as pharmaceutical companies in particular go shopping for foreign drug firms that could lower their tax rates. AbbVie (ABBV) is after Irish drug maker Shire (SHPGF) for that reason. And earlier, Pfizer (PFE) was in pursuit of AstraZeneca (AZN) to gain a lower tax rate; AstraZeneca seems to have fought off the effort for now.
This is one of the best critiques on neo-liberalism as an extreme ideology that I have read. It is long but well worth the investment in your time.
On a personal note, I have long been offended by the neo-liberal hijacking of F.A. Hayek's ideas, especially those on the relationship of central planning to the limits of information, which fit my studies of the Pentagon's decision-making pathologies like a hand fits a glove. Neo-liberals, led by Milton Freedman, have twisted them into an uber capitalist, free-market, quasi-religious dogma. Lehmann's essay is an admirable evisceration of that extremism.
The Implosion Is Near: Signs Of The Bubble’s Last Days (David Stockman, Contra Corner) There is a lot in this article which is valid. Stockman criticizes the lack of attention of "Keynesian central bankers" to financial market bubbles. (Note: There is really nothing Keynesian about ignoring money and credit in economic modeling - that is really a defect arising from those departing from Keynes which includes many so-called modern Keynesians - but let's save that discussion for another day). The lack of integrating finance into functioning models of the entire economy is a fatal flaw of mainstream economics. Stockman points to the incidence of "sub-investment grade" collateralized debt at higher levels today than in the previous "sub-prime" peak of 2007. See graph below. This is obviously of bubble proportions. Stockman correctly attributes expanded liquidity as the enabler of this bubble. But he does go a step too far when he refers to the "natural stability of financial markets". No one has a workable theory that markets are stable, or even can be permanently stable except by invoking assumptions that make them so, starting with Adam Smith and the "invisible hand". Stockman would be on much firmer ground if instead of referring to a mythical stable free market he instead pointed out how mismanagement of monetary policy can abet a larger instability than would otherwise have occurred. But, of course, even that could be criticized - Where would one get the counterfactual?
Fears of tough action by Beijing following allegation BOC launders money (Daniel Ren, South China Morning Post) Repeated from two days ago (behind the wall). This report says that the Bank of China (one of China's "big four" state owned commercial banks) has a program that enables China's wealthy to transfer unlimited amounts overseas, circumventing the official limit of $50,000 per year. China's wealthiest are not sold on the future of the Middle Kingdom - nearly 2/3 want to leave:
Rich mainlanders have increasingly been seeking to migrate, baulking at the deteriorating business climate and worsening pollution problem at home. According to the Hurun Report's survey of China's richest people, the percentage of super-rich individuals wanting to emigrate, or who had already done so, hit 64 per cent this year, up from 60 per cent last year.
What do the wealthy in China know about currency and economic risks that is being missed by others?
Neoclassical economics has since long given up on the real world and contents itself with proving things about thought up worlds. Empirical evidence only plays a minor role in economic theory, where models largely function as a substitute for empirical evidence. Hopefully humbled by the manifest failure of its theoretical pretenses, the one-sided, almost religious, insistence on mathematical-deductivist modeling as the only scientific activity worthy of pursuing in economics will give way to methodological pluralism based on ontological considerations rather than formalistic tractability.
US production may change energy landscape (Jack Malone, Futures Magazine) Total U.S. petroleum production now exceeds that of former number one producer, Saudi Arabia, for the first time since 2002. With this change the U.S. is implementing a limited lifting of the ban on crude oil exports, and as a result the traditional spread between Brent and WTI prices is likely to be reduced.
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