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 (and sometimes longer ones) 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.
Make your kid rich for $1 a day (Paul A. Merriman, MarketWatch) This is a variation on a theme of endowing a child at birth. In this case, the parents and family save $365 a year in the child's name, invested in a small-cap stock fund. The sdavings program stops at age 18 and the investment is allowed to grow after transfer to a Roth IRA. The assumption is 12% average annual growth over the child's life, the same as the record for the last 75 years. The child would have over $200,000 a year tax-free income at age 66 (5% distribution). If that grew by 7% a year (that would be about $14,000 increase for distribution at age 67), the estate remaining at age 95 would be nearly $32 million. The same result would be obtained with a one-time investment at birth of $2,700. Econintersect: An alternative to Social Security retirement could be devised which would have the government endow each child with $2,700 at birth. The account could be invested in a diversified portfolio which would grow until age 66 (or 65, 67 or 70). At a 10% average annual return the portfolio would provide an annual income of $105,000 at age 70, or about $10,000 if deflated by 3% a year over the 70 years. This is a significant portion (almost 2/3) of the average social security retirement benefit paid today (near $15,500). The cost would be about 0.06% of GDP annually ($10.8 billion, about 4 million births per year x $2,700). To cover all of the average social security retirement benefit would take a little over $4,000 per child. To use 0.1% of GDP ($17 billion) would bring the per child endowment to $4,250. How much does our current system cost? See next article.
A Summary of the 2014 Annual Reports (Social Security Administration) The cost of the system modeled in the preceding article discussion is negligible in comparison to the current system. Even if the model above is off by a factor of ten that system would cost a fraction less than 1/4 the projections for the current system. Of course implementing the new system in 2915 would still have people entering retirement in the old system through 2090 so the entire cost projection visible in the graph below would not change. The cost curve would decline starting in 2091 and decline for the next couple of decades. The next question is how healthcare might be pre-funded and that is a more difficult question because of the future costs uncertainty.
The Single-Engine Global Economy (Nouriel Roubini, Project Syndicate) Dr. Doom wonders how long the jumbo global economy jet can run on one engine, even if it is its largest. With the rest of the world weakening that will strengthen the dollar. And a stronger dollar will slow the U.S. economy.
Home prices since 1870: No price like home (Katharina Knoll, Moritz Schularick and Thomas Steger, Voxeu.org) This study of house prices over a 130 period in 14 advanced economies shows that the big bubble was in land prices more than the houses themselves (which had a smaller bubble).
The Inside Story of Matt Taibbi's Departure from First Look Media (Glenn Greenwald, Laura Poitras, Jeremy Scahill and John Cook, The Intercept) An all-star reporting team gives the inside story of why our favorite vampire squid hunter left First Look Media seven months after joining the start-up. Note:The Intercept is a First Look Media publication.
Taibbi's dispute with his bosses instead centered on differences in management style and the extent to which First Look would influence the organizational and corporate aspects of his role as editor-in-chief. Those conflicts were rooted in a larger and more fundamental culture clash that has plagued the project from the start: A collision between the First Look executives, who by and large come from a highly structured Silicon Valley corporate environment, and the fiercely independent journalists who view corporate cultures and management-speak with disdain. That divide is a regular feature in many newsrooms, but it was exacerbated by First Look's avowed strategy of hiring exactly those journalists who had cultivated reputations as anti-authoritarian iconoclasts.
Piketty and the Crisis of Neoclassical Economics (John Bellamy Foster and Michael D. Yates, Monthly Review) The authors examine the gnashing interfaces between neoclassical economics, Piketty's work (and the rise of inequality in general), Keynes and several more recent heterodox economists. The ideas that markets solve everything and if inequality exists it is because of market forces performing magical "free" movements and exercising the determining force of marginal productivity are among the canards that are attacked in this essay. A state of denial among neoclassical economists is the conclusion of the authors. They find that there are many holes in the analysis that Piketty develops, but the data is undeniable. And the response has been, as they characterize it, incoherent. This is a long read but you should definitely read it. More than once.
Half a Century of Evidence to Fear the Fed (Mark Gilbert, Bloomberg View) The argument here is that the unemployment rate is blow the 50-year average and the initial unemployment claims are at a 14-year low (actually the chart below seems to say a 50-year low), so interest rates should be much higher. So Gilbert says that he sees the Fed moving much more aggressively on interest rates that most can imagine today. Econintersect: Gilbert's argument depends on ceteris paribus and that is a very tenuous dependency today.
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