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.
The economist who beat Thomas Piketty (Sumit Mishra, live mint) Mariana Mazzucato from the University of Sussex beat Piketty to win the inaugural New Statesman SPERI (Science Policy Research Unit) prize in political economy. Several other nominees were on the final list, as well.
Mazzucato has challenged mainstream economic thought on entrepreneurship and innovation, showing that the credit for many important innovations in society goes as much to the public sector as to private firms. When it comes to taking really big risks that can transform society, the comparative advantage lies with state-backed entities rather than private entrepreneurs backed by venture capitalists. (Econintersect: Horrors! We can hear what sounds like a lynching party forming.)
Does The Wild Truth Tell the True Story of Chris McCandless? (Alex Heard, Outside Magazine) Alexander Supertramp's little sister Carine McCandless reveals for the first time the family history that she required Jon Krakauer keep out of the book and Sean Penn not to mention in the movie about her brother's ill-fated life, "Into the Wild". This will help the many millions who have personalized the hard-to-understand life of Chris McCandless get some closure with what drove that extraordinary but flawed young man.
ObamaCare mandate challenge rejected (Molly K. Hopper, The Hill) Suit had sought to have all employer provided contraceptive coverage banned under Obamacare (Patinet Protection and Affordable Care Act of 2010).
Justice in the World (Forwarded by email from Roger Erickson without attribution)
Articles about unusual events, conflicts and disease around the world
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Economics: Account for depreciation of natural capital (Edward B. Barber, Nature) The author estimates, our economies have been trading one form of capital, Earth's riches, for another - human riches. Without accounting accurately for this trade-off, Barber says we will continue to have a false impression of economic progress and growth. That is as dangerous as flying an aeroplane into the night without navigation tools or instruments. He provides examples, including this one which involves the destruction of 1/3 of the mangroves forestation since 1970.
Emerging Market Bonds: Where Do We Go From Here? (Michael Fabian, FMD Capital) The author says recent price action in two of the largest U.S.-dollar-denominated emerging market bond index ETFs - the iShares Emerging Market Bond Fund (NYSE:EMB) and the Powershares EM Sovereign Debt Portfolio (NYSE:PCY) - indicate both funds are mired with indecision. Even so the returns year-to-date for these two funds is around 9%, among the best for credit-weighted indices. Fabian says more aggressive investors should consider these two funds as a play for a slowing (or reversal) of the trend to a stringer dollar. He suggests more conservative investors look at the newly launched DoubleLine Emerging Markets Low Duration Bond Fund (NASDAQ:DELNX). This reduces interest rate risk by with shorter maturity holdings but still picks up if the dollar stops strengthening.
Retirement Strategy: Annuities Vs. Dividend Growth Investing For A Lifetime Income (Alan Saltzman, Regarded Solutions, Seeking Alpha) Saltzman presents a strong argument that annuities are a poor choice as the major portion of a retirement account. However, he does not discuss if there is any value in a position as part of a portfolio. He also does not examine the case where the annuitant may outlive his actuarial life expectancy by many years.
A retirement planning scenario might evaluate a portfolio defined in three parts: (1) to maximize returns over life expectancy; (2) to maximize returns over life expectancy minus 10 years; and (3) to maximize returns over life expectancy plus 10 years. For a person age 60 such an analysis may have more value than for a person age 80. The analysis should compare average expected returns with worse case.
Without doing the detailed work I am guessing that there can be some attractive solutions for the younger person (age 60) that would involve 60-70% in part (1); 15-25% in part (2); and (15-25%) in part (3). I will reemphasize considering worst-case scenarios. Those who had some of their assets in annuities were very happy campers during the years 1927-1931, 1999-2002 and (not shown on graph) 2007-2009. My clients who had 20-30% of their personally controlled investment assets in fixed annuities during the 2008-09 crash (and some with defined benefit pensions, as well) were much more easily persuaded to be more aggressive with investments from the end of 2008 forward than were those who did not have such allocations (or pensions). As a result those with some annuities in their portfolio traversed the Great Financial Crisis in much better fashion and have increased wealth much more since than those with narrower portfolios. These people were all receiving similar advice (from me) but reacting differently.
PBoC's Targeted Approach Addresses Credit Risks: Capital Economics (RTT News) Peoples' Bank of China is maintaining high liquidity levels but is slowing the rate of growth of credit in the banking system according to the latest data released for the middle of November. But what about the shadow banking system which has been growing rapidly? See next two articles.
Huge growth in China’s shadow banking system (Douglas Lyons, World Socialist Web Site) China's shadow banking sector has rapidly burgeoned and now ranks as the third largest in the world, according to a report issued last month by the Financial Stability Board (FSB), which was created by the G20 economies in the aftermath of the 2008 global financial crisis. Some analysts think that some of the shadow banking activity in China is actually real banks running "off-the-books" activities. The shadow banking system is now estimated to be at least 20% the size of the official banking system. For additional reporting see Reuters.
China's economy experiencing 'period of pain': vice minister (Jane Wardell, Reuters) China's Vice Finance Minister Zhu Guangyao told reporters at the G20Leaders Summit in Australia that China's economy is going through a "period of pain" as authorities try to shift it toward slower, more sustainable growth, with the rapid expansion of its shadow banking sector a major problem.
Forget the 1% (The Economist) The conclusion a new paper by Emmanuel Saez and Gabriel Zucman is that previous studies of wealth accumulation in the U.S. have seriously missed the mark. Previous work has estimated that wealth is only gradually increasing in inequality. Using more complete income tax data and analyzing the distribution groups differently, Zucman and Saez have found that wealth inequality is not gradually rising but is approaching record levels. Previous studies have concentrated on the top 1% but to see the rapid steepening of the wealth growth curve one needs to look at smaller slices: Growth in the top 0.1% is the majority of the growth for the entire top 1% and most of that is actually in the top 0.01%. And the change of wealth for the bottom 90% has occurred mostly from 50% to 90% (the middle class); the bottom 50% had little wealth in the past and that has not changed. The wealth of the 90% to 99% has been little changed for several decades so that provides a unique context for interpreting the graph below: This is a demonstration of the transfer of wealth away from the middle class and toward the 0.1% elite (and especially the 0.01% oligarchy starting between the late 1970s and the mid 1980s. For those who have access to National Bureau of Economic Research: Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data (Emmanuel Saez and Gabriel Zucman, NBER Working paper No. 20625)
John Maynard Keynes Is the Economist the World Needs Now (Peter Coy, Bloomberg Businessweek) Keynes figured it out and many have either ignored it or forgotten. This is an excellent review of Keynes and the bastardization of his work that has occurred over the last half century (and more). At the heart of Keynes thinking is a simple comparison:
An essential and enduring insight of Keynes is that what works for a single family in hard times will not work for the global economy. One family whose breadwinner loses a job can and should cut back on spending to make ends meet. But everyone can't do it at once when there's generalized weakness because one person's spending is another's income. The more people cut back spending to increase their savings, the more the people they used to pay are forced to cut back their own spending, and so on in a downward spiral known as the Paradox of Thrift.
So far the Great Recession and recovery have been far kinder to the U.S. that the Great Depression was. But Coy quotes economists who think the story is not yet over - we could be at a 1937 moment about now. What would Keynes say about that?
Other Economics and Business Items of Note and Miscellanea
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