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What We Read Today 12 January 2015

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.

Europe Stocks Gain, Asia Falls as Oil Slide, US Jobs Weighed (Joe McDonald, AP, abc News)  Asia stocks slid lower as has oil so far to start this week, but European stocks are trading higher, as are U.S. stock futures.  The U.S. dollar has strengthened against the Japanese yen and the euro.  This article was posted at 4:17 am EST (New York time).   

Survey: Minimum card payments rising (Karen Haywood Queen and Marissa Fajt,  In 2014 minimum required payments on many credit cards increased.  A new typical formula was 1% of the balance plus interest and fees or $25, whichever was larger.  In other cases the alternative minimum payment when larger was still as low as $10.  Before 2014 flat $10 minimum payments were available on some cards which kept cardholders using the minimum in perpetual, and in many cases rapidly growing, debt.

Most Americans are one paycheck away from the street (Quentin Fottrell, MarketWatch)  Hat tip to Reverse Engineer, Doomstead Diner. Here is a list of polling results Fottrell has collected:

  • Approximately 62% of Americans have no emergency savings for an unexpected $500 expense.
  • These 62 of a hundred would said they most likely reduce spending elsewhere (26%) or borrow (28%). 
  • In another survey 61% could not cover 3 months of expenses (rainy day fund).
  • 52% could not cover a $400 emergency without selling something or borrowing.
  • 82% now try to keepo a household budget, up from 60% in 2012.
  • 40% report they are poorer today than in 2007.

What kind of loans are available to these people with no money?  If they can get any credit it is likely using a credit card.  See also next article.  The following table shows current credit card rates:


How long will it take to pay off credit cards? (  Using the calculator provided here Econintersect calculated how long and how much it would take to repay a  $1,000 emergency loan for one of the folks with no other means to manage an emergency.

At 15% rate and 1% minimum balance repayment per month ($15 monthly minimum when qualified), the repayment time was 12 years with total repayments of $2,163.43.

At 23% rate and 2.5% minimum balance repayment per month (and $25 monthly minimum when qualified), the repayment time was 13 years, seven months and the total repayments would be $2,864.09.

Talk about debt slavery!

Articles about events, conflicts and disease around the world




AirAsia Flight 8501




The curious case of Brazil’s closedness to trade (Otaviano Canuto, Cornelius Fleischhaker and Philip Schellekens,  Brazil ranks last (behind 9th place U.S.) among ten of its peers in both exports and imports as a percentage of GDP.  Totaling exports and imports, the total for Brazil is 28% of GDP (the U.S. is 31%) while the average for for the six countries with a larger GDP than Bazil the average is 55% and 96% for all 176 countries in the World Bank's WDI (World Development Indicators) data base.  Looking at global geographic factors, the authors found that this "closedness" is a Latam characteristic.  The authors attribute the low values for Brazil (and the U.S.) to limited participation in global supply chains.  This is the reason that Brazil and the U.S. rank second and third globally for domestic value added in all exports and first and second for manufacturing exports only.


Rising deflationary risks in the United States (Walter Kurtz, Sober Look)  Kurtz does not think the U.S. faces the same serious deflation threat as does the eurozone, but he says

"risks of such an occurrence have increased materially. This for example can be seen in the intermediate-term market-based inflation expectations":


One of the factors that is increasing deflation concern is the recent jobs report with a one-month reading of sharply falling hourly wages.  (Caution:  Don't bet the farm on one month of data.)  Of cource commodity prices continue to decline and Kurtz discusses that as well.  See next article for more on deflation.


The global deflation shock – how big and how bad? (Gavyn Davies, Financial Times)  Davies calculates that if oil stays at $50 a barrel the US will have a brief four months this summer of (shallow) year-over-year deflation before returning to the trend level of 1.5% by the end of the year (actually in the text he says 1.5-2.0%).  But notice how little the core inflation changes in the graphs below.  This analysis seems to be exposed to ceteris paribus risk.   Davies sees a longer period (about 12 months) of slightly deeper deflation for the Eurozone, reflecting the weakened state of the 18 nation monetary union's economy.  See second graph below. 

Click for larger image at the Financial Times.

Click for larger image at the Financial Times.

Combatting Eurozone deflation: QE for the people (John Muellbauer,  Why not have helicopters drop money on people instead of banks?  That is the question that this article considers.  In fact, versions of this have been tried before and they have always worked, but only temporarily.  Most of the money delivered to the people is spent in the first two quarters and does little to raise GDP further thereafter. Is there another solution to one-time money fading? See the next four discussions.  Muellbauer reviews the positives and negatives and suggests that for the current edge-of-deflation condition of Europe the positives outweigh.  Read also Helicopter money (Stephen Grenville,

Time for a Guaranteed Income? (Veronique de Rugy,  The article quotes Cato Institute analyst Michael Tanner who says the federal government spends close to $1 trillion each year at the federal, state, and local levels on anti-poverty programs-everything from Medicaid to job training to food stamps.  That is more than $3,000 for every man, woman and child in the U.S.  Why not just hand out the money on that basis?  Everybody gets a basic subsistence allowance.  Michael Tanner has discussed variations on the theme:  The Basic Income Guarantee: Simplicity, but at What Cost? (Cato Unbound).   See also The cheque is in the mail (The Economist).

Your Government Owes You a Job (Raul Carillo, The Nation)  This is a short but comprehensive review.  The first 1/3 is below and the rest is equally well done.  When you go to the article, read the comments.  Readers say we can't afford it.  They ask how can we pay for it?  What do you think?  Can we afford it?  How could we pay for it?

Involuntary unemployment is barbaric. In the wealthiest country in history, almost 30 million people wish they had full-time work. But, as always, there aren’t enough jobs. And because economic security requires decent work, it’s unsurprising that 50 million people are poverty-stricken and 16 million children are hungry.

This is a disgrace and an economic error: the US government can easily afford a Job guarantee(JG) program, becoming our employer of last resort.

A right to a job may sound outlandish, but it’s common sense. You need dollars to eat, and unless you steal the dollars, you generally have to earn them. If the government wants to protect property with cops, courts, and prisons, issue a single, common currency, and tax and fine us in it, it should at least guarantee we can work for our own dollars. Politicians ramble about equality of opportunity and the dignity of work, but to pull ourselves up by our bootstraps, we need boots. And lest our boots stomp each other’s necks in senseless competition for too few jobs, we need a job guarantee.

A job guarantee isn’t that radical. Thomas Paine proposed one in 1791. In 1944, FDR included the right to a living wage job in his Second Bill of Rights and his Republican opponent promised state-ensured employment. The Universal Declaration of Human Rights enshrined the right to work and philosophers Rawls and Dewey advocated government provide enough work. LBJ deliberated a JG and Martin Luther King Jr., demanded one.

In 1977, the Senate proposed legislation guaranteeing employment, allowing residents to sue the US government should it fail to provide it. The litigation provision was cut, but the finalHumphrey-Hawkins Act authorizes Uncle Sam to “create a reservoir of public employment.” According to legal scholar Cass Sunstein, in 1990, an overwhelming 86 percent of respondents expressing an opinion wanted that reservoir. This January, the JG still polled high at 47 percent—even higher among people of color—despite its relative unfamiliarity.

Would a job guarantee just create dismal make-work? No. Even ultraconservative idol Bill Buckley admitted there’s always something to be accomplished. New Deal employees built dams, bridges, roads and parks. Similar efforts have succeeded in Sweden and South Africa.  Congressman Conyers has proposed creating enough public works for full employment, targeting decaying, unsustainable infrastructure.

Gender and the Job Guarantee - Center for Full Employment (L. Randall Wray, pdf)  This is a well-referenced description of the job guarantee program which would make a job available to any qualifying individual who is ready and willing to work.  It is also called the employer of last resort (ELR) program in which government promises to provide a job to anyone legally entitled to work.  See also The secular stagnation hoax (Bill Mitchell, billy blog)

The Conservative Case for a Guaranteed Basic Income (Noah Gordon, The Atlantic)  Creating a wage floor is an effective way to fight poverty—and it would reduce government spending and intrusion.  Many well-known conservatives have advanced the idea over the years.  David Frum has highlighted the idea of a guaranteed basic income, otherwise known as just giving people money.  See A Rule for Conservative Anti-Poverty Plans: Keep It Simple (The Atlantic).  Several present-day conservative leaders have suggested getting rid of a multitude of means-tested programs and substituting a general "flex-fund" release to the states for use as they see fit.  But going back in history conservatives (and some no-so-conservative) have suggested something more radical. From this article:

In any case, these ideas are circumscribed by traditional boundaries. Neither is a truly radical small-government idea alternative. But one idea that Frum highlighted is more radical: a guaranteed basic income, otherwise known as just giving people money.

The idea isn’t new. As Frum notes, Friederich Hayek endorsed it. In 1962, the libertarian economist Milton Friedman advocated a minimum guaranteed income via a “negative income tax.” In 1967, Martin Luther King Jr. said, “The solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income.” Richard Nixon unsuccessfully tried to pass a version of Friedman’s plan a few years later, and his Democratic opponent in the 1972 presidential election, George McGovern, also suggested a guaranteed annual income.

More recently, in a 2006 book, conservative intellectual Charles Murray proposed eliminating all welfare transfer programs, including Social Security and Medicare, and substituting an annual $10,000 cash grant to everyone 21 years and older.

This is why the economy has fallen and it can’t get up (Matt O'Brien, The Washington Post)  Matt O'Brien discusses aspects of Larry Summer's secular stagnation dilemma which arises because monetary policy has been unable to lower interest rates enough to get the private sector to create enough jobs to produce the potential economic output that would occur with "full employment".  The discussion does not consider any of the possible options discussed in the sections above.  For the full paper by Larry Summers, see GEI AnalysisReflections on the New 'Secular Stagnation Hypothesis'.


Other Economics and Business Items of Note and Miscellanea

Detroit auto show hails return of power and luxury (Financial Times)  Do you know anyone who bought a 6mpg Hummer during the 2008 oil crash?

"Free" tuition plan? It shows Obama needs to take Economics 101 again. (Pilot Online)

The economics of happiness can make for sad reading (The Guardian)

Only in Kentucky: Jailers Without Jails (Kentucky Center for Investigating Reporting)  Kentucky has already started a jobs guarantee program.  :-)

If we all saw the same America, perhaps we could fix it. (Fabius MaximusFM has contributed to GEI.

Real World Economics: Analysis yields gasoline tax insight (Twin Cities Pioneer Press)

Columns: The new economics (The Financial Express)  What do you do when everything is discredited?  An article from India.

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