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What We Read Today 14 February 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.

This feature is published every day late afternoon New York time. For early morning review of headlines see "The Early Bird" published every day in the early am at GEI News (membership not required for access to "The Early Bird".).


Every day most of this column ("What We Read Today") is available only to GEI members.

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Jon Stewart's exit as a phony newsman is a loss to real news (Associated Press, Fairfield Daily Republic)  Phony news will never be the same.  It will go back to being just, well, phony, but for real instead of for satire.

Stewart didn’t invent satire, but he modernized it and tailored it for an information age ruled by TV and the Internet. In compact “Daily Show” segments, he struck a blow against the flabby boundlessness of cable-news and talk-network fare.

See also Bill O’Reilly On Jon Stewart: “The Left Losing A Big Thing” – So Is Bill (Lisa de Moraes, Deadline Hollywood).  Below are two excerpts from one of the famous O'Reilly - Stewart debates.  The first is 15 seconds, the second is just over 4 minutes.  For the full context see this week's Documentary of the Week.

Articles about events, conflicts and disease around the world


Race, Ethnic, Terror and Religious Issues

Islamic State







The Austerity Con (Simon Wren-Lewis, London Review of Books)  In 2010, the world switched from fiscal stimulus to austerity; in 2011, doubts about the switch began to emerge. By 2012 in the UK the actual deficit reduction started to fall short of what had been in the austerity plan projections.  And then the shortfalls accelerated.

This slowdown was not caused by the government going back on its plans to reduce its spending. Instead it largely reflected disappointing tax receipts, caused in part by an unexpected decline in real wages. Osborne could have stuck to his original deficit reduction plan by raising taxes or cutting spending further. But he chose not to. An honest chancellor would have said that the funding crisis panic of 2010 had passed so the pace of austerity could be slowed. But to do that would have been to admit that austerity was bad for growth, and therefore that Plan A had delayed the recovery. Instead Osborne chose to bluff it out, and insist that his original plan was on track.


Americans Are About to Get a Nice Fat Pay Raise (Anthony Mirhaydari, The Fiscal Times)  A summary of things covered in GEI News and GEI Anaylsis last week is viewed with a very optimistic outlook.  The JOLTS survey showed 5 million current job openings.  With the uptick in median household income at the end of 2014, expectations are for continued rising incomes in 2015.  But there are some limitations to the optimism here.  See the next article.

5 Million Job Openings, So Why Can’t You Get Hired? (Mike Cassidy, The Fiscal Times)  There are 5 million job openings (the most in 14 years) and 8.7 million officially unemployed so why aren't the jobs being filled? 

(Econintersect:  This is especially an important question when one recognizes that there are 2.25 million more people between the ages of 25 and 54 not in the labor force today than there were 10 years ago before the Great Recession - January 2005.  Adding this number to the officially unemployed means that there are potentially nearly 11 million people available for the 5 million job openings.)

Mike Cassidy addresses the questions raised above.  First he points out that there are relatively few job openings in the lower paying sectors where the unemployment is the highest (upper part of graphic below) while the openings and unemployment numbers are nearly matched in the higher paying sectors (lower part of graphic).


Another factor has to do with income distribution which has been becoming ever more "unequal".  The reason for this is the biggest percentage wages increases have been going to the highest paid jobs.  (See graph below.)  This is a reason that Steven Hansen observed this week that median income growth has been negative.


What We Know About Recessions Might Be Wrong (Noah Smith, Bloomberg View)  Smith discusses a model developed by Roger farmer of UCLA.  The model addresses the business cycle as a sequence of equilibrium positions for the macro system.  He sees human expectations driving the economy.

The economic agents in Farmer’s models are not dupes -- their bursts of optimism and pessimism become self-fulfilling prophecies. Farmer finds that this leads inexorably to a result that most macroeconomists dread -- the existence of “multiple equilibria.” A burst of pessimism can knock the economy from a good equilibrium into a bad one, and it can then stay there until a burst of optimism comes along to knock it back.

Econintersect:  It seems a fundamentally flawed restriction to assume that the economy moves through a sequence of equilibria.  Why not assume continuously variable conditions that create a economy that "flows" through time?  A train traveling from New York to Chicago can be depicted by a time sequence of snapshots ("stills").  But we do not have an accurate description of the trip until we have many, many stills taken at small time intervals.  If there is a clock in each picture then a physical description of motion can be developed.  The greater the number of stills, the more precisely the progression of the trip in time is described. 

The ultimate description is derived when the number of stills approaches infinity.  But long before one gets to that very large number of images it is likely that a much simpler flow of the train through time will be developed by a series of empirical equations involving spatial coordinates and time, based on Newton's Laws on of motion involving velocity and acceleration.  And that is where the empirical evaluation of macroeconomic conditions must go:  to a flow through time, not a sequence of steps from one "stable" condition to the next.  That leads to very arbitrary decisions about what is stable and can leave one in a Wiley Coyote condition with the road suddenly disappearing beneath the feet.

7 companies getting hammered by rising dollar (Jeff Cox, CNBC)  Companies that import commodities or do most of their business within the U.S. the rising dollars has generally been good.  But companies that do a lot of business over seas or have significant export business, it has been a big negative.  A company with $10 billion dollars of business overseas a year ago, say in the Eurozone, would have only around $8 billion in revenue this year for the same euro-value sold.  Cox highlights the seven companies below as especially hurt by the change in exchange rates.  The changes shown are for Friday trading.


Yanis Varoufakis: Greece is Finished (Naked Capitalism)  Excerpt from a June 2012 interview:

LEIGH SALES: I will. What do you think needs to happen to avert the disaster as you see it?

YANIS VAROUFAKIS: Three things, the very simple steps that need to be taken. Look, in Europe, whether it’s Greece or Spain, what we have now is we have insolvent banks that are in a deadly embrace with insolvent states. So, the states get – borrow money from the centre of Europe in order to give to the banks and banks borrow to give to the state and both banks and states are sort of locked into a deadly embrace with another sinking very fast. So what we need to do is we need to break this nexus between insolvent banks and insolvent states. So, the way to do this is to unify the banking system, to Europeanise it in the European Union and have it being funded directly not through national governments. That’s a very simple step, but it’s a step it seems too far for the European Union.

Secondly what you need is a mutualisation, a kind of common debt, like in Australia we have, you know, the Federal Government having its own debt over and above states. And thirdly we need an investment policy which runs throughout the eurozone. Because you have a secondly currency area, you need to have an investment strategy, a recycling mechanism for the whole thing. Unless we have these things, and Germany doesn’t want to have these things, I’m afraid there is absolutely nothing to avert the continuation of this slow motion derailment.

LEIGH SALES: Just to go back to Greece specifically, the politicians in Greece couldn’t even agree on the terms of a televised debate during the election campaign. How are they going to compromise on measures to fix the Greek economy?

YANIS VAROUFAKIS: They cannot fix the Greek economy. The Greek economy is finished. The Greek economy is in a great, great depression. The growing social economy is in its long, long winter of discontent. There is no power, no force within the Greek economy, with Greek society that can avert – it’s like – imagine if we were in Ohio in 1931 and we were to ask: what can Ohio politicians do to get Ohio out of the Great Depression? The answer is nothing.

LEIGH SALES: So what then happens to Greece?

YANIS VAROUFAKIS: It depends on what happens in the eurozone. Just like what happened in Ohio depended of the rise of President Roosevelt and the New Deal, unless we have a new deal for Europe, Greece is not going to get a chance. Now it doesn’t mean that if Europe fix itself, Greece will fix itself. It’s a necessary condition that the eurozone finds a rational plan for itself. It’s not a sufficient condition. Europe may fix itself and Greece, being so flimsy and malignant, may still have huge problems and never recover. But until and unless the eurozone finds a rational plan for stopping this train wreck throughout the European Union, throughout the eurozone, Greece has no chance at all.

The Daily Shot February 13th 2015 (Walter Kurtz)  Here is an interesting data snippet for Canada.  If oil doesn't recover within a year or two parts of Canada will suffer greatly, especially if average compensation in the oil producing provinces moves close to the other provinces.


Other Economics and Business Items of Note and Miscellanea

Defend life: Economics without ethics are deadly, cardinal says (National Catholic Reporter)

Uncertainty is the only sure thing in economics (The National)

RealClearMarkets Tamny: Why the Fed Needs to Be Audited (Newsmax)

Powell Continues Push Against ‘Audit the Fed’ Bill (The Wall Street Journal)

Does the Federal Reserve Need to Be Audited? (Barron's)

Rand Paul’s Fed ‘Audit’ Is a Dangerous Idea  (National Review)  His legislation is really a political move to thwart the independence of monetary policy.

Top 20 Countries for Retirement Security: 2014 (ThinkAdvisor)  U.S. is 19th.

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