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What We Read Today 27 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".).

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Supreme Court Ruling Could Limit Medical Board Authority (Robert Lowes, Medscape Multispecialty)  State medical boards may find it harder to fence off the practice of medicine from nonphysicians — think nurse practitioners — in the wake of today's Supreme Court decision in a case about teeth whitening.  In a 6–3 vote, the high court ruled that North Carolina's dental board violated the Sherman Antitrust Act when it shut down nondentists who were whitening teeth in malls and beauty shops because the board, composed mostly of practicing dentists, was not actively supervised by the state.  Professional boards not under strict government supervision can be predisposed to protect their own professional interests.


Articles about events, conflicts and disease around the world

U.S.

UK

EU

Germany

Isamic State

  • ISIS: Christians Worse Than Murderers (The Daily Beast)  ISIS is using a harsh interpretation of a verse in the Quran to justify its attacks on Christians.  The Christian sinner is a mushrikun, guilty of practicing shirk.

Syria

Iraq

Ukraine

Russia

India

Pakistan

Brazil

Is Business School Gutting the Economy? (Natalie Kitroeff, Bloomberg)  When finance sucks talented young workers away from other industries, we all suffer, a new report shows.  Business schools basially amount to "banker factories" and little has resulted from the recent curriculum changes to "encourage entrepreneurship and socially responsible careers".  See Reassessing the impact of finance on growth (Stephen G. Cecchetti and Enisse Kharroubi, BIS Working Paper No. 381).   This paper has something which might be called a "Laffer curve for benefits from finance".  When the finance share fo GDP is low increasing it raises the "GDP growth per worker growth" (GGWG)obtained.  But once a certain point is reached further growth of finance as a share of GDP starts to reduce GGWG.  Econintersect suggests an analogy to salt:  Adding a certain amount of salt improves the taste of food but too much ruins the taste and in excess sodium chloride is a deadly poison.  See also next article.

finance.and.productivity


Why does financial sector growth crowd out real economic growth? (Stephen G. Cecchetti and Enisse Kharroubi, BIS Working Paper No. 490).  The faster the finance sector grows the slower the total economy grows.  The paper's conclusion:

In this paper, we study the real effects of financial sector growth and come to two important conclusions. First, the growth of a country's financial system is a drag on productivity growth. That is, higher growth in the financial sector reduces real growth. In other words, financial booms are not, in general, growth-enhancing, likely because the financial sector competes with the rest of the economy for resources. Second, using sectoral data, we examine the distributional nature of this effect and find that credit booms harm what we normally think of as the engines for growth – those that are more R&D intensive.  This evidence, together with recent experience during the financial risis, leads us to conclude that there is a pressing need to reassess the relationship of finance and real growth in modern economic systems.

Econintersect:  The parasite is revealed.

finance.and.productivity.2


Syriza should use the next four months to get Greek banks lending to its own government (Josh Ryan-Collins, New Economics Foundation)

A number of commentators and economists from both sides of the political spectrum have recently proposed a ‘third way’ in the shape of a parallel or complementary currency. NEF certainly supports such an approach and has been advocating parallel currencies for the eurozone since 2003. A complementary currency (or ‘-ies’) could help boost short-term liquidity by providing an alternative ‘means of exchange’ function to the euro.

But what Greece really needs – if it does stay in the euro – is more euros, the currency that its vast public debt mountain is denominated in.  At the moment, it’s not clear where such euros would come from. It would not come from government spending, since Syriza is required to run a primary surplus – in other words, save more than it spends. Even if Greece is eventually allowed to participate in the European Central Bank (ECB)’s quantitative easing (QE) program, it is unlikely to get money in to the real economy. And while Syriza is no doubt serious about clamping down on tax avoidance, the scale of the debt and the EU institutions’ refusal to write any of it off, suggests that this is not a long term solution.  Further inward investment also looks unlikely given Syriza’s plans to reverse or at least put on hold further privatisation.

Under the banking-controled monetary system that exists in most of the world today, including the Eurozone, there is a source of more euros for Greece.  The author points out that only the banks can create euros out of nothing.  The problem is shown in the graph below.  Greek banks have stopped lending, in fact have been reducing credit (money) in the economy for four years now.

But what if Greek banks lent to the Greek government?  This is the proposal that economist Richard Werner of the University of Southampton made a few years ago to solve the European sovereign debt crisis, describing it as ‘enhanced debt-management’.  If such loans were long-term contracts and not tradable (unlike sovereign bonds), the interest rates the government would pay on them would be considerably lower than it pays to borrow on international markets since governments receive, according to global Basel regulations, the lowest risk weighting of 0%. This also means the banks would need zero new capital to back these loans, enabling them to grow and rebuild the quality of their balance sheets. Eventually they would start lending normally to businesses again.

Meanwhile, the Greek government could use these loans to invest in infrastructure and capital intensive projects that Syriza has already identified as much needed. These would have strong multiplier effects that would boost employment and demand in Greece, raising tax revenues (assuming Syriza was successful in its tax collection reforms) and thus enabling it to sustainably reduce the public deficit without further damaging austerity. 

greece.bank.lending



Other Economics and Business Items of Note and Miscellanea

Nasdaq Composite Index Comes Within 11 Points Of 5,000 Milestone (International Business Times)

Economics Myths (Seeking Alpha)  Unfortunately the author not only reveals some economic myths, he then goes on to create some of his own.

Geo-economics: Seven Challenges to Globalization (World Economic Forum)

States predict inmates' future crimes with secretive surveys (Associated Press)  Penalizes the poor and the uneducated.  

Life in Prison for Selling $20 of Weed (The Daily Beast)

These 7 inventions were supposed to change the world. They failed. Badly. (Vox.com)  There is a difference between dumb fads and great changes and that is not always evident at first.  And it is possible that former flops may become future successes, as well.

Scientists discover black hole 12 billion times more massive than the sun (CNN)  Chinese astronomers have found a massive black hole formed only about 900 million years after the Big Bang (or the time that we have assumed a Big Bang occurred).  See next article.

Young black hole had monstrous growth spurt (Nature)  This very old black hole may have reached massive size through collapse of a very large gas clous rather than a single star collapse which has been considered the likely source of black holes until now.

Why is there something rather than nothing? (BBC News)  Some physicists think they can explain why the universe first formed. If they are right, our entire cosmos may have sprung out of nothing at all.  Econintersect:  Sounds like money.



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