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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.
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Articles about events, conflicts and disease around the world
Did Austerity Work in Britain? One Chart Tells It All (Ed Dolan, EconoMonitor) There is no support in data for the 'austerity-begets-growth' theory. This is showing data for the OECD (Organization for Economic Cooperation and Development) countries. See next article for a related analysis for the Eurozone only.
Devaluation through wages in the euro zone: a lose-lose adjustment (ofce blog)This is a discussion repeated from yesterday. In fact there is a correlation between changes in wages and changes in GDP. No cause and effect definitions have been attempted here directly but the authors do make the statement "... that compresses domestic demand and is not very effective in terms of competitiveness", which implies a possible relationship since they think that austerity drives economic compression.
What really causes economic downturns? (World Economic Forum) Economic models use normal distributions to define expectations of such things as GDP (a primary parameter connected with economic growth). The bell-shaped distributions are the classical Gaussian functions for random distributions of results around a mean. What this paper demonstrates is that GDP data does not follow the normal distribution at the extremes. In the graphs below the dashed red lines define where the expected data points fall for a normal Gaussian bell curve distribution of data. The graph on the left shows that this is where the middle 90% of the data points fall (IE, the data with 5% of lowest (most negative) data points and the 5% largest (most positive) data points omitted). The graph on the right shows the scatter plot for all 100% of the data points. We see that the lowest data points deviate further and further from expected values as the data moves farther our on the tail of the curve. Ditto for the largest values, also showing large deviations from the expected distribution curve values.
The tails are "fat", and would be what Nassim Nicholas Taleb would call "Black Swan Events" that are extremely unlikely and therefore when they occur are very unexpected and damaging. There is no argument that they can be damaging but this research shows that the "swans" are not "black" but simply a variation of the commonly hued fowl and they have only been deemed improbable by faulty analysis and by making bad assumptions.
Econintersect: Our observation is that the often expressed thought that mathematics misleads economists is again and again proven to be wrong. As in this situation it is almost always a case of economists misleading (or misusing) mathematics.
Other Economics and Business Items of Note and Miscellanea
Economics professor: We're no closer to happiness than we were in the 1950s (Business Insider) Here is a paradox: At any given time the degree of happiness of an individual increases with income; Yet over time for a society degree the average of happiness fails to rise with increasing income after the very lowest income levels are exceeded. The professor has some reasonable explainations for this but Econintersect suggests that the very basis of the paradox is the false assumption that a society is a linear combination of individuals. Perhaps we should expand this discussion to examine what shortfalls the suggestion that this data demonstrates the fallacy of basing a macro description on a micro model. This is on the list for a future project.
How a bee sting saved my life: poison as medicine (mosaic) After 18 years suffering with Lyme disease, Ellie Lobel was ready to die. Then she was attacked by bees. Note: This editor has had recurring episodes of Lyme disease for more than 30 years but has been able to control symptoms when they have arisen with oral antibiotics. Some with the disease have not been able to control it with antibiotics. It is a tragedy that the U.S. Center for Disease Control officially denies the existence of the disease as a chronic infection.
General Electric stock rises strongly as company consolidates new direction (Australian Financial Review)
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