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What We Read Today 06 May 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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Articles about events, conflicts and disease around the world



“I would highlight that equity-market valuations at this point generally are quite high.  Now, they’re not so high when you compare the returns on equities to the returns on safe assets like bonds, which are also very low, but there are potential dangers there.”







  • China’s muni bond market set for takeoff (CNBC)  Hat tip to Marvin Clark.  Beijing's efforts to restructure local government debt look set to boost the size of China's nascent municipal bond market by up to twenty times.  China is in the midst of unraveling the web of local government debt in the shadow banking system and, in the process, kick start its long held plan to promote a market driven municipal bond market.

30-year Mortgage Rates History (Chart of the Day)  Here is a trip down memory lane,  Did you ever have an 18% mortgage?  We bet that refinancing was a top priority!


Fewer Americans Identify as Middle Class in Recent Years (Frank Newport, Gallup)  More discussion on this article first noted yesterday in WWRT.  Hat tip to Sig Silber.  This table shows how dramatic some of the self-identified class memberships have changed.  Since 2000 upper class has fallen by 2/3 and lower class has risen 500%.  The shifts in the middle class are huge, but not the largest in terms of relative change.

Other Economics and Business Items of Note and Miscellanea

In ‘Misbehaving,’ an Economics Professor Isn’t Afraid to Attack His Own (The New York Times)  This is an engrossing book review of a book by Richard Thaler, a professor at the University of Chicago Booth School of Business.  According to the review Thaler thoroughly dissects the inconsistencies and errors of economics over his career in the book Misbehaving:  The Making of Behavioral Economics.

Tesla's New Battery Doesn't Work That Well With Solar (Bloomberg)  Even Elon Musk's SolarCity, the biggest supplier of rooftop in the U.S., isn't ready to install Tesla's home battery for daily users.  Of the two battery sizes, 7kwh and 10 kwh, only the smaller battery can be charge recycled daily,  And Solar City says the smaller battery doesn't make sense for home solar because the excess electrity can be sold back to the grid with power bought back from the grid when needed later.  Econintersect:  For true off-grid electric large arrays of batteries will be necessary at a cost of tens of thousands of dollars.  Cost reductions for battery systems are expected to be steep in the next few years - and that is what it will take if battery storage for homes is to become used extensively. 

Brad DeLong explains what getting NAFTA wrong taught him about TPP (Vox)  Brad DeLong learned there is a lot more to trade agreements than Ricardian equivalence.  The big winners for NAFTA were in the financial sector, especially in Mexico, 

Top 25 hedge fund managers take pay cut, now average $400 million each (LA Times)  Econintersect: We should take up a collection to help with the hardship.  Oh, wait a minute, we already do.  See next article.

The Hedge Fund Managers Tax Break: Because Wall Streeters Want Your Money (Truthout)

The hedge fund managers' tax break, which is also known as the carried interest tax deduction, is different from other tax breaks in that it has no economic rationale. With most other tax breaks there is at least an argument as to how it serves some socially useful purpose. That is not the case with the hedge fund managers' tax break. This is simply a case where the rich don't feel like paying taxes and are saying to the rest of us, "what are you going to do about it?"

The hedge fund managers' tax break applies to the portion of their earnings that are contingent on the performance of their fund. It's standard for hedge fund managers to be paid a flat fee of 1-2 percent of the money they manage. In addition, they will typically get performance pay that is equal to 10-20 percent of what the fund earns above some threshold. Managers of private equity funds and real estate investment trusts have similar arrangements with the same tax break.

The portion of their pay that depends on the fund's performance is the "carried interest." It often runs into the tens of millions or even hundreds of millions of dollars. While this money is clearly and explicitly pay for the work of managing the fund, under the current tax law managers get to have this income taxed at the capital gains rate.

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