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 dayin the early am at GEI News (membership not required for access to "The Early Bird".).
Escaped Murderer Richard Matt Killed By Police After Carjacking (The Daily Beast) The lede indicates that both Matt and David Sweat attempted the carjacking but in the article the State Trooper spokesman said the last positive sighting of Sweat was at the time of his escape. So Matt acted alone? They have no idea where David Sweat is? More in next article.
Surviving inmate still on the loose after 1 escapee killed (Associated Press, MSN News) DNA evidence indicates that David Sweat was in a hunting cabin with the dead escapee Richard Matt a week ago. Stae Police say there is no evidence that the two had split up. Matt was shot when he refused to drop a shotgun and put his hands up.
Greek debt crisis: How did Greece get in this mess? (BBC News) This article focuses on complexities and deficiencies in the Greek tax system which make tax evasion all too easy. And it also mentions the need to cut back Greece's already modest income pension plans, possibly by retroactively raising retiremnt age, as well as the slow pace of privatization (Greece selling off its assets). Econintersect: This article is largely discussing symptoms. See next article for the proximate causes of the crisis.
In 2002, Greece was among the first EU members to adopt the euro. Entrance into the eurozone was contingent on Greece’s accomplishing certain reforms and demonstrating a threshold level of economic prudence. Among the requirements was to maintain a budget deficit of less than 3% and a total government debt under 60% of GDP.
Greece never even came close to meeting these targets. To make it look as if it were, Greek politicians engaged in such sleights of hand as not counting military spending as a government expenditure. But if it wanted to join the euro, Greece needed to do more. And Greek politicians weren’t about to ask voters permission to dismantle the cradle-to-grave welfare state financed by borrowed money.
To solve the problem, the government hired Goldman Sachs to help tidy up its balance sheet. Goldman created a series of currency swap arrangements using fictional exchange rates. The swaps took billions of dollars of debt off Greece’s balance sheet and allowed the country to issue far more debt than what was actually showing up in its account ledgers. Goldman used similar financial engineering to help prop up ill-fated energy trader Enron Corp., and we all know how well that experiment turned out.
What if the Greek talks fail? (BBC News) The short answer is: nobody knows what will happen. Read this aticle for some very complicated scenarios.
Doing God's Work With The Devil: Goldman Sachs' Business With Gadhafi's Sovereign Wealth Fund (Forbes) Minutes after the death of Colonel Muammar al-Gadhafi, Libya’s brutal dictator for more than four decades, images depicting his opulence surfaced on television stations across the world. But the story about the handling of the country's wealth from sale of oil is the bigger news. The Libyan Investment Authority (LIA) filed suit (and collected damages in London), claiming that Goldman Sachs abused their financial illiteracy and trust, earning $350 million in profits as the Libyans were left with losses north of $1 billion. The story unearthed by several witness statements shows the extent to which Goldman’s bankers allegedly moved to sway employees of the LIA, many of them absolute beginners, to bank with them, convincing them that they were friends and moving with absolute impunity and ease among a regime controlled by one of the most brutal killers the world has ever seen.
Russian Economy: Domestic Demand Still Weak in May (Constantin Gurdgiev) CG has contributed to GEI. He says the latest Russian economy stats should scare the pants off everyone and quotes quite a few for effect. Five months into the years and "signs of stabilisation are still quite contradictory".
Sri Lankan president dissolves parliament (Al Jazeera) More than five months after taking office, President, Maithripala Sirisena, has dissolved his country’s Parliament. Parliamentary elections will be held on August 17, while the new Parliament is scheduled to meet on September 1. The dissolution ends weeks of speculation after the President promised to dissolve Parliament 100 days after his victory in the January presidential election.
The two trilemmas today (Branko Milanovic, Global Inequality) BM has contributed to GEI. Professor Francesc Trillas asked Milanovic: How do you reconcile the Rodrik trilemma with what he kindly called the Milanovic trilemma (defined in my The haves and the have-nots). The Rodrik trilemma is diagrammed in the first graphic below. In the current political economic structure of the world only one or two of the three "institutions" can be dominant at any given time. The Milanovic trilemma is shown in the second graphic. It deals with socio-economic situations, and, again, a maximum of only two "conditions" can be dominant at any one time. Milanovic offers two summations (below) which emphasize that, although people prefer to think in terms of pure definitions, the real world is more complex and nuanced. Econintersect: And thus is understood the disfunction of politics today: Governments are run, by and large, by people with simple definitions, largely lacking in the subtleties that are actually extant in the real world. And, does economics suffer with similar limitations? We think that, to a considerable extent, that is true as many economists "think" using highly contrived models based on assumptions that often blatantly deny reality.
The Rodrik trilemma seems, at present, to have been “solved”, not by the exclusion of one out of three elements but by the redefinition of “democracy”: some of it is national, but some of it remains “lost” in global, often informal institutions, that are not subject to any democratic oversight.
In the Milanovic trilemma, a similar uneasy equilibrium exists. Movement of people is neither fully free, nor is it totally absent. It continues day after day, pressuring rich countries to wall themselves in and create enclaves closed to the poor. What the trilemmas show is that while they are useful constructs to try to understand things, reality is more complicated to be shoe-horned into the schemata. In effect, in both cases, the three cartouches that we drew above continue to exist (none has been “deleted” as we would expect in a real “solution”) but are being redefined.
Two Measures of Inflation and Fed Policy (Doug Short, Advisor Perspectives) The BEA's Personal Consumption Expenditures Chain-type Price Index for May shows core inflation below the Federal Reserve's 2% long-term target at 1.24%. The latest Core Consumer Price Index release, also data through May, is higher at 1.72%. The Fed is on record as using Core PCE data for its primary inflation gauge. Doug discusses the details of Fed rationale with a number of policy statement quotes.
Mind Boggling Chart O’ Da Month (Lee Adler, The Wall Street Examiner) Lee Adler contributes to GEI. How will this be resolved? Real durable goods sales willstart rising strongly? Well ,,, that would be nice.
7 reactions to King v. Burwell ruling (Benefits Pro) Seven insurance industry pros react to the Supreme Court ruling (6-3 Thursday) that premium subsidies are legal on the federal exchange, upholding a major tenet of the health care law that enables millions of Americans to keep the tax subsidies that help them buy and afford health coverage under the law.
Symposium: Economics beats formalism (SCOTUS Blog) A Harvard economics professor says that its not liberal vs. conservative on the Supreme Court. He says it is economic conservatives vs. formalist conservatives. There are several other excellent observations here - an excellent piece.
Economics correspondent Paul Solman sat down with Richard Thaler, who’s been called the inventor of behavioral economics, to learn about the ultimatum game. And in the process, he learned quite a bit about behavioral economics. Economic theory assumes that people make rational, selfish, and mathematical economic decisions. Behavioral economics, however, acknowledges that humans aren’t always rational. Enter the ultimatum game.
Starving Milky Way Black Hole Gorges on Companion Star (Aviation Week) V404 Cygni is at it again -- chomping away at its stellar companion, and terrestrial astrophysicists could not be more pleased. The massive Milky Way black hole, nearly 8,000 light years from earth, has not dined so spectacularly on material streaming off its companion star since 1989, the European Space Agency reports. According to Wikipedia, this event is a recurring one with similar occurrences before 1989 in 1956 and 1938. It's not quite like Old Faithful though, with the intervals measured so far being 18, 26 and 33 years. The "feeding" process is not a single event in time with the process having continued fior more than a week so far.
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