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What We Read Today 14 September 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

Global

  • The World Really Could Go Nuclear (Scientific American)  The author argues that nothing but fear and capital stand in the way of a nuclear-powered future.  He says that all fossil fuel plants could be replaced with nuclear electrical power gereation in a "little over 30 years".  But the article does mention that cost is an obstacle (using U.S. data): "nuclear power cannot compete in some states with the cost of electricity generated from cheap natural gas and cheap wind power".  Econintersect:  The study reported (and this article) does not address three things:  (1) The costs and environmental risks of nuclear waste are not discussed; (2) the costs of solar photovoltaic energy are about the same as natural gas and wind that were mentioned (and solar is projected to see costs below both of those within 2-3 years); and (3) possible other low-cost non polluting energy sources such as tidal flows are also not considered.  Nuclear power may not be an economically competitive energy source before we even consider environmental risks.  For details of the nuclear power study see Potential for Worldwide Displacement of Fossil-Fuel Electricity by Nuclear Energy in Three Decades Based on Extrapolation of Regional Deployment Data (PLOS One) to be published in GEI Analysis within a week.

U.S.

  • Corporate inversions:  Why are companies leaving the US? (Offtax.com)  A corporate inversion is a deal in which a US company acquires or merges with a foreign one (that operates a similar line of business) and shifts its domicile abroad to benefit from a more favourable tax regime there. Thus, a company previously incorporated in the US becomes newly incorporated in a foreign country while retaining its material operations in the US.  Econintersect:  This process, which the U.S. has made efforts to limit, but has not eliminated, is another manifestation of the "Monopoly Game" that has become the modern incarnation of Capitalism.  "Society" is not in the vocabulary;  all benefit is measured within the insular confines of a balance sheet and a cash flow statement.  In this isolation all activity is measured in term of "instant gratification" for the corporation.  And, as in the game Monopoly, there can ultimately be only one winner which then must collapse because, once there is no one else to "win" from, the game is over.
  • Scott Walker sets sights on unions, outlines plan to alter US labor law (Al Jazeera)  Presidential hopeful vows to eliminate federal labor board, institute nationwide right-to-work.  Republican presidential candidate Gov. Scott Walker of Wisconsin intends to curtail the power of the labor movement through a series of dramatic legal reforms, according to a white paper released by his campaign on Monday.  He forged his national reputation by winning a series of high-profile battles with unions in his home state. Walker limited public employee collective-bargaining rights and instituted a statewide right-to-work regime. The white paper is his first blueprint for how he would impose similar measures nationwide.
  • Gaps in Earnings Stand Out in Release of College Data (The New York Times)  On Saturday, the federal government released a huge new set of data in a website called College Scorecard, detailing the earnings of people who attended nearly every college and university in America.  Some colleges have median incomes below the level for high school graduates 10 years after graduation - Economically those colleges were a huge waste of student (and parents) money.  And the gender gaps are evident, with greater gaps for the most elite univeristies.

gender.gap.nyt.1gender.gap.nyt.2

EU

  • Q&A: Can a Divided Europe Handle the Refugee Crisis? (ProPublica)  Laura Boldrini, the president of Italy’s Chamber of Deputies, has unusually strong credentials to discuss the immigration crisis gripping Europe. She worked for a quarter century at United Nations humanitarian agencies, serving as spokeswoman in southern Europe for the U.N. High Commission on Refugees.  She says that deaths at sea and a chaotic refugee influx reflect the failure of European Union leaders to settle on a common immigration policy.
  • Migrant crisis: More EU states impose border checks (BBC News)  More EU countries have said they are imposing border checks to deal with an influx of migrants.  Austria, Slovakia and the Netherlands said they would tighten controls, hours after Germany imposed checks on its border with Austria.  It came as EU interior ministers held emergency talks in Brussels.  See also articles under Germany and Hungary, below.

UK

  • Was Tom Hayes Running the Biggest Financial Conspiracy in History? (Bloomberg)  Or is he just taking the fall for one?  Hayes has been sentenced to be imprisoned for 14 years, a sentence at the very highest end of the spectrum for white-­collar criminals in the U.K.   Econintersect:  We see this situation as highly ironic (they got that crooked trader but non of the executives who profited from his actions), especially when one considers what the the judge said at sentencing:

“What you did, with others, was dishonest, as you well appreciated at the time.  What this case has shown is the absence of that integrity which ought to characterize banking.”

Germany

  • Migrant crisis: What next for Germany's asylum seekers? (BBC News)  Germany has become the preferred destination for thousands of people reaching Europe in search of a better life.  Some 450,000 asylum seekers have entered Germany already this year and up to a million are expected in 2015 - by far the most in the EU.  The government in Berlin has broadly welcomed refugees, relaxing EU rules so that it no longer sends back Syrians to other EU countries.  But it introduced temporary border controls on Sunday after admitting that its capacity had been stretched to the limit.  Until now, the federal government has insisted it can cope with the high numbers of asylum seekers but wants the burden shared between EU countries.  Authorities have been giving assistance to new arrivals at stations in Munich and other German cities before taking them to reception centers.  But with arrivals recently reaching as high as 20,000 per day Germany feels it necessary to spread out the flow over more time just to manage the settlement of refugees at the most basic level.  

Hungary

  • Hungary closes border, rushes to finish fence ahead of crackdown (Al Jazeera)  Hungary closed the main entry point on its border with Serbia on Monday after a record number of refugees surged into the country, racing to enter the European Union amid a dramatic tightening of border security.  Workers also rushed to complete a 13-foot-high steel fence on the Hungary-Serbia border as police rounded up arriving refugees and ushered them onto waiting trains and buses that took them directly to the Austrian frontier.  Hungary's prime minister says Tuesday will be the beginning of a ‘new era’ in the refugee crisis as the country hopes to "close the door".

Syria

  • Russia positioning tanks at Syria airfield: U.S. officials (Reuters)  Russia has positioned about a half dozen tanks at an airfield at the center of a military buildup in Syria, two U.S. officials said on Monday, adding that the intentions of Moscow's latest deployment of heavy military equipment were unclear.  Moscow has come under increased international pressure in recent days to explain its moves in Syria, where the Kremlin has been supporting Syrian President Bashar al-Assad in a 4-1/2-year war.

China

  • China's Stocks Decline Most in Three Weeks on Slowdown Concerns (Bloomberg)  China’s stocks slumped the most in three weeks as data over the weekend added to concern the economic slowdown is deepening and traders gauged the level of state support for equities.  The Shanghai Composite declined 2.7%, although midday lows were -4.7%. A gauge of 100-day volatility in Shanghai climbed to its highest level since 1997 last month, while turnover sank to a six-month low last week.
  • Great Wall of China gets degraded (Al Jazeera)  Thirty Percent of the iconic treasure no longer exists. Sohail Raham reports on what is being done to preserve the rest.

Australia

  • Malcolm Turnbull Defeats Tony Abbott to Become Party Leader and Prime Minister of Australia (The New York Times)  Malcolm Turnbull, a former investment banker and lawyer, was poised to become the prime minister of Australia on Monday night after defeating Tony Abbott in a vote of Liberal Party lawmakers.  Mr. Turnbull, 60, is a moderate Liberal whose views, most recently on same-sex marriage, had conflicted with those of Mr. Abbott, 57. The Liberals, despite their name, are the more conservative of Australia’s two major parties.  The new prime minister is likely to be more open to the outside world and less conservative in approach than Mr. Abbott.  For example, he is more concerned with climate change than the ousted Abbott.


How can so many Analysts attack the Minimum Wage with a straight face? (Serban VC Enache, Twitter)


“You Only Have to Be Right Once” (5 Min. Forecast)  Things changed six weeks ago:  Diversification evaporated.  Stock market correlations experienced a discontinuity.  Higher positive correlations are a negative for market advances and sudden increases in correlations are a warning signal.  For exhaustive research on this see Long/Short Market Dynamics: Trading Strategies for Today's Markets (Clive Corcoran).

correlation.discontinuity


This is the chart that has Robert Shiller seriously worried about the stock market (Myles Udland, Business Insider) Both individual and institutional investors have less confidence in stock valuations now than at any time during the Great Financial Crisis and the Great Recession that followed.

valuation.confidence.2015.sep.14


Can We Restart This Recovery All Over Again? (John Taylor, Economics One)  This discussion was prompted by:  4% Economic Growth? Yes, We Can Achieve That (Andrew Atkeson, Lee E. Ohanian and William E. Simon Jr, Investors Business Daily).  Both articles argue that "growth policies" are needed to close what has been called the output gap.  Aside from generalizations that the policies would improve regulation (less disruptive) and increase employment participation and productivity, nothing is specifically suggested.  The problem, though is clear, shown in the graph below.  the growth rate from before the Great Recession has been resumed without a period of high growth to return to the higher (blue) trend line.  The graph is two years old, but, as Taylor points out, nothing has changed in two years so the dotted hypothetical possibilities can simply be advanced two years.

output.gap

Other Economics and Business Items of Note and Miscellanea

  • The microeconomics model of residual demand describes the decisions of oil producers very accurately, and can be used to anticipated producers' reactions to changes in the market.
  • The residual demand model shows that it does not make sense for individual producers to cut production unless they believe that others will cut as well.
  • Both U.S. shale producers and OPEC nations are unlikely to cut production due to the need to cover costs and their ongoing fight for market share.
  • Without production cuts from either of these two groups, oil prices will not recover significantly above their current levels.
  • Health, Economics, And Preparedness: Considerations And Paths Forward (Health Affairs Blog)  The economic and health impacts of disasters are significant. One Health Affairs study estimated that six recent U.S. climate change-related events cost approximately $14 billion, with the vast majority of those costs (95 percent) attributed to premature lives lost. In 2015, the U.S. Congress appropriated $5.4 billion in emergency supplemental funding to respond to the Ebola outbreak domestically and internationally. At a local level, the economic impact of disaster is also devastating, reaching far beyond the direct cost of treating victims, as illustrated by the decline in revenues of Texas Health Presbyterian Hospital after their response to the first U.S. Ebola patient.
  • Economists versus economics (Live Mint)  The author presents what Econintersect would suggest is a powerful argument for empirical economics rather than theory and modeling,rather than the conclusion he draws about a need to "figure out which model applies best":

Economics is not the kind of science in which there could ever be one true model that works best in all contexts. The point is not “to reach a consensus about which model is right”, as Romer puts it, but to figure out which model applies best in a given setting. And doing that will always remain a craft, not a science, especially when the choice has to be made in real time.

  • Why do we move forwards in time? (New Scientist)  Time goes by, or so it seems. It could be an illusion, or we might need to rescue the flow of time by meddling with our concept of space.  Consider the contradiction of the term "flow of time".  How do we measure physical flow?  So many units of "space/matter" changing per unit of time.  So how does a unit of time per unit of time make any sense?  It doesn't (except for the physical parameter of acceleration), and hence the idea that time is an illusion of our inadequate conception of space.  (Full article requires subscription.) 
  • Modern-day alchemy is putting the periodic table under pressure (New Scientist)  Almost all of the matter in the universe exists under conditions of temperature and pressure that are not compatible with the chemical elements we know on earth and have organized in a periodic table.  Those elements are transformed under the huge pressures far underground and within stars. Harnessing this extreme chemistry could yield astonishing new technologies.  (Full article requires subscription.) 

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