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What We Read Today 21 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

  • Seven of the world’s riskiest roads (BBC Travel)  In many cases, these routes are less travelled for a reason: they feature terrifying drop-offs, unpredictable mudslides and a complete lack of concrete paving. Yet people still go.

U.S.

The number of U.S. households that spend at least half their income on rent—the "severely cost-burdened," in the lingo of housing experts—could increase 25 percent to 14.8 million over the next decade. More than 1 million households headed by Hispanics and more than 1 million headed by the elderly could pass into those ranks. Households shouldn't spend more than 30 percent of income on housing, by the general rule of thumb.

The grim figures come from a report out today from Enterprise Community Partners, an affordable-housing nonprofit group, and Harvard’s Joint Center on Housing Studies. To reach their conclusions, the researchers considered various scenarios for wage and rent growth over the next decade.

  • Congress hurtles toward shutdown fight over Planned Parenthood funds (Al Jazeera)  Some conservative lawmakers want to tie defunding provision to budget bill needed to keep government open past Oct. 1.  If they succeed in passing such a bill and the senate passes it (considered unlikely) then Pres. Obama would likely veto the amended budget and the Republicans could claim the the president shut down the government.  If the Senate fails to pass it that would likely happen with Democrats blocking the 60 votes needed to stiop filibuster and bring it to a vote (60 votes needed),  In that case the Republicans would argue that Senate Democrats shut diown the government.
  • Plan to admit more refugees faces stiff opposition in Congress (Reuters)  

White House plans to allow thousands more refugees into the United States faced stiff opposition on Monday in the U.S. Congress, where Republican lawmakers demanded the right to review, and reject, the effort, citing fears of terrorism.  Secretary of State John Kerry on Sunday announced an increase of 15,000 per year for the next two years in the number of refugees the country takes in. He did not say how many would be from Syria.  Under current law, Congress does not have to approve the Democratic administration's plan. But the House of Representatives and Senate, both controlled by Republicans, would have to appropriate money to pay for any additional effort.

As a former trader and someone who taught younger traders how to trade, Janet Yellen's inability to 'pull the proverbial trigger' on interest rates potentially appears to be a psychological barrier that many failed traders also faced.

As with trading, a decision to move or not move on interest rates comes down to the ability to interpret trends, understand momentum, understand risk and reward, factor in outside influences and then utilize leadership and decision making prowess to act.

Act, while understanding that all of the stars will never line-up and that when making a decision there is the risk of being wrong. And being wrong, while not the preferred outcome, is okay if the factors said that you were taking a well educated chance.

new.mexico.hurricane

EU

Hungary's PM has said Europe's borders are threatened by migration, at the start of a week of intense diplomatic activity on the crisis.  Viktor Orban said migrants were "breaking the doors" and that a united stance was required.  Ministers from Poland, Hungary, the Czech Republic and Slovakia met to discuss an EU proposal for quotas, which they oppose.

UK

Germany

Volkswagen (VOWG_p.DE) shares plunged by nearly 20 percent on Monday after the German carmaker admitted it had rigged emissions tests of diesel-powered vehicles in the United States, and U.S. authorities said they would widen their probe to other automakers.  German officials, alarmed at the potential damage the scandal could inflict on its car industry, urged Volkswagen to fully clear up the matter and said it would investigate whether emissions data had also been falsified in Europe.  The U.S. Environmental Protection Agency (EPA) said on Friday the world's biggest carmaker by sales used software for diesel VW and Audi branded cars that deceived regulators measuring toxic emissions and could face penalties of up to $18 billion.

Greece

  • Triumphant Tsipras returns to fight for Greek economy, debt relief (Reuters)   Alexis Tsipras took the oath of office for a second term as Greek prime minister on Monday, promising to revive the crippled economy while demanding debt relief from creditors as his "first big battle" following an unexpectedly clear election victory.  The firebrand leftist solidified his position as Greece's dominant political figure in Sunday's election, but faces a dauntingly long "to do" list that includes implementing austerity polices and dealing with migrants landing on Greek shores.  Voters gave Tsipras and his Syriza party the benefit of the doubt over a dramatic summer U-turn, when he ditched his anti-austerity platform to secure a new bailout and avert 'Grexit', a Greek exit from the euro zone.

Another sign that things are going horribly wrong in three of the world's largest economies (Linette Lopez, Business Insider)  Crashing commodity prices are crushing commodity esporting nations.  In the first six months of the year, the market in Russia has dropped by 70%, Brazil by 36% and China by 47%.  Well, China is not a commodity exporter but finished goods exporter and it is sufferiing from overexpansion in recent years and a global slowdown now.

commodityprices.past.12.months

Other Economics and Business Items of Note and Miscellanea

  • Are Markets Immoral? On Popes, Pencils, and Chicken Sandwiches (Foundation for Economic Freedom) Prof. Donald J. Boudreaux, Prof. of Economics, George Mason University, is absolutely correct (Econintersect opinion for that statement and in what follows) that markets are deeply moral - provided they are "free".  That's a huge condition to impose when evaluating the modern world where almost everyone is who is succeeding is doing so at the expense of someone else.  Modern markets are all about establishing a superior position so that you can force your terms on someone else.  It may be that Prof. Boudreaux would argue that establishing "market control" is a natural aspect of comparative advantage, of which he is prominent supporter.  See his articles:  Comparative Advantage (Librarry of Economics and Liberty) and his videos (one is presented below).  See also next article.  The morality that Prof. Boudreaux argues for is based on assumptions that render the result of his arguments less than all-encompassing generalities.  Econintersect would suggest this discussion would have a parallel with the following one:  (1) Assume unicorns exist; (2) Unicorns are the most beautiful animals in the world.

 

  • Fatal Flaws in the Theory of Comparative Advantage (American Economic Alert)  Ian Fletcher lists and discusses in deatil the assumptions required for the David Ricardo Theory of Comparative Advantage to apply.  See also next article.  Here is the list (and Fletcher's conclusion excerpted) - follow title link for the discussion:
  • Assumption #1:  There are no externalities.
  • Assumption #2:  Nations trade only goods and services, not debt and assets.
  • Assumption #3: Factors of production are domestically mobile. 
  • Assumption #4:  Factors of production are not internationally mobile.
  • Assumption #5: Long-term growth is caused by short-term efficiency.
  • Assumption # 6:  There are no economies of scale.
  • Assumption # 7:  There is no cross-border investment

The dissection of the foregoing list of assumptions should make clear that while the theory of comparative advantage is a valid and useful tool of economic analysis, it is not the only point that economics has to make about who wins and who loses in international trade.  It is simply not valid, even according to the theory itself, to use it as a rubber stamp to “prove” that 100% free trade 100% of the time with 100% of the world’s nations is good for America.   That would only be true if all of the above assumptions were satisfied in reality, and they don’t even come close.

In fact, the current form of globalization means that they get further away from being satisfied every day.  In the 1950s, when these assumptions were much closer to reality, free trade may have been a winning move for America, but those days are long gone.  It is free traders, not protectionists, who are living in the past and sticking their heads in the sand. 

  •  The Case Against "Free" Trade (Ian Fletcher, YouTube)  Karl Marx came out in 1848 in support of free trade because he viewed a high-wage economy via protectionism as a mortal threat to communism. As economist Ian Fletcher explains, the founding fathers set up a protectionism economic system that we had until WWII. However back in the 1800s there was a group that wanted a free trade economic system, we had a big war over that.

 


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