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What We Read Today 25 October 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".).


Every day most of this column ("What We Read Today") is available only to GEI members.

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Articles about events, conflicts and disease around the world



  • Bernanke Says Yellen's Tough Decision Turns on Global Headwinds (Bloomberg)  Former Federal Reserve Chairman Ben Bernanke said weighing the effect of the slowing global economy will be key to the U.S. central bank’s decision on when to raise interest rates.  While the U.S. economy appears relatively strong, problems in the rest of the world will be getting more consideration.

  • Oklahoma Earthquakes Are a National Security Threat (Bloomberg)  Mother Nature may be the most dangerous terrorist.  North America's biggest commercial oil storage hub is already on guard against terrorism, but quakes could prove the bigger risk.

  • AP-GfK Poll: Republicans view Donald Trump as most electable (Associated Press)  Seven in 10 Republican and Republican-leaning registered voters say Trump could win in November 2016 if he is nominated, and that's the most who say so of any candidate. By comparison, 6 in 10 say the same for retired neurosurgeon Ben Carson, who, like Trump, has tapped into the powerful wave of antiestablishment anger defining the early phases of the 2016 contest.

  • The real reason we have a debt ceiling (Rodger Malcolm Mitchell, Monetary Sovereignty)  RMM contributes to GEI.  He says:

Congress and the President are aware of the dangers inherent in a debt ceiling. But like spoiled children, they continually stomp their feet and play a game of “chicken,” gambling with America’s and the world’s future, in an attempt to get their own way on their favorite issues.

The debt ceiling has nothing to do with financial prudence or with spending or with taxes or abortion or immigration or Medicare or gay rights or with our military power or whether the Cubs ever will win a World Series.

The debt ceiling exists only because of a bunch of ruthless, vindictive people, whose pay will continue even during a depression — people who could not care less about you, me or anyone else on earth — people who demand, “Give me what I want or I’ll destroy your life and the lives of your friends and loved ones and of the whole world.”

So that is the real reason we have a the debt ceiling: Bastard power


  • Migrant crisis: Emergency talks on Balkans under way (BBC News)  Leaders from several European countries are holding an emergency meeting to try to close sharp divisions on the migrant crisis in the Balkans.  A draft statement calls on countries to stop waving through migrants without the agreement of their neighbours.  Slovenian PM Miro Cerar warned that the EU would "start falling apart" without concrete action on the crisis.  But his Serbian counterpart Aleksandar Vucic played down the prospects of a deal.  Econintersect:  How much longer before there are mass cases of hypothermia?




  • Barclays to BlackRock Say the China Rebound Rally Won't Last (Bloomberg)  The rebound in Chinese equities spurred by the government’s efforts to boost growth will probably fade as the measures underscore fundamental weakness in the world’s second-largest economy, according to large investment firms Barclays Plc, Blackfriars Asset Management Ltd. and BlackRock Inc.

Bernie Sanders and the Fixed Pie Fallacy (Foundation for Economic Education)  This article, which originated with the Cato Institute, selects data showing that all five quintiles of the U.S. population have experienced after-tax income growth from 1979 to 2010 (see first graph below).  So the valid point is made that, from this data, it is not correct to say that the "rich get rich and the poor get poorer", which they say is a favorite recurring expression quoted by Bernie Sanders.  

However, this article does not discuss the rate of income growth which has been lower for the 2nd , 3rd and 4th quintiles than for the poorest (which is not necessarily a bad thing in and of itself).  The real dagger in the argument that the tide is raising all ships (not explicitly stated in the article, just implied) is that the income growth in the top quintile (only shown in segmented form) is about double the growth for the 2nd and 3rd quintiles, which has been called the hollowing out of the middle class.  

The article points out that many consumer goods, especially those based on technology or imported from Asia, have become much cheaper over the years so that today many are available even to the poor.  But it fails to mention that essentials such as food and housing have becomer more expensive.  As a result, using the years selected by the author (1979 and 2010), the percentage of people living in poverty has grown by about 25% (see second graph below).  So the lowest 20% of incomes have seen after-tax growth from 1979 to 2010, but the number of people living in poverty grew from about 25 million (~11%) to about 46 million (~15%).  So Sen. Sanders should change his snippet to "the rich get richer and the poor get more numerous".  And he might add "... while the middle class disappears".  For more on the history of U.S. poverty see Wikipedia.


Other Economics and Business Items of Note and Miscellanea

  • The Solar PV Economics Conundrum (Power)  Solar photovoltaic (PV) power has emerged as the hottest new trend in renewable energy generation, primarily because the costs of the silicon cells that turn sunlight into electricity have fallen dramatically. One of the results of that economic development has been an intense argument about how to best deploy the technology:  Distributed generation (rooftop) or centralized (solar farms).  This article painstakingly goes through the various studies that have been made.  The answer seems to be all of the above.

  • Central Banks Are Not Agricultural Marketing Boards: Depression Economics, Inflation Economics And The Unsustainability Of Friedmanism (Brad DeLong, Seeking Alpha)  The first excerpt below reconstructs the argument some have made that the Fed acts like a price control agency for money.  The argument concerns the production of excess amounts of butter (mountains of it) and milk (lakes of it).  The second excerpt is Prof. DeLong's response.  DeLong also discusses the different effects resulting from the "price control" actions depending on whether the economic environment is inflationary or deflationary.

The Federal Reserve's Open Market Committee's operations are like those of an agriculture marketing board - a government agency that sets the price for, say, some agricultural product like butter or milk. Some of what is offered for sale at that price that is not taken up by the private market, and the rest is bought by the government to keep the price at its target. And the next month the government finds it must buy more. And more. And more.   ...   Much better, the standard argument goes, to eliminate the marketing board, let the price find its free-market equilibrium value, provide incentives for people to move out of the production of dairy products into sectors where private demand for their work exists, and keep taxes low.

Now you can see that a central bank is exactly like an agricultural marketing board, except for the following little minor details:

  1. An agricultural marketing board must impose taxes to raise the money finance its purchases of butter and milk. A central bank simply prints - at zero cost - the money to finance its purchase of bonds.

  2. The butter mountains and milk lakes that the agricultural marketing board owns cannot be sold without pushing the price down below its free-market equilibrium and thus negating the purpose of the board. A central bank does not want to sell its bond mountains, but merely to collect interest and hold them to maturity, at which point they are simply money mountains.

  3. The butter mountains and milk lakes are useless for the agricultural marketing board: all it can do with them is simply watch them rot away. The bond mountain turns into a money mountain - seigniorage - which the central bank then gives to the government, which lowers taxes as a result.

So a central bank is exactly like an agricultural marketing board - NOT! They are identical - except that they are completely different.

  • How Much Will Global Warming Cost Americans? (immortal news)  This article says that if weren’t for global warming, the average income in the United States would be 36% greater come the year 2100, according to new research out of the University of California, Berkeley and Stanford University.  Econintersect:  First, the result is based on the assumption that climate affects productivity,  That is true for agriculture (and maybe a few other occupations) but the generalization is based on the observation that the most productive regions today have moderate temperatures.  As we have discussed before, it is just as reasonable to assume that the most productive people chose to live in the best climates and not that the climate is the cause of the higher productivity. Second, climate change will produce economic winners and losers.  For example, makers of cooling devices will gain business while makers of heating devices will lose some. 

  • Real World Economics: Just what would negative interest rates entail? (Twin Cities Pioneer Press)  This article explains the idea of negative real interest rates where inflation is greater than nominal interest paid.  Such occasions have happened occasionally throughout the last century.  Then the author explains some of the ways the Fed might impose negative nominal rate.  Econintersect:  This means deposits pay the bank for the "storage" of the money.  Actually, negative nominal rates could be positive real rates if deflation was greater than the negative nominal rate.  Try to wrap your head around that.  The author doesn't think the idea of negative interest rates make sense but quotes one Fed governor who has suggested them.

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