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What We Read Today 15 December 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



  • LA schools closed due to credible ‘threat;’ 640,000 students kept at home (Al Jazeera)  LA authorities defend move to shutter schools as other cities dismiss similar email threats as a hoax.

  • FAA announces drone owners must register by February 19th, 2016 (The Verge, MSN News)   Regulation of drones in the hands of civilian pilots took a big step forward today. The Federal Aviation Administration announced that all units weighing between 0.55 pounds and 50 pounds must be registered by February 19th, 2016. Anyone caught flying without proper registration after that date could face stiff penalties. The FAA says civil penalties include a fine of up to $27,500. Criminal penalties include a fine of up to $250,000 and up to three years in jail.  The registration will usually include a $5 fee, but the FAA is waiving that for the first 30 days in an effort to encourage participation. It notes that "registrants will need to provide their name, home address and e-mail address.


Click for large interactive map at The Telegraph.

Other Economics and Business Items of Note and Miscellanea

  • Self-deluding governments (The Economist)  The ability of governments toset goals and targets that are unrealistic is a problemendemic to command-and-control economies. Governments set targets from the top; bureaucrats and party functionaries know that their jobs (and sometimes their lives) depend on meeting them so the figures are massaged to meet the target. And often the wrong targets are set.  Examples discussed in this article include the Soviet Union, Argentina and Venezuela.  This article asks if China will be the next victim.

  • Janet Yellen's Goldilocks rate rise: lining up the politics and economics (EconoTimes)   Even though there exists a strong economic case for keeping interest rates near zero, Yellen took out a political mortgage which has now fallen due. Today, the logic of the NAIRU (Non-accelerating Inflation Rate of Unemployment)  now dictates a monetary tightening. To maintain her political credibility both on the FOMC and with the wider public, Yellen must begin raising rates in spite of much evidence that the traditional relationship between unemployment rate and inflation is not valid at the present time.

  • The Relationship Between Identity and Economic Theory (Swarajya)  The study of identity economics has been pioneered by Nobel  Laureate George Ackerloff and Rachael Kranton.  In economics, the concept of utility function indicates one’s preferences, that is, what one likes more and by how much. Arkelof and Kranton postulated that in addition to one’s set of actions and externalities (which the standard economics theories deal with), one’s identity also determines one’s utility function. Akerlof’s and Kranton’s model posits that a person’s identity depends on four components: (i)  his or her social category, (ii) the prescriptive behavior or the norm for the category, (iii) one’s personal characteristics matching the norm, and (iv) one’s own actions and interaction with others, based on the norms.  Ackerloff's understanding of identity was strongly influence by years spent living and working in India during the 1960s and his study of the caste system at that time.  Note:  Ackerloff is married to Janet Yellen.

  • Economics: still a job for the boys? (Tim Harford)  Economics itself is a curiously male-dominated discipline, in spite of the accomplishments of Janet Yellen (U.S. Fed chair) and Christine Lagarde (head of the IMF), who is actually a lawyer by training. There has still only been one female winner of the Nobel Memorial Prize in Economic Sciences: Elinor Ostrom in 2009 (she shared the prize with Oliver E Williamson), and she was not a mainstream economist herself.  Harford tries to rationalize how this state of affairs has arisen.

  • What low interest rates have done for the world – and the likely effects of a rise (EconoTimes)  The author sees sustainability problems with changes brought by unusually low interest rates.

  • Solving the housing crisis: the economics of Ronald Coase might have some answers (Institute of Economic Affairs)

Many think that the work of academic economists has little or no relevance to real world problems. Yet the insights of economics can show us how to resolve problems that otherwise seem intractable. A case in point is the work of one of the great economists, Ronald Coase, which shows ways to resolve planning laws and their impact on development.

There is now something of a consensus among academics and commentators that the shortage of housing (and buildings of all kinds) is one of our most pressing problems. Many others such as welfare costs and low productivity are at least partly caused by the lack of house building and the consequent high price of housing. However, this has not as yet led to any political action. The problem of course is the conflict of interest between people who want to build, buy or rent new houses on the one hand, and people who do not want new development (especially on greenfield sites) on the other. The second group have so far been able to block any action and this does not seem likely to change.

But the work of Coase shows that this deadlock is quite simply unnecessary and avoidable if we only think about it in the right way, as Mark Pennington explains. Current policy on development is shaped by conventional welfare economics, where two people engaging in a transaction can impose costs on bystanders. So a developer and a house buyer can impose costs on existing home owners and people who wish to preserve the rural environment. This is dealt with by regulations through planning laws.

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