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What We Read Today 10 February 2016

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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There is an extra long post today.

Topics today include:

  • Lengthy section on U.S. income inequality

    • States Where the Middle Class is Losing the Most

    • Population has Grown for Lowest and Highest Incomes

    • Labor's Share of Income Has Little Impact on Income Inequality

    • 100 years of Top 1% Income

    • Federal Taxes and Transfers Have Limited Impact on Income Inequality

    • Employee Benefits Mitigate Income Inequality Increases

  • Yellen in the Spotlight

  • Clean Power Setback from SCOTUS not Expected to Change U.S. Carbon Commitment

  • UK Industrial Production Down Sharply

  • Is Deutsche Bank the Next Lehman?

  • Confusion About U.S. Politics and Economics

  • Women Leaders Correlate with Higher Corporate Profits

  • Saudi Troops for Syria?

  • And More

Articles about events, conflicts and disease around the world



  • Bank Of America Admits The U.S. May Already Be In A Recession (Zero Hedge)  The flattening of the yield curve that customarily precedes recessions has not occurred.  This article discusses why that may be due to the Fed ZIRP (zero interest rate policy) holding shorter maturity rates at unnaturally low levels.  The following graph presents the probability of recession when the Fed policy is rmoved from the yield curve.



  • UK industrial production shrank in 2015 (The Guardian)  ‘Dismal’ December figures cap bad year for UK industry, which had shown signs of recovery in 2013 and 2014.  Britain’s industrial production fell by 1.1% in December after warm winter weather forced a sharp decline in energy output and the low oil price hit North Sea oil producers.  The manufacturing sector experienced a further fall from an already weak November, while mining and quarrying also dropped, fuelling concerns that the slowdown in the US and turmoil on global markets is undermining confidence across the UK’s major export industries.  Graphic from Bloomberg e-mail report.


  • Deutsche Bank Spikes Most In 5 Years (Just Like Lehman Did) (Zero Hedge)  Here's a popular pasttime:  Comparing current data patterns to past disasters.  As is often the case the vertical scales have been equilibrated for dramatic (if not always meaningful) effect.  In this case the decline for Lehman from the peak to the point comparable to the latest BD data was 65%.  The decline from the DB  peak has been 62%.  So the changes to this point are indeed comparable.



  • US will not rule out Saudi ground troops being sent into Syria (The Guardian)  The US defence secretary has refused to rule out Saudi Arabia sending ground troops into Syria, but added that it was just one option and there were other ways the Saudis could contribute to the fight against Islamic State.  Ash Carter was speaking on the eve of a meeting of defence ministers from 49 countries at NATO headquarters to discuss how to step up efforts against Isis in Syria and Iraq.

  • Iran warns Saudi of dire consequences should they attack Syria (Daily Nation)  Iran has warned Saudi Arabia that their troops will be wiped out in Syria if they “dare” to invade the country.


States Where the Middle Class Is Dying (24/7 Wall St)   There are many possible definitions of the middle class.  One very logical definition involves dividing incomes into five quintiles.  Then the income classes can be labelled as follows:

  • Lowest quintile:  Low Income

  • Second quintile:  Low Middle Income

  • Third quintile:  Middle Income

  • Fourth quintile:  Upper Middle Income

  • Highest quintile:  High Income

Based on income earned before taxes by the third quintile, middle class incomes in Rhode Island declined the most in the country. Incomes among middle class Rhode Island households fell by 3.1% from 2010 to 2014, while income among the state’s fifth quintile, the top 20% of state households, grew by 4.5%.  This is representative, but to a greater extent, of what has happened to the distribution of income across the U.S.  See next article.

Observations in this article about characteristics of the states with the greatest middle income losses (not all found in every bottom 10 states):

  • More regressive taxation.

  • Low or declining union membership

  • High property taxes

  • More than average employment decline

Econintersect:  However, ranking of growth in high incomes shows little correlation with the decline in middle incomes.  The ten states have an average rank of of 21 (rank 1 being the greatest high income gain).  None of the ten states ranked by greatest middle income loss ranked in the top ten for high income gain (Maine had the highest rank - 11th).  But neither did any of the top  ten states for middle income loss rank in the bottom two quintiles for high income gain (South Carolina had the lowest rank - 29th).  These observations appear to indicate that state by state the loss of middle income is not strongly associated with either (1) large high income increases or (2) general economic decline for a state.

Here are the ten states that have had the greatest middle income losses between 2010:

10.  Arkansas

9.  New York

8.  Montana

7.  California

6.  South Carolina

5.  Tennessee

4.  North Carolina  

3.  Maine

2.  Georgia

1.  Rhode Island

The American Middle Class Is Losing Ground (Pew Research Center)  Here the definition of middle class is different than in the preceding article.  Pew defines income class, not based on five equally populated groupings but  based on distribution around the national median income:  " '[M]iddle-income' Americans are defined as adults whose annual household income is two-thirds to double the national median, about $42,000 to $126,000 annually in 2014 dollars for a household of three."  Thus the population size of the middle class can change over time, and it has:


The term "hollowing out" of the middle class has been growing over the last 45 years, but especially from 1981 on.  Both the lowest income population and the highest have grown, while the lower middle and the upper middle have changed very little.  The middle class has been losing population share to the lowest income group as well as the highest.

From 1981 to 2015 the following changes have taken place in income group populations:

Lowest:  +18%

Lower Middle:  0%

Middle:  -18%

Upper Middle:  0%

Highest:  +200%


The False Income-Inequality Narrative (Jason L. Riley, The Wall Street Journal)  The author claims that "the Left" overstate the income inequality problem.  Here is an excerpt:

And all the focus on divvying up existing wealth instead of creating more risks making matters far worse for the people they are trying to help and the country in general. “To the extent that the expanding welfare state allows more people to live without working—and therefore without earning income or developing their own human capital—supporters of the welfare state are contributing to the very income disparities they so much decry,” writes economist Thomas Sowell in his new book, “Wealth, Poverty and Politics.”

The Causes of Rising Income Inequality (Laurent Belsie, NBER)  Here is the introduction:

It's one of the biggest socioeconomic questions in America today: Why is income inequality rising in the United States, especially between the top 10 percent of workers and everybody else? In Controversies about the Rise of American Inequality: A Survey (NBER Working Paper No. 13982) , authors Robert J. Gordon and Ian Dew-Becker provide a comprehensive survey of seven aspects of rising inequality that are usually discussed separately: changes in labor's share of income; inequality at the bottom of the income distribution, including labor mobility; skill-biased technical change; inequality among high income groups; consumption inequality; geographical inequality; and international differences in the income distribution, particularly at the top.

They conclude that changes in labor's share of income play no role in rising inequality of labor income: by one measure, labor's income share was almost the same in 2007 as in 1950.

The many ways to measure economic inequality (Pew Research Center)  Among the several good investigations in this study is the following 100-year graphic:

A Guide to Statistics on Historical Trends in Income Inequality (Center on Budget and Policy Priorities)  Many studies on income distribution are made on a "before-tax" basis.  This is one of the most straightforward and easy to understand among the many attempts to assess the effect of taxes and federal transfers on income inequality.


Income Inequality and Rising Health-Care Costs (Mark Warshawsky and Andrew G. Briggs, The Wall Street Journal)  Measuring cash received as income ignores the fact that some workers have employee benefit packages that should be considered in lieu of income.  This article claims that a worker who today made $30,000 in 2014 has had to forsake a 26% salary increase since 1999 because of increased employer benefit costs.  But for a worker making $250,000 a year the salary forgone for benefits increased only marginally.  Thus, part of the increase in income disparity growth can be attributed to failure to include imputed salary for more benefits expense, most particularly health care.

Other Economics and Business Items of Note and Miscellanea

  • 5 Myths Many Economists Believe (Donald J. Boudreau, Foundation for Economic Education)  Unfortunately Prof. Boudreau's list is ideologically based when we had hoped for data and facts.  He says the "myths" represent "an utter failure to grasp basic price theory".  (Theory in bold for emphasis by Econintersect.)  Here is the list:

(5) The idea that government-subsidized health care will lower the cost of health care.

(4) The notion that government must have monopoly control over the money supply in order to ensure sound performance of the economy.

(3) The belief that large differences among people in monetary incomes or monetary wealth reflect some "market failure" that ought to be "addressed" by the state.

(2) The blind faith that government officials in democratic societies can be trusted to exercise power over people who economists do not trust to make choices for themselves.

(1-b) The notion that welfare payments (other than EITC) "subsidize" employers by pushing workers’ wages lower.

(1-a) The notion that the minimum wage is, or can practically be, a boon to all low-skilled workers.

  • Donald Trump And Bernie Sanders Aren't Great Prospects For Our Economic Policy (Tim Worstall, Forbes)  Tim laments that both Donald Trump and Bernie Sanders "are economic populists and given the manner in which folk economics rather clashes with actual economics".  Econintersect:  We agree with the addition of one word in fron to economics:  neoliberal.  But then we disagree with Tim's statement that "this is not a good sign".

  • Democrats’ competing economics: Socialism v. Crony Capitalism (Communities Digital News)  The premise here is that either candidate as president will destroy the country.  Hillary will double down on the government interference practices that created the Great Financial Crisis, it says here.  And Bernie will turn the U.S. into Venzuela.  Econintersect:  Wow!  The Republicans, by omission are all saviors?  And the false premises inferred should be embarassing.  It's too bad - there are ample logical arguments to be considered - garbage like this unfortunately will influence some people without educating them in any way.  In fact demagogery is the opposite of education. 

  • New research from The Peterson Institute for International Economics and EY reveals significant correlation between women in corporate leadership and profitability (Diversity Best Practices)  Evidence from a Global Study, reveals that an organization with 30 percent female leaders could add up to 6% to its net margin. This in-depth new study analyzes results from approximately 21,980 global publicly traded companies in 91 countries from a variety of industries and sectors. 

  • New York's Chilling Global Warming Witch Hunt (Foundation For Economic Education)  The question here, not addressed by this article, is:  what is the legal boundary between a non-profit organization and a corporate lobbyist?  The article frames the perceived injustice here as follows:

New York Attorney General Eric Schneiderman is pursuing an investigation of the Exxon Corporation in part for making donations to think tanks and associations like the American Enterprise Institute and American Legislative Exchange Council, which mostly work on issues unrelated to the environment but have also published some views flayed by opponents as “climate change denial.”

Assuming the First Amendment protects a right to engage in scholarship, advocacy, and other forms of supposed denial, it is by no means clear that information about such donations would yield a viable prosecution. Which means, notes Hans Bader of the Competitive Enterprise Institute, that the New York probe raises an issue of constitutional dimensions not just at some point down the road, but right now:

A prolonged investigation in response to someone’s speech can violate the First Amendment even when it never leads to a fine. For example, a federal appeals court ruled in White v. Lee, 227 F.3d 1214 (9th Cir. 2000) that lengthy, speech-chilling civil rights investigations by government officials can violate the First Amendment even when they are eventually dropped without imposing any fine or disciplinary action.

It found this principle was so plain and obvious that it denied individual civil rights officials qualified immunity for investigating citizens for speaking out against a housing project for people protected by the Fair Housing Act.

  • Agrarian Justice (Thomas Paine)  Forwarded by Roger Erickson.


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