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What We Read Today 05 March 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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Topics today include:

  • Gender Inequality for Economists in Canada

  • China's 'Credit Impulses' Strategy

  • Brazil Hits Depths Equal to the Great Recession

  • Saudi Arabia's Strategy is Not Economic, It's Political

  • China's 'Credit Pulse' Strategy

  • Russia Faces Another Moody's Credit Downgrade Review

  • Great Britain's Greatest Economic Risk is Brexit

  • Iowa Has a Democratic Caucus Mess

  • More Primaries This Weekend

  • The Economic History of the U.S. has 4 Eras

  • U.S. Needs a New Economic Strategy and a 5th Era

  • U.S. Oil Inventories Will Continue to Build

  • And More

Articles about events, conflicts and disease around the world

U.S.

  • The U.S. Could Use a New Economic Strategy (Justin Fox, Bloomberg)  The start of the U.S. had an economic strategy formulated by Alexander Hamilton, based  on a strong federal government.  See list below.  This was followed by "the era of free stuff" with land grants to homesteaders, railroads and unencumbered rights to incorporate as a business.  For the first four decades of the 20th century there were strong interventionist policies (except for the strong countertrend of the 1920s), of which "trust busting" was emblematic, in an attempt to gain a more diverse distribution of income, wealth and economic control. In the first three decades following World War 2 the U.S. transformed into an era huge domestic and overseas investment.  Then, starting in the 1970s we entered the era of financialization which created strong trends of growing wealth and income inequality in the U.S., while emerging markets were largely pursuing the Hamiltonian economic model (see below).  The latest era may well be coming to an end so the question is (discussed here) what will come next? This article  is sort of a review of the new book by Stephen S. Cohen and J. Bradford DeLong:  Concrete Economics: The Hamilton Approach to Economic Growth and Policy.  Fox says the book doesn't actually give an opinion about what comes next; rather it is a discussion of what the elements of economic policy should focus on:  the concrete -- what works -- rather than theory and ideology.  Here are the foundations from Hamilton:

  1. High import tariffs to protect infant industries and pay for the infant government.

  2. High spending on infrastructure.

  3. The creation of a modern financial system, built around the assumption of state debts by the federal government and the creation of a central bank.

  • Five things to watch in weekend votes (The Hill)  Hillary Clinton and Bernie Sanders will square off in Kansas, Louisiana and Nebraska on Saturday and in Maine on Sunday.  For Republicans, Donald Trump, Ted Cruz, Marco Rubio and John Kasich will compete in Kansas, Kentucky, Louisiana and Maine on Saturday and in Puerto Rico on Sunday.   Minimal polling has been conducted in these states making it difficult to project.  Econintersect:  The Hill shows bias in this article; John Kasick is the only major party candidate who does not have an active hyperlink provided. 

  • Iowa Democrats reviewing some caucus precinct results (The Des Moines Register)  Iowa Democratic Party officials are reviewing results from the Iowa caucuses and making updates where discrepancies have been found.  Party Chairwoman Andy McGuire the day after Monday's caucuses said no review would be conducted, and that Democratic presidential candidate Hillary Clinton’s narrow victory over Bernie Sanders was final.  But as errors are being discovered, the final tally is being changed, party officials confirmed to the Des Moines Register on Friday.  This report was made the day after the Iowa caucuses.  See also Editorial: Something smells in the Democratic Party (The Des Moines Register).  See also next article.

  • Iowa Caucus: Clinton's Lead Over Sanders Shrinks After Audit (HNGN)  The Iowa Democratic Party conducted an audit and found discrepancies that caused Hillary Clinton's lead over Bernie Sanders to shrink from 0.27 to 0.25 percent.  These audit results were announced a week after the Iowa caucus.  The detailed raw vote counts have not been disclosed.

UK

brexit.top.risk.to.uk.economy

Saudi Arabia

What was the political gain for Saudi Arabia in forcing the price of oil to drop to perilously low levels for the oil producers? The squeeze was felt by its adversary, Iran, which is now ready to come out of its sanctions regime. But Iran had already produced its own exit from the oil squeeze. China and India continued to buy oil despite the sanctions regime, and both countries worked out innovative ways to settle payments outside the confines of the Western banking system (and the SWIFT wire networks, which had been closed off for Iran).

Low oil prices mainly struck the adversaries of the West; namely Russia and Venezuela, both of which had been busy creating alternative political worlds outside the tentacles of the West. The blow to Venezuela has been considerable, since its leftist government relied on oil revenues to finance its continental ambitions. Russia could cushion itself with increased oil sales to China, but even Russia’s exchequer suffered the decline of oil revenues and the sanctions as a result of the conflict over the Ukraine.

Russia

  • Moody’s places Russia on review for possible downgrade (MarketWatch)   Moody’s Investors Service on Friday placed Russia’s Ba1 sovereign rating on review for a possible downgrade in the wake of a prolonged decline in oil prices. The review will focus on the impact of weak oil on Russia’s economy and the government’s fiscal budget, the ratings agency said. Moody’s estimated that depressed oil prices will likely boost Russia’s debt burden by 12 percentage points over a four-year period. Oil and gas account for nearly 60% of Russia’s exports, according to the ratings agency. Along with Russia, Moody’s also placed Saudi Arabia, Qatar, Kuwait, and United Arab Emirates on review for downgrade.

China

Brazil

brazil.composite.output2007.2016.feb

Canada

  • Economic Imbalance (The Globe and Mail)  In Canada, men dominate the field of economics, and women are especially scarce in the senior ranks. There are signs of improvement, but a troubling gender gap persists and it’s ‘limiting the debate’. 

gender.split.economists.canada

Other Scientific, Health, Political, Economics and Business Items of Note - plus Miscellanea

  • Understanding Modern Portfolio Construction (Cullen O. Roche, Social Science Research Network)  For full paper go here (free membership is required).  Cullen does an excellent job of rationalizing adaptation of Modern Portfolio Construction to productive use by investment managers.  But he clearly states his recognition of the failings of the foundations of the theory (which ironically won a Nobel prize for Eugene Fama).  The fundamental flaw (one very common in economic theory) is the assumption of ergodicity for markets at a macro level.  But this paper has great value for anyone who is manging investments.  There is an interesting graphic (among several which are informative) which shows (profit contractions of 1987, 1993, 1011, 2012 and 2013) that negative earnings growth is a necessary but not sufficient condition for a recession.

Abstract:

Over the last 75 years there have been great strides in modern finance, portfolio theory and asset allocation strategies. Despite this progress the process of portfolio construction remains grounded in many theoretical concepts that can result in inappropriate or unrealistic frameworks. In this paper we provide an overview of the development of these ideas, construct a general foundation for understanding portfolio construction and produce a framework for simplifying, systematizing and streamlining the process in an attempt to establish a realistic and suitable process for portfolio construction.

corporate.profits.annual.change.1960.2015.annotations

  • 7 Signs You're the Victim of a Tax Scam (MSN News)  There are a few tax preparation services out there which conduct tax scams.  You need to remain alert because the IRS will penalize you if a fraudulent return is filed with your signature on it, even if you were unaware.  There are also scams involving phishing schemes by sources masquerading as the IRS and a few of the firms engaged in IRS debt settlement mediation.  This post has a quick to read slide show.

  • Experimental Economics: Results You Can Trust (Newswise)  Colin Camerer, the Robert Kirby Professor of Behavioral Economics at Caltech reproduced 18 laboratory experimental papers published in two top-tier economics journals between 2011 and 2014. Eleven of the 18 (roughly 61%) showed a "significant effect in the same direction as in the original study". The researchers also found that the sample size and p-values (a standard measure of statistical confidence) of the original studies were good predictors for the success of replication, meaning they could serve as good indicators for the reliability of results in future experiments.  This result compared to a previous study of experimental psychology papers which found on a 36% reproducible result for publications in that field.  Research article:  Evaluating replicability of laboratory experiments in economics (Cal Tech)  Information about article in Science, subscription required to access full paper.

  • How to Use Behavioral Economics to Invest (Bloomberg)   David Potter (Fuller & Thaler Asset Management)  discusses the theory of behavioral economics. He speaks on "Bloomberg Markets."


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