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What We Read Today 08 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:

  • The Disarray of Economics

  • When Economic Theory and Data Disagree

  • Is Raising the Minimum Wage Good Economics?

  • China Expoorts Down 25% Year-over Year

  • Global PMI Indicates Slowdown

  • Why are Japanese Buying Household Safes?

  • Kasich and Sanders have Steep Challenges in Michigan

  • Australian Dollar Rally will Supress GDP Growth

  • And More

Articles about events, conflicts and disease around the world

Global

  • Negativity - Economics Weekly (RBS)  Global growth is slowing. The latest PMI survey says that it was at an almost 4-year low in February. The Chinese Authorities have already taken action and the European Central Bank is expected to do more soon. It is perhaps little surprise that the talk of negative interest rates is spreading to these shores.

U.S.

Russia

Japan

Opting out is what is on the horizon for many who, for self-preservation reasons, can no longer continue to operate within the global financial system. Underground economies are swelling, and the need for tools to protect oneself, like a good safe, are the result of a controlling and manipulative central bank. When cash is made illegal, and permission must be given to perform even the most mundane transactions, then liberty as we know it will be dead. Unfortunately, we may already be past the point of no return.

China

  • For Beijing, Political Goals Trump Economics (The Wall Street Journal)  Once known for ruthless pragmatism, China’s leaders now avoid any pain that could hurt the party.  Both high-level economic policy-making and its practical implementation, once the preserve of the State Council headed by the premier, have increasingly fallen into the hands of Communist Party committees led by President Xi Jinping.

  • China exports post worst fall since May 2009 (Hurriyet Daily News)  China’s February trade performance was far worse than economists had expected, with exports tumbling the most in over six years, days after top leaders sought to reassure investors that the outlook for the world’s second-largest economy remains solid.  Exports fell 25.4% from a year earlier, twice as much as markets had feared as demand skidded in all of China’s major markets, while imports slumped 13.8%t, the 16th straight month of decline.  The export drop was the biggest since May 2009, but economists said it may not necessarily point to a significant worsening in economic conditions due to sharply reduced business activity during the long Lunar New Year holidays, which fell in early February this year. 

Australia

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

  • The disarray of economics (The Chronicle)  Here's another great essay by an American college undergraduate, this time Julian Keely from Duke.  Keely focuses on a problem that can possibly be epitomized by a criticism that we still see all to often when some one decides to denegrate an empirical observation because it 'has no theoretical foundations'.  There can be not better notification, in the opinion of Econintersect, that an observer should examine the empirical work closely than such an assertion.  (See also the next article.)  Here is some of what Mr. Keely wrote:

Imagine if a world-renowned biologist fundamentally disagreed with the basic theories and models underlying the core Molecular Biology course at Duke. Though it would be very worrisome, any biology major will tell you that their discipline doesn’t face such a problem. Unfortunately, as an economics major, I cannot say the same thing.

Perhaps the following analogy will help clarify. In physics, certain properties of gas—which is an aggregation of individual molecules for all those who took “Rocks for Jocks” as their NS requirement—such as entropy and temperature are concepts that are unique to the macro-level aggregation and do not apply to the constituent molecules that make up the aggregation. Similarly, in economics, a concept such as the general price level—a measure of the overall prices in an economy that is normalized relative to some base year—is a uniquely macro concept, as are all the real variables that are derived from it.

Therefore, a group of serious economists have a fundamental disagreement with the approach being taught in one of the largest economics courses at Duke. Indeed, because of their belief in the existence of concepts that lie solely in the domain of macroeconomics, they argue that many of the cause-and-effect relationships of macroeconomics are not reducible to the aggregation of individual behavior. As a result, they believe that certain ad-hoc models, such as IS-LM, are a better way to understand the economy even if they are not consistent with the micro-foundation approach.

....

This significant lack of consensus may be very discouraging for Duke’s aspiring economists. However, I would encourage them to see the bright side. While economics is far from being, and likely never will be on par with sciences such as biology or physics in terms of its explanatory and predictive power, there are enormous opportunities for improvement. Hopefully, we can play a part in bringing the “dismal science” to its brightest point yet.

  • Elegant Economic Theories Get Shoved Aside by Data (Noah Smith, Bloomberg)  Prof. Smith notes the ascendancy of "empirics and data" to a predominant position in economics journal papers.  But Smith ends up saying that both empirical observation and theory are needed in economics because of the complexity of the interactions between all of the variables, both recognized and not, that are at play in economic systems.  (Econintersect: While Prof. Smith recognizes the difficulties incumbent with using empirical observation to 'prove' economic relationships, he misses the point that often there can be use in disproving relationships by finding poor correlations.  Correlation does not prove causation; but no correlation strongly implies no causation.)  Here is some of what Smith wrote about the value of empirical observation:

In fact, the empirical revolution is already changing many policy debates, from minimum wages to immigration.

But how does empirical economics work? People in the public need to understand the basics. With all of the empirical econ results being hyped in the press (some of them by yours truly), it’s important to understand the power and the limitations of the research methods involved.

Everyone knows that you can’t put the economy in a lab and test it, like you can a semiconductor or a virus. Economics experiments exist, but they are mostly used to investigate people’s individual decision-making processes, kind of like in psychology. To see how the economy behaves in real life, we have no choice but to look out and observe the world in action.

  • Economics Isn’t Textbook: Why We Need to Raise the Minimum Wage (The Fiscal Times)  While theory can posit that workers are paid what they are worth, this article argues that wages are often determined through a bargaining process between workers and management. If there is unequal bargaining power and management has the upper hand, there is no guarantee that workers will be paid according to the value they add to the firm’s product.  And that is where some "rules'" can be appropriately applied to 'level the playing' by using legislation to establish a minimum wage.  Econintersect:  Just don't forget that any rule will produce 'winners' and 'losers'.  So the assessment of 'rules' (like minimum wage) is less well evaluated by microeconomic considerations than by determining if there is or is not macroeconomic benefit or penalty.


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