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What We Read Today 21 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:

  • Greed Can Shrink Banks

  • Opponents of Medicaid Expansion Miss Part of the Analysis

  • Supreme Court Will Not Hear Nebraska and Oklahoma Suit Against Colorado Marijuana Legalization

  • Not All Economists Say Brexit is Bad

  • IS Attacks U.S. Base in Iraq

  • New, Smaller iPhone

  • Guidelines for Contrarian Investing

  • Helicopter Money

  • And More

Articles about events, conflicts and disease around the world

Global

  • Want to Shrink Banks? Try Greed (Bloomberg)  Splitting up Citigroup into one company focused on consumers and another focused on corporations could improve the valuation of the bank by more than half, according to KBW analysts Brian Kleinhanzl and Michael Brown, who on Monday published a long report pitching that idea.​  The analysts propose that Citigroup first sell its international consumer business and its Banamex consumer and small/medium enterprises businesses, then further split the company into Citi Consumer and Citi Corporate. While Citigroup has been actively shrinking the bank by shedding businesses around the world, this suggestion would be a much more drastic reshaping.  How about that?  Eliminating TBTF and creating value as well.  Multiple wins there. 

U.S.

  • The Economics Of Medicaid Expansion (Health Affairs Blog)   Often the opposition to Medicaid expansion is couched in economic terms, with statements about the inability of states to afford the cost of coverage. Specifically, while the Federal government pays 100 percent of the cost of Medicaid expansion for 2014 through 2016, that share falls to 95% in 2017, 94 percent in 2018, 93% in 2019, and levels off at 90% for 2020 and beyond.  The concern is that the state’s 10% share of Medicaid expansion spending could represent a significant expenditure that the state could not afford. If taxes were raised to cover the expense, those taxes would dampen economic activity and, to some extent, harm the very people the ACA is intended to help. While the magnitude of these effects is subject to debate, the notion that states must fund a portion of the costs of Medicaid expansion is correct.  But this analysis ignores the fact that most of the state expenditure goes to labor and that money is largely respent within the state, often multiple time in a year.  Other economic advantages for broader medicaid coverage are also discussed.

  • Supreme Court rejects suit against Colorado over marijuana law (Reuters)  The Supreme Court on Monday threw out a lawsuit filed by the states of Nebraska and Oklahoma against their neighbor Colorado over a law approved as a ballot initiative by Colorado voters in 2012 that allows the recreational use of marijuana.  The court declined to hear the case filed by Nebraska and Oklahoma, which said that marijuana is being smuggled across their borders and noted that federal law still prohibits the drug.  Two conservative justices, Clarence Thomas and Samuel Alito, said they would have heard the case.

  • 2nd GOP delegate says primary votes don't matter (CNBC)  GOP delegates at the convention, not primary voters or caucusgoers, choose the presidential nominee, another member of the Republican National Committee told CNBC, after a similar proclamation last week by an unbound delegate from North Dakota touched off a firestorm.  Diana Orrock, a delegate from Nevada and Donald Trump supporter, told "Squawk Box" on Monday:

"People are under the misconception that it's the results of the caucus and the results of the primary that determines who becomes the nominee. In actuality, it's the delegates at the national convention that are supposed to pick the nominee," 

  • Trump demands GOP embrace him as Dems unleash new attacks (Associated Press)   A front-runner under attack from all sides, Republican Donald Trump demanded that his party's skeptical establishment embrace the inevitability of his presidential nomination as he stormed into Washington on Monday. Democrats responded by debuting a multi-pronged assault, shifting their rhetoric and resources against the man they expect to face in a contentious and ugly general election campaign.   Trump declared at a news conference, shrugging off passionate resistance to his candidacy from both parties:

"If people want to be smart, they should embrace this movement.  I'm an outsider.  They're not used to this."

UK

  • Doom and gloom forecasts around Brexit are 'bad economics' insists Patrick Minford  (Wales Online)  Today's forecast by the CBI that a British withdrawal from the EU could lead to the loss of a million jobs has been dismissed as "bad economics" by a leading supporter of Brexit.  Prof Patrick Minford of Cardiff Business School said the study, conducted by PwC, ignored the benefits of supply side reform that would follow departure.  And he accused the CBI of practicing "antediluvian economics".

Syria

  • Syria conflict: Russia warns US over truce violations (BBC News)   Russia says it will unilaterally start using force against those violating the partial truce in Syria, if the US does not agree to joint rules by Tuesday.  A Russian general said delays in agreeing the rules were "unacceptable" and proposed holding an urgent meeting.  However, the US rejected the call, saying Russia's concerns were already being handled in a constructive manner.  The cessation of hostilities has significantly reduced the violence in Syria since it began on 27 February.  However, both the Syrian government and opposition have complained of repeated violations.

Iraq

  • Second attack on U.S. firebase in Iraq (CNN)  For the second time in three days, the first U.S. military firebase in Iraq has come under attack from ISIS. The base, known as Firebase Bell, came under small arms fire from a group of about 10 ISIS fighters who also attacked a nearby U.S./Iraqi installation at Makhmur in northern Iraq.

Cuba

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

  • Apple unveils 9.7-inch iPad Pro, 4-inch iPhone SE (CNBC)   Apple unveiled a new 4-inch iPhone, and a smaller iPad Pro during a Monday event.  The company said its new phone — called the iPhone SE — will begin at $399 for the 16GB model. The new iPad Pro model, which features a 9.7-inch display, will start at $599 for the 32GB version.  Apple's stock has fallen about 15% over the last year, but it's been on the rise since the beginning of February. Shares in the company turned negative during the event, which began at 1 p.m. ET and lasted for about an hour.

  • Clinton-style centrist economics rests on a surprisingly shaky foundation (Matthew Yglesias, Vox) A Hillary Clinton versus Donald Trump general election campaign offers the perfect circumstances for national Democrats to run on a relatively centrist, relatively business-friendly economic message. But Clinton might be the last Democrat to pull it off.  Bernie Sanders's anti-establishment insurgency is fizzling out, but the center-left economic policy consensus that dominated the administrations of Barack Obama and Bill Clinton now rests on surprisingly shaky electoral foundations. Not only is Clinton relying on older voters to beat Sanders, she's relying specifically on African-American votes and the institutional support of labor unions. Both groups have their reasons for backing Clinton in 2016, but neither is a reliable supporter of centrist economics.  This leaves Clinton personally well-positioned to win both the primary and the general election, but her approach likely doesn't represent the future policy course of the party.

  • Back To Basics: Value Investment And Behavioral Economics (ValueWalk)  Many want to be contrarian investors and make money by not following the herd.  But many paths can lead you off different cliffs than the one victimizing the lemmings.  The author discusses problems in this area.  From his introduction:

This article aims to restore our common sense in looking at the financial markets. It tries to do so by bringing in the field of behavioural economics. All generations deal with uncertainty and unforeseen events that damage or boost their economies. However, thankfully we have now a much larger body of data regarding how we perceive and deal with such events. This data is constructed under the umbrella of Behavioral Economics.

  • The Time and Place for ‘Helicopter Money’ (The Wall Street Journal)  Peter Praet, the European Central Bank’s chief economist, recently noted, “All central banks can do it. The question is, if and when is it opportune.” Richard Clarida, a Columbia University economist, predicts: “We will see a variant of helicopter money (perhaps thinly disguised) in the next 10 years if not the next five.”  What is helicopter money?  See next article.

  • What is helicopter money? (World Economic Forum)  Helicopter money is a reference to an idea made popular by the American economist Milton Friedman in 1969.  In the now famous paper “The Optimum Quantity of Money”, Friedman included the following parable:

    Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community. Let us suppose further that everyone is convinced that this is a unique event which will never be repeated.”

    The basic principle is that if a central bank wants to raise inflation and output in an economy that is running substantially below potential, one of the most effective tools would be simply to give everyone direct money transfers. In theory, people would see this as a permanent one-off expansion of the amount of money in circulation and would then start to spend more freely, increasing broader economic activity and pushing inflation back up to the central bank’s target.


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