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What We Read Today 20 April 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:

  • How to Boost Economic Growth Through Competition

  • The Education of an Economist

  • A Student Criticizes Steve Keen

  • The Stagnation of New Firm Growth in the U.S.

  • The End of Work

  • Clinton and Trump Move Closer to Nominations

  • Verizon Shift from Cable to Broadband

  • Tubman to Replace Jackson

  • Brokerages Object to Regulation

  • U.S. Traffic Fatalities hve been Plummeting for Decades

  • EU Sees Google as a Utility

  • Saudis Snub Obama

  • More Pakistan Polio Killings

  • And More

Articles about events, conflicts and disease around the world

Global

  • New York Wants Foreign Banks to Hand Over Panama Records (Bloomberg)  New York state’s banking regulator has ordered 13 foreign banks to turn over information about their contact with a Panamanian law firm that helped register tens of thousands of shell companies, broadening the state and federal authorities investigating revelations related to the Panama data leak.  New York’s Department of Financial Services asked companies including Deutsche Bank AG, Credit Suisse Group AG, Commerzbank AG, ABN Amro Group NV and Societe Generale SA to provide communications, telephone logs and records of other transactions between their New York branches and employees or agents of the law firm, Mossack Fonseca & Co. The banks aren’t accused of wrongdoing.

  • Why AI won't wipe out humanity ... yet (CNBC)   Hat tip to Sig Silber.  The moment that humanity is forced to take the threat of artificial intelligence seriously might be fast approaching, according to futurist and theoretical physicist Michio Kaku.  Lack of work as everything becomes automated will possibly be a greater challenge for humanity than controlling nuclear weapons or climate change. 

U.S.

  • Clinton close to nomination prize; Trump strengthens hand (Associated Press)  Hillary Clinton, the nearly unstoppable Democrat, and Republican front-runner Donald Trump accelerated Wednesday toward Northeast primaries on an increasingly direct path to presidential nominations after trouncing party challengers in New York.  Clinton, now 81% of the way toward clinching the Democratic nomination that eluded her eight years ago, can lose every remaining contest and still prevail. Her sweeping victory in the New York primary called into question the durability of Bernie Sanders' rival campaign and left him with severely limited options for overtaking her.  While Trump strengthened his hand, he is still far from in the clear.

  • Verizon Changes the Channel on FiOS in Shift to Internet TV (Bloomberg)  Verizon Communications Inc. is plotting a new strategy for video as its slow-growing FiOS TV business looks increasingly like a costly relic of the cable era and out of step with the trend toward “skinny bundles” and streaming video.  The telecom giant sees future in broadband, not traditional cable.

  • Harriet Tubman Will Replace Andrew Jackson on the $20 Bill (TheStreet)   Harriet Tubman, famed abolitionist and Underground Railroad conductor, will soon grace the $20 bill.  Treasury Secretary Jacob Lew, according to Politico, is set to announce today that Tubman will replace President Andrew Jackson. The decision comes as a change from last summer’s announcement that Treasury would be replacing Alexander Hamilton on the $10 bill. Instead, that bill will now feature a group mural of prominent women on the back of the note, replacing the current image of the White House.

  • DOL Accused of ‘Legislation by Rulemaking’ on Fiduciary Rule (ThinkAdvisor)  The Department of Labor’s new rule to amend the definition of fiduciary on retirement advice is “legislation by rulemaking”, the former head of DOL’s Employee Benefits Security Administration told senators Wednesday, with the rule that “ultimately passed” running contrary to what Congress intended when it passed the Employee Retirement Income Security Act.  Econintersect:  The brokerage Industry believes it should not be more regulated than the used car industry.

  • Traffic fatalities in the US have been mostly plummeting for decades (Business Insider)   In a recent research report to clients, a team of Morgan Stanley analysts snuck in a small chart showing traffic fatalities in the US since 1921.  The total number of deaths each year are represented by the blue bars and correspond to the left side y-axis. Notably, fatalities in the 2010's (approximately around 35,000 per year) are far lower (by more than 1/3) than the peak around the late 1960's (approximately around 55,000 per year).  Econintersect:  We note the impact of the Great Financial Crisis as economic stress reduced miles driven and the "dividend" of low gasoline prices in 2015 as miles driven and therefore fatalities surged.

EU

  • Persistence Pays as Google's Banned Rivals Win EU Crackdown (Bloomberg)  Margrethe Vestager, the EU’s antitrust chief, sent Alphabet Inc., Google’s parent company, a formal statement listing regulators’ concerns with the company’s behavior, accusing it of striking restrictive contracts that prevent makers of tablets and phones from adding competing apps and web browsers.  Econintersect:  The EU seems poised to regulate Google as a utility, in much the way that telephone companies are.

  • Up to 500 feared dead in Mediterranean shipwreck last week (Associated Press)   As many as 500 people are feared dead after a shipwreck last week in the Mediterranean Sea, two international groups said Wednesday, describing survivors' accounts of panicked passengers who desperately tried to stay afloat by jumping between vessels.  The disaster happened in waters between Italy and Libya, based on accounts from 41 survivors who were rescued Saturday by a merchant ship, according to the U.N refugee agency and the International Organization for Migration.  The tragedy ranks among the deadliest in recent years on the often-treacherous sea voyage along the central Mediterranean by refugees and migrants from Africa, the Middle East and beyond who have traveled in droves hoping to reach relatively peaceful and wealthy Europe.

Germany

Saudi Arabia

  • Saudis snub Obama on Riyadh arrival amid growing tensions (CNN)  President Barack Obama received a chilly reception from Saudi Arabia's leaders as he landed in Riyadh Wednesday, a clear sign of the cooling relations between once-close allies amid regional upheaval and dropping oil prices.  When Obama touched down in Riyadh shortly after 1 p.m. local time, there were no kisses with the kingdom's ruler as President George W. Bush once exchanged. The Saudi government dispatched the governor of Riyadh rather than a senior-level royal to shake Obama's hand, a departure from the scene at the airport earlier in the day when King Salman was shown on state television greeting the leaders of other Gulf nations on the tarmac.  Obama is in Saudi Arabia to attend a meeting of the nations in the region. 

  • Obama Stands by Tough Words for Saudis During Meeting With King (Bloomberg)  President Barack Obama reassured Saudi Arabia’s King Salman that the U.S. is his country’s ally during a private meeting in Riyadh on Wednesday, but made no apology for recent criticism of Saudi policies and insisted that its government must learn to co-exist with rival Iran, a U.S. official said.

Pakistan

  • Pakistan polio: Seven killed in anti-vaccination attack (BBC News)  Seven Pakistani policemen, three of whom were guarding polio workers, have been killed in Karachi, officials say.  Eight gunmen on motorcycles fired at a group of three police guards and later at a van containing four officers, officials told the Pakistan Tribune.  Islamist militants oppose vaccination, saying it is a Western conspiracy to sterilise Pakistani children.  In January, 15 people were killed in a bomb attack on a vaccination center in the south-western city of Quetta.

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

  • How to Boost Economic Growth Through Competition (The Wall Street Journal)  In a report released April 15, President Barack Obama’s Council of Economic Advisers cite  evidence of anticompetitive market power throughout the U.S. economy. In most industries, the 50 largest companies control more market share in 2012 than they did in 1997. Corporate return on capital significantly exceeds the cost of capital by a large margin. Returns have risen far more for the most profitable companies than the least profitable. In a perfectly competitive market, new capital should flood into those profitable industries, driving down the incumbents’ returns.  But, says the author, boosting competition isn’t easy, though, since every market is unique and some rules can do more harm than good.  [Econintersect:  The point is that every "regulation" imposed on a market creates winners and losers.  This is a widely accepted concept.  But what is not as widely considered is that in the real world "no regulation" also creates winners and losers.  The latter is true because "no regulation" is only optimal in the hypothetical "free market".  (See next article.)]   Growing industry concentration might be used to support arguments for effectiveness of free markets; or conversely as just the opposite.  Increasing control of a market reflect benign forces such as economies of scale or network effects, or less benign forces such as mergers that should have been stopped, government regulations that suppress competition, or even broader phenomena such as aging that chip away at the entrepreneurial spirit. [Econintersect: It is likely that some combinations of these good and bad factors are present in our current economy. The challenge is to objectively characterize all the factors - and this is not easy to do when potential evaluators start with an agenda.]

largest.firms.growth.1997.2012 

  • Free market (Wikipedia)  In a truly "free market" there can be no asymmetry of information between buyers and sellers; there can be no monopolistic control of supply; there can be no debt-debtor constraints on exchange of goods and services.  The following excerpt from Wikipedia has Econintersect added emphasis:

free market is a system in which the prices for goods and services are set freely by consent between vendors and consumers, in which the laws and forces of supply and demand are free from any intervention by a government, price-setting monopoly, or other authority. It is a result of a need being, then the need being met. A free market contrasts with a regulated market, in which government intervenes in supply and demand through non-market methods such as laws creating barriers to market entry or price fixing. In a free-market economy, prices for goods and services are set freely by the forces of supply and demand and are allowed to reach their point of equilibrium without intervention by government policy, and it typically entails support for highly competitive markets and private ownership of productive enterprises.

  • The education of an economist (Asad Zaman, The Express Tribune)  The author, a faculty member at Stanford University, describes shortcomings of the education he received as a Ph.D. student at Stanford.  He says that the program consisted of developing model building skills and methods in a self-consistent manner, but did not involve examination of the output of these models against historical data.   For an example of this type of thinking, see next article.  [Econintersect: We suggest that the reason for so doing was to avoid embarrassment for the faculty.]  Here is how Prof. Zaman expresses it:

In our PhD Economics program at Stanford, we learnt nothing about the history of major economic events of the twentieth century. Instead, we were taught the rather arcane and difficult skill of building models. In order to analyse what would happen in an economy, we learnt that you have to construct an artificial economy, populated by rational robots called homo economicus, who behave according to strict mathematical laws. At no point in our studies were we asked to match what happens in our models with any events in the real world; it was assumed that the two always matched. This process of economic modelling permits us to provide exact mathematical answers to a vast range of questions one might ask about the economy. This is undoubtedly a powerful technique, which has earned economics the name “Queen of the Social Sciences”. Our poor cousins in political science, psychology, sociology, geography, and so on, have to study the more complex real world, and cannot offer anything comparable. Nonetheless, the power of mathematical modelling derives from the extremely unrealistic assumption that real world events and human behaviour can be predicted by mathematical formulae. Thus, the precise predictions of economists are often dramatically contradicted by real world outcomes.

  • A critique of Keen on effective demand and changes in debt (Severin Reissl, Real World Economics)  [Econintersect:  This is a paper that should be read very carefully by any student of Prof. Keen's empirical work on the relationships between money, credit, debt and econoimic growth.  We suggest our use of the word "carefully" should recognize that we also mean "critically".  We have reproduced the abstract of the paper below, with emphasis added.  We are especially put off by a central argument that an empirical observation can be challenged because it "lacks theoretical underpinning."]  Note:  Severin Reissl is a graduate student at Kingston University London, where he studies in a department headed by Steve Keen since September 2014.  The first appearance of this paper we have found is dated October 16, 2014 when his affiliation was listed as University of Glasgow.  It seems quite suitable for a department that self-proclaims to be "one of the few pluralist-friendly economics departments in the world" should attract a student who has challenged the work of the head of department.  Note:  This discussion has continued.  See next item below for list of links.  Here is the abstract:

In a paper for the Review of Keynesian Economics, Steve Keen recently provided a restatement of his claim that “effective demand equals income plus the change in debt”. The aim of the present article is to provide a detailed critique of Keen’s argument using an analytical framework pioneered by Wolfgang Stützel which has recently been developed further. Using this framework, it is shown that there is no strictly necessary relationship whatsoever between effective demand and changes in the level of gross debt. Keen’s proposed relation is shown not to hold under all circumstances, and it is demonstrated that where it does hold this is due to variations in the ‘velocity of debt’-variable he introduces. This variable, however, lacks theoretical underpinning. The article also comments on Keen’s proposal that trade in financial assets should be included in effective demand, arguing that this undermines the concept of effective demand itself. It is also shown that many weaknesses in Keen’s argument stem from a lack of terminological clarity which originates in his interpretation of the works of Hyman Minsky.

  • Fewer new superstar firms: another step towards secular stagnation for America (Fabius Maximus)  FM has contributed to GEI.  Economists are studying the mysterious multi-decade slowing of the US economy. One bright spot was rapid job growth in a few rapidly-growing young firms. A new study shows that since 2000 both the number of start-up firms and the number of those with very rapid growth has been declining. It’s another step on the path to secular stagnation, an economic illness which could reshape America in a bad way. When we take this problem seriously our political leaders will do so. This election season shows some signs that has begun.  See The Number of High-Growth, Job-Creating Young Firms is Declining (NBER Digest).


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