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What We Read Today 15 May 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".).


Every day most of this column ("What We Read Today") is available only to GEI members.

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Topics today include:

  • Young Black Unemployment Dramatically Worse than Others

  • Is Trickle-down Economics a Pyramid Scheme?

  • Why Monetary Policy is an Ineffective Tool Against Bubbles

  • Is Trump Really a Democrat?

  • Possible Trump Running Mate Speculation

  • Stock Valuations Still a Long Way from 2007 Peak

  • Big Google Fine Coming in Europe

  • Norway Suing Volkswagen

  • Russia Doesn't Like Eurovision Winner

  • Maoists Still a Force in China

  • Venezuela Ready to Explode

  • And More

Articles about events, conflicts and disease around the world


  • Trump Running-Mate Speculation Rife as Possible Choices Speak (Bloomberg)  Donald Trump has said he probably won’t name a running mate until July. That hasn’t stopped speculation on who the presumptive Republican presidential nominee will select for his unconventional ticket.  Some of the names include:  former House Speaker Newt Gingrich; former Arizona Governor Jan Brewer;  former Alaska Governor Sarah Palin; Texas Senator Ted Cruz; Florida Senator Marco Rubio; and New Jersey Governor Chris Christie.

  • On more than one issue, GOP's Trump sounds like a Democrat (Associated Press)   As he tries to charm Republicans still skeptical of his presidential candidacy, Donald Trump has a challenge: On several key issues, he sounds an awful lot like a Democrat.  And on some points of policy, such as trade and national defense, the billionaire businessman could even find himself running to the left of Hillary Clinton, his likely Democratic rival in the general election.  Trump is a classic Republican in many ways. He rails against environmental and corporate regulations, proposes dramatically lower tax rates and holds firm on opposing abortion rights. But the presumptive GOP nominee doesn't fit neatly into a traditional ideological box.  He  said in a recent interview with The Associated Press:

"I think I'm running on common sense.  I think I'm running on what's right. I don't think in terms of labels."

  • The S&P 500 Valuation Tool That Shows 2007 Peak a Long Way Away (Bloomberg)  The stock market’s still-healthy earnings yield underpins a number of bull cases, including ones based on dividends that are funded by corporate profits. The average payout by S&P 500 companies is 2.18%, about 0.5 percentage point higher than the 10-year yield and a wider gap than 94% of the time since 2002.



  • Google faces record-breaking fine for web search monopoly abuse (The Telegraph)  Google faces a record-breaking fine for monopoly abuse within weeks, as officials in Brussels put the finishing touches to a seven-year investigation of company’s dominant search engine.  It is understood that the European Commission is aiming to hit Google with a fine in the region of €3billion ($3.45 billion), a figure that would easily surpass its toughest anti-trust punishment to date, a €1.1 billion fine levied on the microchip giant Intel.


  • Boris Johnson and the facts (The Economist)  Econintersect:  When politicians want to win an argument they can often not be deterred by contrary facts.  From this article:

When it comes to the future of Britain outside the EU, it is of course perfectly reasonable to argue that it could prosper, although most experts say the effects will be detrimental., a pro-EU website, has its own webpage about Mr Johnson's errors, but he may well argue that some of these errors are differences of interpretation. Part of the frustration of the British public is that they want facts but it is impossible to create objective facts about the hypothetical situations that will occur after June 23rd. All we can have are forecasts, and forecasts are often wrong.

But you can have facts about the past. So your blogger choked on his nightly cocoa when Mr Johnson said, on last night's BBC Ten O'Clock News (around 14 minutes in), that:

I would remind you that everybody said the pound would fall as a result of our leaving the ERM and on the contrary the pound strengthened. And interest rates were cut.

He's right that rates were cut. But as someone who was writing about the crisis at the time, the statement about the pound was contrary to my memory. 

And indeed here's the graph. The pound plunged against the dollar, and in trade-weighted terms, in late 1992; it kept falling even after September 16 (Black Wednesday) the day of sterling's departure from the Exchange Rate Mechanism.

Mr Johnson's answer was in response to a question about whether the pound (and the markets) would rise or fall in the event of Brexit. This is a subject where the Bank of England, and most currency strategists, think there is a risk of a sharp decline.


  • Norway Wealth Fund Will Seek to Join Class Action Against VW (Bloomberg)  Norway’s $850 billion wealth fund will seek to join a class action suit in Germany against Volkswagen AG following revelations the carmaker rigged the exhaust systems of 11 million diesel-powered cars worldwide to pass official emissions tests.  The basis of the suit is the failure of VW to provide timely information to shareholders about factors that could materially affect stock prices.  VW only made disclosure "after U.S. authorities released a notice of violation letter".


  • ISIS claims responsibility for attack on Baghdad gas plant (CNN)   ISIS has claimed responsibility for an assault on a Baghdad gas plant Sunday, the latest in a series of deadly attacks committed by the Sunni terror group that have claimed more than 100 lives in recent days.  Baghdad Governor Ali al-Tamimi said 10 people, including seven police officers and three guards, were killed during the assault on the facility in the Taji area, north of Iraq's capital, at 5 a.m. local time Sunday.


  • Ukrainian singer Jamala wins Eurovision competition (CNN)  Jamala of Ukraine on Sunday won the immensely popular Eurovision Song Contest with a somber, controversial tune that evokes Moscow's deportation of members of her Crimean ethnic group during World War II.  Russia doesn't like this - Russian state media this week called the song anti-Russian; Moscow said it violated Eurovision rules.


  • Maoists still a force 50 years after the Cultural Revolution (Associated Press)   Fifty years after Mao Zedong unleashed the decade-long Cultural Revolution to reassert his authority and revive his radical communist agenda, the spirit of modern China's founder still exerts a powerful pull.  Millions of people were persecuted, publicly humiliated, beaten or killed during the upheaval, as zealous factionalism metastasized countrywide, tearing apart Chinese society at a most basic level.  Student groups tortured their own teachers, and children were made to watch mobs beat their own parents condemned as counter-revolutionaries. Gangs engaging in "armed struggle" killed at least a half million people while countless more committed suicide, unable to cope with relentless persecution.  It was only in 1981 — five years after Mao's death — that China's government officially pronounced the Cultural Revolution "a catastrophe."  But there are still those in China who ...

... long for China to reverse its path toward market capitalism and return to Mao's radical vision of a classless society steered by a powerful and ideologically pure leader. They have largely embraced President Xi Jinping as one of their own, though he has never endorsed their views outright, and the nuances of his personal ideology — especially on economic matters — remain a cipher. Many see encouraging echoes of Mao's political style in Xi's crusade against corrupt party bureaucrats, and in his staunchly populist rhetoric, nationalistic bent and repeated demands for ideological conformity.


  • Venezuela crisis: 'People are ready to explode' (BBCNews)  Opposition protesters have been rallying in Venezuela's capital, Caracas, as they push for a recall vote to remove the country's President, Nicolas Maduro, from power.  On Friday President Maduro introduced a 60-day nationwide state of emergency to combat foreign aggression, which he blames for Venezuela's problems.

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

  • Unemployment for young black grads is still worse than it was for young white grads in the aftermath of the recession (Economic Policy Institute)  The black unemployment rate is typically twice as high as the white unemployment rate, and African Americans are often the last to feel the economic benefits during a recovery. These realities are reflected in the fact that the unemployment rate for young black graduates is still worse today than it ever was for whites in the aftermath of the Great Recession. Young black college graduates (age 24–29) currently have an unemployment rate of 9.4%—higher than the peak unemployment rate for young white college graduates during the recovery (9.0%). Young blacks with only a high-school degree (age 17–20) face a grimmer picture: an unemployment rate of 28.4%, which is also higher than the peak unemployment rate for white high-school graduates during the recovery (25.9%).

  • Trickle-down economics a 'pyramid scheme' (Allentown Morning Call)  The author makes a good point about the shortcomings of trickle-down (supply side) economics but Econintersect fails to see that he makes a connection to pyramid schemes.

  • Markets Spotlight: Helicopter economics and the relevance of ‘peak oil’ (Financial Times)  This is a review of the articles in the Financial Times. on the topic of monetary policy options.

  • The wrong tool for the right job (Economic Policy Institute)  This article maintains that raising interest rates is a poor strategy for managing asset bubbles. Low rates did not cause the housing bubble of the early 2000s and higher rates would have been ineffective at preventing it. To deflate an asset bubble interest rates would have to be raised to levels that would cause enormous damage to the labor market. Fortunately, the Federal Reserve has numerous tools besides rate increases that would be more effective and inflict less collateral damage on the nonfinancial side of the economy.  Foremost among these tools is controlling leverage (higher down payment requirements for homes, larger margin requiriements for stocks, etc.).  The weak links between monetary policy and home prices is shown in the first graph below (shallow slope - small implied effect - and wide data scatter - negligible correlation).  The second graph shows that the Fed has consistently kept interest rates below what would be indicated by the Taylor Rule, but this article argues that if the Taylor Rule had been followed the rates would have been not likely high enough to have avoided the housing bubble.



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