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.
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Topics today include:
End of Economics 101 at Hands of Central Banks
The Big Lie of Economics
Middle Class Wages: Lower Today than in 1972
How Economics has Failed America
Perfect Airline Security Does Not Exist
Fiscal Planning Tool for Government in Ancient Egypt
GOP Drafts ObamaCare 'Replacement' Bill
What do Trump, Clinton and Sanders Agree On?
Analysis of Obama's Failed Middle East Policies
Brexit "Remain" Support Gains in Latest Poll
MH17 Victims Families Sue Putin and Russia
U.S. Airstrikes Target Aghan Taliban Leader
Articles about events, conflicts and disease around the world
Experts say perfect security is elusive at all airports (Associated Press) Explosives in the form of paper, or concealed in a medicine-sized bottle and looking like salt. Tiny electric detonators. Security agents at the main airport in Paris are trained to detect all manner of increasingly sophisticated devices that could doom a flight. But the chilling reality is that security is ultimately fallible. This is complicated by the wide availability of access to restricted areas at airports. For, example 85,000 people at Charles de Gaulle airport hold red badges for access, which are good for three years, and many of them work for a host of private companies.
Ancient Device for Determining Taxes Discovered in Egypt (National Geographic) Hat tip to Roger Erickson. American and Egyptian archaeologists have discovered a rare structure called a nilometer in the ruins of the ancient city of Thmuis in Egypt’s Delta region. Likely constructed during the third century B.C., the nilometer was used for roughly a thousand years to calculate the water level of the river during the annual flooding of the Nile. Fewer than two dozen of the devices are known to exist. The device measured the seasonal water level of the Nile which the Egyptians had correlated with crop yields. The nilometer reading was used to determine tax levies for the coming year based on the predicted harvest bounty (or shortfall). Econintersect: Here is an ancient countercyclical fiscal policy in actual practice. More than two millennia later, many still are not understanding this wisdom from antiquity.
GOP lawmakers unveil ObamaCare replacement bill (The Hill) Two Republican lawmakers on Thursday introduced an alternative to ObamaCare as the House develops its own healthcare plan, which is a modification of ObamaCare, not a repeal, a notable departure from the GOP’s long-stated goal. The bill from Rep. Pete Sessions (R-Texas) and Sen. Bill Cassidy (R-La.) would eliminate many central aspects of the Affordable Care Act, including the mandates for individuals to have coverage and for employers to provide it, as well as requirements for what an insurance plan must cover. The core of the plan is a $2,500 tax credit that any citizen would be eligible for and use to purchase health insurance.
Economics Has Failed America (Foreign Policy) When it comes to the impact of global trade, the dismal science has done a dismal job explaining how to help workers hurt by globalization. The redistribution required to generate this broad improvement in living standards is hardly addressed, or sometimes even mentioned. To do so would be to step into the muddy mire of normative questions. Should the government take from some people in order to give to others? Who should give the most, and who should receive? What exactly should they receive? Tyler Cowen and Alex Tabarrok of George Mason University offer this breezy guidance:
“Job destruction is ultimately a healthy part of any growing economy, but that doesn’t mean we have to ignore the costs of transitioning from one job to another. Unemployment insurance, savings, and a strong education system can help workers respond to shocks.”
Clinton fury grows with Sanders (The Hill) In public, Clinton aides and allies have kept their anger checked, decrying the rowdy outbursts at Nevada’s state convention last weekend but saying they believe Sanders will ultimately do the right by helping to unite the Democratic Party. Behind the scenes, however, they are seething that statements by the Vermont senator are just making matters works by further alienating his supporters from Clinton. See Democrats expect Warren to play peacemaker once primary ends (The Hill)
Obama’s Failed Middle East Policies (Elliott Morss, Morss Global Finance) EM is a regular contributor to GEI. Dr. Morss is joined by American ex-pat in Argentina Richard Rusk to discuss the Middle East policy of the Obama administration. RR has also contributed to GEI. They discuss the human toll (5,000+ U.S. military and 250,000 civilian casualties) and fiscal cost ($4 to $6 trillion). Elliott compares that to the U.S. food stamp program (SNAP) which is $72 billion a year. They also discuss the U.S. foreign policy change over recent decades from the support of dictators to support of democracy. (Econintersect: Democracy in a vacuum has not been very successful, to say the least.) The conclusion of this article:
The reality is that starting just before the Vietnam War, US foreign policy has been a complete disaster. It started with John Foster Dulles and has continued to this day. Dulles was the US Secretary of State during the Cold War. Diplomats are supposed to find ways to work deals when there are common interests. Not Dulles: he saw everything in black and white – you were either with us or a “commie”. So when Mao asked the US to recognize him as the leader of China because he did not want to be controlled by Russia, Dulles said no, you are a commie. So when Ho Chi Minh asked him to recognize him as the leader of Vietnam because he did not want to be invaded by China for the 12th time, Dulles said no, you are a commie.
I fear Eisenhower was right. He said beware the military-industrial complex. According to Open Secrets, the defense industry spent $127 million lobbying in 2015 and you know what it was for. To survive, the US military-industrial complex needs wars.
There is however, a partial antidote – bring the draft back. Right now, US wars are nothing more than TV shows for most Americans. Few have any skin in the game. Bringing the draft back would cause the high income parents with political clout to consider carefully whether wars being proposed made any sense.
The fuel of the US economy is getting cut off (Business Insider) Econintersect: We have a major quibble with the headline. It refers to the recent downturn in commercial and industrial lending. As can be seen in the graph provided with the article (see below), the year 2016 has thus far seen the most rapid increase in those loans in the past three years. The downturn is minor compared to the preceding rise. If the downturn continues for a couple more months it will indeed be a concern - but not at this point. Our discussion has an important lesson: every data point must be considered in context.
UK 'Remain' camp gains ground in EU poll, bookmakers lengthen Brexit odds (Reuters) The campaign to keep Britain in the European Union extended its lead over the "Out" campaign in an opinion poll published on Saturday, while two major bookmakers offered the shortest odds to date on a vote to remain. The poll from market research company Opinium for the Observer newspaper marked the sixth poll out of seven published in the last week to show the Remain campaign in the lead. Now 44% of Britons want to remain in the EU, up from 42% in an Opinium/Observer poll at the end of last month, while the proportion wanting to leave edged down a point to 40%.
Mount Etna Sicily: Europe's highest active volcano erupts (BBC News) Mount Etna, Europe's highest active volcano, rumbled at daybreak on Saturday on the southern Italian island of Sicily, spitting out luminous ash clouds from its Voragine crater, illuminating the sky over Sicily. Video from RT:
EgyptAir Flight Messages May Signal Downing Not Caused by Bomb (Bloomberg) EgyptAir Flight 804 sent automatic radio messages about smoke in the front portion of the cabin in the minutes before controllers lost contact with the aircraft over the Mediterranean Sea, French accident investigator BEA said Saturday. The electronic signals offer a puzzling twist to what may have happened to the flight on Thursday with 66 people. Two error messages, which started at 2:26 a.m. local time, suggested there was a fire on board, while later alerts indicated some type of failure in electrical equipment.
MH17 crash: Victims' families sue Putin and Russia (BBC News) Families of victims of downed Malaysia Airlines flight MH17 are suing Russia and its President Vladimir Putin in the European Court of Human Rights. The jet was shot down by a Russian-made missile over eastern Ukraine in 2014, killing all 298 on board. The West and Ukraine say Russian-backed rebels were responsible but Russia accuses Ukrainian forces.
Other Scientific, Health, Political, Economics and Business Items of Note - plus Miscellanea
The end of Economics 101 is nigh as central bank logic unravels (AFR Weekends) Is the link between monetary policy and inflation broken? The central bank governor of Denmark, where nominal rates have been negative longer than anywhere else in the world, says there may be signs that the link has grown weaker. Econintersect: Isn't there a distinct possiblity that the historical link only works when interest rates are above zero, weakens at zero and does not exist for negative interest rates?
Economics, A Love-Hate Relationship (The Hoya) Thomas Carlyle first coined the phrase “dismal science” back in the 19th century to describe the field of economics. In a modern setting, the term aptly fits the majority of students’ relationship with the subject. This Georgetown student has a good critique of basic economics education. He writes:
Ask a Georgetown student that has taken the introductory coursework to draw out a supply and demand graph, and they will not have much of a problem. But ask them to explain the underlying causes of a financial crisis and they will struggle to produce a response. It is not that the financial crisis is easy to understand, but if economics is meant to help explain our world, why does our introductory coursework fail to help us do so?
I learned far more from the subject when I could actually apply concepts in a more hands-on approach. The most econometrics I learned in a course was during a research seminar I took with James Vreeland, where I had to construct a data set from scratch and write a full-length paper. I learned far less in my actual Introduction to Econometrics course, where I was required to memorize certain terms and concepts with limited application of them in practice.
Economics’ Big Lie (World Policy) Great discussion here, attacking the basic premises of supply-side thinking. The introduction (and the rest of the article gets even better):
I promised to treat the U.S. presidential election this week, but in the interim my son, like millions of other high school students, took the Advanced Placement test in economics. As I was helping him study, we ran across his textbook’s flagrant display of the big lie at the core of economics as it is taught today. This lie is so obscured by pseudo-scientific gibberish that is it often hard for the untrained or naïve to spot it on first reading—yet my son did.
The big lie is that the economic “science” of efficiency requires that we treat rich people as vastly more important than everyone else. Once disentangled from the jargon, the logic of this argument is no more persuasive than King George III claiming to be “king by the grace of God.” It is equally undemocratic, too. This dubious assertion is not stated so baldly. If it were, it would be too easily refuted. Instead, and more insidiously, it is embedded in all the methods of economics and of public policy studies involving cost-benefit analysis.
As Duncan K. Foley argues in Adam’s Fallacy: A Guide to Economic Theology, contemporary textbook economics, otherwise known as neoclassical or marginalist economics, poses as a science but is much more akin to theology. It is a system of belief and values with very little empirical support, which is one reason there is so little real history in economics textbooks, as opposed to critical works like that of Foley. Textbooks substitute make-believe for real economic history. As Foley says, “Economics is a speculative philosophical discourse, not a deductive or inductive science.”
The “Adam” in Foley’s title is Adam Smith. His fallacy, in Foley’s view, is that it is possible to separate a distinctive economic sphere of life from the broader social, political, and moral context. In chapter three, “Political Economics,” of my book, International Political Economy: The Business of War and Peace, I quote the great mid-19th century political economist and philosopher, John Stuart Mill, who argues that Adam Smith is at his best when he recognizes that there are no purely economic phenomena. All economic relations are suffused with private power, at least. This is why I insist on the term “political economy” rather than “economics.” This reminds us that every study of the economy must also be a study of private power and strategy.
All modern economics textbooks distinguish “normative” economics—how economies ought to be run—from “positive” economics—how economies actually work. The textbook itself then claims to be doing positive economics, as if its absurd models of “perfect markets” have anything to do with how real economies, suffused with private power, actually work. This could just be bad science rather than morally offensive propaganda, until the specific bias of economics becomes clear.
Five Decades of Middle Class Wages: April 2016 Update (Jill Mislinski, Advisor Perspectives dshort.com) Jill calculates the real (inflation adjusted by Consumer Price Index for Urban Consumers - usually abbreviated as the CPI) average annual gross income for for production and nonsupervisory private employees between 1964 and 2016. In 2016 dollars the income peaked in 1972 at $41,590 and is 13% lower today at $36,143. The data in income per week is shown in the graph below. Econintersect: There are three caveats we think important. (1) The data is sensitive to the inflation reference used. If a different deflator is used, the Consumer Price Index for Urban Wage Earners and Clerical Workers, the CPI-W, there has is a smaller difference between the 1972 peak and today (only 2% less today). Jill discusses this observation. (2) To get a more meaningful measurement the value of non-cash compensation should be included (retirement plan contributions, payment for healthcare and other benefits). (3) Changes from year-to-year in taxes paid should be included to determine how after-tax income has varied. Jill has not discussed (2) and (3).
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