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What We Read Today 26 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".).

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Topics today include:

  • What Milton Friedman Got Wrong

  • Why Economics Suffers in Isolation

  • Why Millennials are Confused bu the 'Fuzziness' of "Capitalism" and "Socialism"

  • Political Clout, Economic Power and the Collapse of the American Social Contract

  • Drugs are Not Tested for Effects on Pregnant Women

  • If All the Ice Melted

  • It's a 'Game of Thrones' World

  • Bank of America Wins Because They "Didn't Mean to Do It"

  • Trump Clinches the Nomination

  • Trump Doesn't Clinch the Nomination

  • Wells Fargo Brings Back the 3% Down Mortgage

  • EU Migration into UK Swells Ahead of Brexit Vote

  • China's Worst Disaster

  • And More

Articles about events, conflicts and disease around the world

Global

  • Last Man Standing (Project Syndicate)  Hat tip to Rob Carter.  Mark Leonard, Director of the European Council on Foreign Relations, says world affairs now are looking more and more like an episode from Game of Thrones.  He discusses how the actions of Vladimir Putin and the rise of Donald Trump fit into that scenario.

U.S.

  • Bank of America’s Winning Excuse: We Didn’t Mean To (ProPublica)  A federal appeals court overturned a $1.3 billion judgment against Bank of America, ruling that good intentions at the outset shield bankers from fines for subsequent fraud.  As Econintersect has commented before, this is a major 'WOW!!!' decision:  "If you plan to rob someone, issue them a guarantee you will not rob them a year ahead of time.  Then there is no felony when you do rob them, simply a breach of contract."  We expect a reaction to this from Bill Black and will post it when it is available.

  • Delegates in hand, Trump says he's got GOP nomination (Associated Press)  With a triumphant pile of delegates in hand, Republican Donald Trump on Thursday claimed support from "almost everybody" in his party and turned his attention to his likely Democratic presidential opponent, Hillary Clinton, who is still locked in a divisive primary contest.  See also next article.

  • Trump hasn't closed the deal—WE still decide who the nominee will be (CNBC)  Trump may have more than the number of delegate votes pledged that are needed to win the nomination but that could change.  Republican delegates are bound only to their own conscience at the time they cast their vote at the convention.  Thus the nomination cannot be "clinched" or won until the delegates actually vote. And even if delegates were obligated to obey the "will of the people" as expressed through primaries and caucuses, Trump's claim on the nomination would still be dubious at this point – at present he has only won roughly 43% of all primary and caucus votes cast, and would need to net more than 3.5 million voters in the June 6 primaries to win even a bare majority of all votes cast.  But it will in the end be the delegates to the Republican National Convention, which has protected the right of delegates to vote their consciences since the first convention in 1856, who decide if Trump will be the party's nominee. 

  • America’s Saving Perils (Project Syndicate)  Stephen S. Roach, former Chairman of Morgan Stanley Asia and the firm's chief economist and now at Yale University, argues that the American middle class is suffering a decline from over-consumption and a large saving deficit.  He observes that many countries have simultaneously large trade deficits and large private savings deficits.  His solution to the economic decline of Americans is that they should save more.  Econintersect:  How can Mr. Roach say that Americans are over-consuming when the productive capacity of the country is far underutilized?  We say it is because he is does not consider the entire sectoral balance ledger.  In addition to the foreign sector (trade), the private sector (spending and saving) there is also a government sector (also spending and saving).  It is a simple accounting ledger identity that the sum of all flow must balance.  In addition to the solution Roach offers (increase private savings at the expense of private consumption and reducing foreign sector deficits) another solution would increase private savings without reducing consumption by increasing government deficits.  In fact this path could also increase consumption, even if the foreign sector deficit was reduced.  The 'books are balanced' when the total of all sectoral flows is zero (Private + Government + Foreign  = (I – S) + (G – T) + (X – M) = 0)  - See Wikipedia.   

  • How Conservatives and Progressives Will Work Together Next Year (New America Weekly)   Contrary to what headlines might lead us to believe, policy change is happening at local and national levels. Republicans and Democrats are working together and finding common ground. Unexpected coalitions are forming around criminal justice reform. Evangelicals and liberals have come together to talk about issues of climate change and climate care. New ideas are finding their way into the system and new paths of policy entrepreneurship and compromise are emerging to replace outdated policies and structures.  This new model of policymaking is called 'transpartisanship'.

  • Wells Fargo launches 3% down payment mortgage (CNBC)  Here we go again.

EU

  • More than 4,000 migrants rescued in single day (Associated Press)   More than 4,000 would-be refugees were rescued at sea Thursday in one of the busiest days of the Mediterranean migrant crisis, and at least 20 died trying to reach Europe as Libyan-based smugglers took advantage of calmer seas to send desperate migrants north.  The death toll was likely to grow far higher, however, as the Libyan coast guard also reported two overturned boats between the coastal cities of Sabratha and Zwara. Only four bodies were found, raising fears that the rest of those on board had perished.  Overall, the Italian coast guard said it had coordinated 22 separate rescue operations Thursday that saved more than 4,000 lives.

UK

  • Prime minister David Cameron warns of hit to pensions if Britain backs Brexit (City A.M.)  Prime minister David Cameron has warned retirees face a triple threat to their pension pots if Britain votes to leave the European Union.  He said pension funds would shrink due to the economic shock from a leave vote, just as the fallout increased the cost living and changes to visa and residency rules led to a shortage of care workers.

  • Migration figures become latest political football in EU referendum (City A.M.)  Numbers, published by the Office for National Statistics (ONS), showed net migration was running at 330,000 in 2015, as a record number of people came to the UK from the European Union while the number of UK citizens packing up for a life abroad dropped.

China

  • China’s Worst Disaster (New America Weekly)  China is now attempting to reverse the one-child policy, which has caused a severely unbalanced population that is too old, too male, and too few.  So far, loosening regulations have not let to a desired uptick in births. It’s hard to reverse 30-plus years of ceaseless propaganda promoting the one-child family as the ideal.

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

  • What Milton Friedman Got Wrong: Biologists Destroy Homo-Economicus (Evonomics)  Hat tips to too many to list.  The author of this article is David S. Wilson, SUNY Distinguished Professor of Biology and Anthropology at Binghamton University and Arne Næss Chair in Global Justice and the Environment at the University of Oslo.  This excellent discussion finds the shortcomings of economics can often be traced to lack of consilience (consistency with other branches of knowledge).  The author argues in the case of post-Keynesian neoclassical economics, a major shortcoming is the absence of recognition of adaptation as a "product of selection" with correctly identified "relevant selection pressures".  (Econintersect:  This criticism is closely aligned with another which we have oft repeated - economic thinking that considers social systems (including economics) to exist in states of equilibrium is defective at its core.)  Here is the introduction (read the entire post - it's excellent):

One of the most influential articles published in the field of economics is Milton Friedman’s (1953) “The Methodology of Positive Economics”, in which he argues that people behave as if the assumptions of neoclassical economic theory are correct, even when they are not. One of the most influential articles in the field of evolution is Stephen Jay Gould and Richard Lewontin’s (1979) “The Spandrels of San Marcos and the Panglossian Paradigm”, which argues against excessive reliance on the concept of adaptation.

Different disciplines, different decades. No wonder these two classic articles have not been related to each other. Yet, there is much to be gained by doing so, for one reveals weaknesses in the other that are highly relevant to current economic and evolutionary thought.

  • Millennials Reject Capitalism in Name – but Socialism in Fact (Foundation for Economic Education) Good essay here discussing the fuzziness of use for the terms "capitalism" and "socialism".

  • The Economics of Power (New America Weekly)  The American social contract is collapsing. For many workers throughout the twentieth century, our economic policies created a basic bargain: individuals would work full-time jobs for large, established corporations, and in exchange would receive access to key benefits like healthcare, pensions, as well as pathways for upward mobility and basic wage and labor protections. This arrangement did not work for everyone and crucially excluded many constituencies from women to immigrants to African-Americans. Yet this idea of a social contract—of a basic compact between corporations, workers, and government to assure economic opportunity and basic well-being—remains a central touchstone for social policy. Yet today the social contract is in tatters. More Americans are working harder, in more insecure jobs, with fewer benefits and stagnant wages, than in recent decades.  The author concludes:

Economic inequality is, or should be, increasingly understood to be a product of underlying disparities in political and economic power. As economic elites accumulate more power to write the rules of the workplace and the economy as a whole, they are able to shift policies in their favor, to the detriment of workers. The response, then, must look for more than just silver bullets and social policy. We must also consider how to rebalance economic and political power, so that the rules of our twenty-first century economy are devised more equitably and inclusively. Policies that expand worker power by making workers more independent, more organized, and more protected through regulation can help move the needle in this direction. And most importantly, these approaches can make more Americans aware and empowered defenders of the policies that assure real economic opportunity for all.


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