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:
Economic Ideology as Theory (and Vice Versa)
How Did Economics Avoid the Emergence of Science?
Share Passwords for Netflix?
The Invisible Bull Market
Rally in Equities May Not Be Justified
Equities Will Average 7% Gains Next Three Years
Drug Dealers Move to the Dark Web
Indiana Gov. Mike Pence to be Trumps VP Pick
Ruth Bader Ginsburg is Sorry
Theresa May the 'Axe Woman'
Bayer Hikes Bid for Monsanto
China Says Almost the Whole World Backs It in the South China Sea
Energy and the Environment Challenge Brazil
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Articles about events, conflicts and disease around the world
Shedding light on the dark web (The Economist) The drug trade is moving from the street to online cryptomarkets. Forced to compete on price and quality, sellers are upping their game. In spite of the well publicized website busts and closings - some absconding with buyers' cash for unfilled orders (Silk Road, Silk Road 2, Evolution, Agora are the best known).
White House candidate Trump picks Indiana Governor Pence for running mate: source (Reuters) Republican Donald Trump told Republican officials on Thursday he has picked Indiana Governor Mike Pence as his vice presidential running mate, a Republican source said, choosing a conservative with the potential to unify divided Republicans. The presumptive Republican presidential nominee is to announce his choice on Friday at 11 a.m. (1500 GMT) in Manhattan. Trump told national Republican officials that he had settled on Pence, according to the Republican source, who is familiar with the campaign's operations. Sources had told Reuters earlier that Trump had been leaning toward Pence but cautioned that he could still change his mind. Econintersect: Pence endorsed Trump's rival Sen Ted Cruz in the Indiana primary, which Trump won by a wide margin.
Ruth Bader Ginsburg regrets 'ill-advised' remarks about Donald Trump (The Guardian) The supreme court justice Ruth Bader Ginsburg executed a full U-turn on Thursday morning, over remarks about the presumptive Republican presidential nominee Donald Trump that ignited controversy on the eve of the GOP convention. Her remarks about Trump were “ill-advised”, she said, adding: “I regret making them.” Supreme court justice says she will be ‘more circumspect’ after calling the presumptive Republican nominee a ‘faker’.
Big-Money Backers of Donald Trump in Disarray (Bloomberg) As wealthy donors supporting Hillary Clinton pummel Donald Trump with negative ads, the Republican presidential candidate's own backers are struggling to return fire, hurt in part by a late start and conflicting signals from the campaign. In the latest setback, Thomas Barrack, a billionaire Los Angeles investor who said last month he'd gathered $32 million in commitments for a new super-political action committee supporting Trump, has decided not to donate to it or any other super-PAC, according to "Papa" Doug Manchester, a leading Trump fundraiser in California who has discussed the project with Barrack. The group raised only about $2 million through the end of June, according to Yahoo News. Trump has repeatedly expressed ambivalence about whether large-scale spending is even necessary.
Bayer Raises Takeover Bid for Monsanto (The New York Times) The German industrial giant Bayer raised its all-cash takeover bid forMonsanto on Thursday, turning up the heat in its pursuit of the American agricultural company. In a news release, Bayer said that it had increased its offer to $125 a share from $122 a share. Bayer’s new offer — still the largest takeover bid by a German company — comes after weeks of discussions between the two companies, after Bayer went public with its offer. The merger would combine Monsanto, famous for its genetically modified crop seeds, and Bayer, a maker of a wide array of pesticides, as well as aspirin. Putting the two together could create an agricultural one-stop shop, one with annual sales of $67 billion. Monsanto rejected Bayer’s initial bid and reportedly has held discussions with another big chemical maker, BASF.
Does India back China on South China Sea? Beijing seems convinced (Hindustani Times) Hat tip to Rob Carter. A state-run newspaper on Wednesday proudly displayed a world map showing countries that support China’s position on the South China Sea (SCS) disputes -- and in what some would describe as a flight of diplomatic fancy, it included India. The countries purportedly backing Beijing, actually most of the world barring North and South America and Australia, were predictably coloured in red in the map on the front page of China Daily. On Tuesday, China angrily rejected a ruling by a tribunal set up by The Hague-based Permanent Court of Arbitration that said Beijing had no historic rights to islands in the South China Sea. The verdict came in response to arbitration initiated by the Philippines. Econintersect: Even more astounding on this map is the Philippines shown as neutral. This is the country that filed the complaint against China in The Hague. The only rationale is that this article was for domestic consumption because it becomes laughable in the rest of the world. See next article for what India actually said, which supports the 1982 United Nations Convention on the Law of Sea (UNCLOS) based decision from The Hague.
India has noted the Award of the Arbitral Tribunal constituted under Annex VII of the 1982 United Nations Convention on the Law of Sea (UNCLOS) in the matter concerning the Republic of the Philippines and the People’s Republic of China.
India supports freedom of navigation and over flight, and unimpeded commerce, based on the principles of international law, as reflected notably in the UNCLOS. India believes that States should resolve disputes through peaceful means without threat or use of force and exercise self-restraint in the conduct of activities that could complicate or escalate disputes affecting peace and stability.
Sea lanes of communication passing through the South China Sea are critical for peace, stability, prosperity and development. As a State Party to the UNCLOS, India urges all parties to show utmost respect for the UNCLOS, which establishes the international legal order of the seas and oceans.
Energy and the Environment, Not the Olympics, Are the Real Tests for Brazil (New America) When Brazil manages to pull off the Olympics—which it will, just as it did for the World Cup, despite similar worries—the real question will be this: who are the long-term winners and losers of Brazil’s development strategy? Depending heavily on resource extraction and riddled with corruption and human rights violations, there are serious questions about whether Brazil is on a sustainable economic path. But all is not doom and gloom in this article which highlights some flickering signals of change.
Other Scientific, Health, Political, Economics and Business Items of Note - plus Miscellanea
Modern economic theory is founded on axioms for rational behavior, which is equated with selfish behavior by economists. No empirical evidence is presented for this axiom; rather it is taken to be self-evident. In the 1980’s some psychologists, perplexed by the economic theories of human behavior, decided to test these theories via some experiments. Amazingly, nearly all experiments conducted showed human behavior to be strongly in conflict with the economic axioms. A widely replicated experiment is called “The Prisoner’s Dilemma”. This game is similar to many real life situations, where an individual can benefit by betraying a social agreement, as long as other parties stick to the agreement. However, if all people betray the agreement, then everybody loses. Economic theory predicts that selfish individuals will betray agreements, and social conventions of cooperation will break down. However, real life experiments show that cooperation and maintenance of social conventions, even with complete strangers, is quite common. Generally, economic theory assumes that selfish motives dominate all others. However, real life behavior in experiments displays a large variety of motivations, based on reciprocity, trust, generosity, charity, morality, and other motives which are assumed absent in economic theories.
The Emergence of Science (WEA Pedagogy Blog) This essay asserts that "misunderstanding the nature of science has led to seriously defective methodologies in modern social science, especially economics". The author says that a eurocentric world has seen many inventions of other civilizations "appropriated by European historians and attributed to Europeans to create a Eurocentric History". He gives examples showing how the Arabic Muslim world led Europe out of the middle ages and how Asian and Native American advances preceded the more modern extensions of that earlier work by European societies. The difference between axiomatic-deductive methodology of the Greeks and scientific methodology developed by Abu Ali al-Hasan Ibn ul-Haitham (sic) and other Arabic thinkers is like night and day, according to the author. The author asserts that the vestiges of ancient Greek philosophical thinking have remained influential in economics and can explain why neoclassical and neoliberal economic ideology can persist in the face of empirical contradiction. He compares economics to other fields which have yielded to observational truths:
Often credited for discovery of the atom, Democritus followed the typical Greek method. He argued that if we kept subdividing matter, we would reach the smallest possible particle, after which no further subdivision would be possible. This was seen as a logical necessity in a thought experiment, not as an empirical fact. If viewed experimentally, this logic is deeply flawed. The process of subdivision is constrained by human experimental capabilities, not just the properties of matter. Experimentation and observational evidence have led to knowledge which could never be achieved by axioms and logic. Advances in experimental techniques led to the splitting of atoms, clarifying the structure of matter in ways which were impossible earlier. Our experimental techniques and capabilities of splitting matter have changed over time, and improvements in these techniques, and careful observation of consequences of trying to split matter have led to improved understanding of the structure of molecules and atoms. The experimental approach to splitting matter leads to different results at different times, as human capabilities in this regard changed drastically with time. It was precisely this time-bound and contingent nature of experimental truths which repelled the Greeks. The argument of Democritus is based on a “logical” impossibility of infinite repetition of the splitting operations. Thought experiments and logic can never obtain the information that one gets by experimenting with actually trying to split matter, and observing the result. In contrast to Democritus, Dalton’s discovery of the atom reflects the scientific method. The observation that certain chemicals only combine in fixed proportions led Dalton to hypothesize that this was due to properties of the unobservable atoms which made up the chemicals. Dalton deduced properties of “atoms” from the observation of a particular fact which was impossible to derive from logic or from intuitive certainties. Similarly, observational evidence about electrons led Niels Bohr to scientific theories which appear logically impossible – that electrons jump from one orbit to another without passing intermediate stages. If economists had imposed their axioms for rational behavior on electrons, forcing them to behave in a logical manner, we would never have arrived at quantum theory. The essence of the scientific method consists of letting observations guide the construction of theory, regardless of how crazy the theory appears to be logically. Contemporary economic methodology is firmly based on the Greek conception of science, and gives primacy to axioms and logic over observations. The mystery of why economists use a pre-scientific methodology, and confuse it with science, will be resolved later.
The Bull Market You Haven’t Seen (Bloomberg) As markets digested the news that Britain had voted to leave the European Union, the yield on Treasury bonds maturing in 10 years touched 1.32% on July 6, the lowest rate on record going back to 1792, before climbing back up to a still-low 1.5%. Confusingly for the uninitiated, falling yields mean that bonds are fetching higher prices on the market. So the “Record Low Rates” headlines obscure what’s been a strong bull run: The 10-year Treasury has jumped almost 7% in price so far this year—not bad for a traditionally conservative investment—and the 30-year bond surged 17%. In total, U.S. government debt has delivered a $660 billion windfall to investors in 2016. Yields outside the U.S. have sunk even lower. There’s about $10 trillion of negative-yield debt, including the 10-year notes of Germany, Japan, and Switzerland. That means investors want those bonds so much that they’ll pay for the privilege of owning them. With such a low yield world of competition some think the U.S. 10-year could see yields decline further to 1% and below. That would increase the capital gains for bonds even further.
BlackRock’s Fink Says Rally in Equities May Not Be Justified (Bloomberg) Laurence D. Fink, who runs the world’s largest asset manager as chief executive officer of BlackRock Inc., said the current rally in equities may not be justified and won’t last unless earnings pick up. But not everybody is down on stocks - watch the video.
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