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:
Dangers for Public Banking in TPP
Low Interest Rates are Wreaking Havoc on Savers
Second Edition Published: Fixing Economics by George Cooper
Problems with General Equilibrium Theories in Economics
Economics Can Learn a Lot form Other Sciences
Endless Cycle of Bitcoin Hacks
Can Obamacare be Saved?
Employers and Unions Looking to Limit Profits of Healthcare Providers
New Trump Campaign Team
Clinton Wants All Emails and Data Released to Public
Swiss Central Bank is Big Stock Buyer
Olympic Officials Arrested for Ticket Scalping
Articles about events, conflicts and disease around the world
The Wretched, Endless Cycle of Bitcoin Hacks (Bloomberg) It seemed bitcoin exchange Bitfinex was doing all the right things. In the end, that didn’t stop hackers from stealing $65 million. The latest in a long list of attacks on the digital currency since its birth in 2009 has been particularly vexing for the bitcoin community. Not only was Bitfinex the largest exchange for U.S. dollar transactions, but the hack highlights that the industry hasn’t figured out critical security, despite years of learning from mistakes and making improvements to its infrastructure.
With Aetna Pulling Out, Can Anything Save Obamacare? (The Fiscal Times) The disclosure Monday that insurance giant Aetna will pull out of the Obamacare market next year in 11 of the 15 states it now serves poses a serious threat to the future of the program and raises anew the need for major reforms. While President Obama’s signature health care plan has weathered two major court challenges and scores of votes in the Republican-controlled Congress to dismantle it, an even larger challenge for advocates may be preventing Obamacare from simply collapsing of its own weight. Larry Levitt, a senior vice president of the Kaiser Family Foundation and a strong champion of the Affordable Care Act, said in a tweet today that the next Obamacare open enrollment period for 2017 will be key in determining the importance of Aetna’s stunning withdrawal from the program’s exchanges. (See also next article.) Levitt said:
“If signups grow, concerns [about Aetna] will fade. If not, expect a debate on fixes.”
Employers, unions look to direct contracting for health system contracts (Employee Benefit News) (Econintersect: The basic flaw in Obamacare is the assumption that insurers and health care providers will compete to provide lower cost solutions. They are motivated to provide higher cost solutions to increase profits. We maintain that attempting to cost optimize a public need (as opposed to a want) by employing a profit motive is doomed to failure.) From this article:
Industry denials notwithstanding, reducing healthcare costs is fundamentally against nearly every healthcare organization’s perceived economic interests. That’s why it’s been such a struggle for purchasers to find healthcare organizations that deliver truly better health outcomes at lower cost. U.S. healthcare is built on a culture of excess: egregious unit pricing and over-treatment. Many organizations promise value but few deliver. As Florida’s Gov. Rick Scott, former CEO of Hospital Corporation of America, pointed out at a venture capital conference a few years ago:
“What business wants to make half this year what they did last year? That’s why the healthcare industry won’t fix the healthcare industry.”
Uncle Sam goes for gold, too: Up to $9,900 per Olympic gold medal (USA Today, MSN News) Michael Phelps will owe the IRS about $55,000 tax on the 5 gold and 1 silver medal he won in Rio. The actual medals are only worth a few hundreds of dollars each but his cash awards from the IOC will total $140,000. In the top bracket (39.6%) that is a tax bill of $55,400. Of course, he can deduct all expenses associated with training that he paid for himself, including travel, pool time, personal trainers and coaches, etc. And while other Olympians may be in lower tax brackets, Michael Phelps undoubtedly is up there, with endorsements, paid public appearances and other sources of income from his high public profile.
New Trump Campaign Team Suggests Even More Chaos to Come (The Fiscal Times) Republican presidential nominee Donald Trump announced a major campaign shake-up late Tuesday night, appointing a new campaign CEO and a new campaign manager while declaring that he is “committed to doing whatever it takes to win this election, and ultimately become president”. Considering who Trump has selected to run his struggling show, that promise to do “whatever it takes to win” should not be taken lightly. The right-wing firebrand at the center of the Trump campaign shakeup is chief of the ultra-conservative website Breitbart News, a former banker at Goldman Sachs in New York and a longtime confidant of the Republican presidential nominee. See Who Is Steve Bannon? 13 Things to Know About Trump’s New Political Guru.
State Department to Release Deleted Clinton Emails (The Daily Beast) The State Department has announced that all work-related emails recovered from Hillary Clinton’s private servers will be released. In response to a lawsuit brought by Judicial Watch, State said it will disclose the FBI-recovered messages. Thousands will be released to the conservative watchdog group, which has routinely released documents obtained through open-records lawsuits. The department stated that it had “voluntarily agreed to produce non-exempt agency records responsive to plaintiff’s [Freedom of Information Act] request”. The State Department has not set a timeline for releasing the emails, although Reince Priebus, chairman of the Republican National Committee, has implored the department to release the emails prior to the election in November. A court conference to discuss the case is scheduled for Aug. 22. Hillary Clinton has called for all the documentation to be released to the public immediately. See FBI Sends Email Docs To Congress, Clinton Says Release Them Publicly (ABC News).
Why the Stock Market Is Rooting for Hillary Clinton to Win (The Fiscal Times) Wall Street titans from Carl Icahn to George Soros and Bill Gross have pooh-poohed the stock market’s recent rise and are increasing their bearish bets. Brokerages like Goldman Sachs and Barclays Capital have been sounding notes of caution. Corporate insiders like Jeff Bezos are selling. Individual investors have been steadily selling. So why are stocks near record highs? The popular theory is that the rally has been driven by expectations the Federal Reserve will continue to hold off on any fresh interest rate hikes until December at the earliest — which, in turn, has unleashed a wave of forced short-covering buying and driven stocks higher even in the face of high valuations or rising unit labor costs. But Gluskin Sheff economist David Rosenberg wonders is the market is instead sniffing out a victory for status quo Hillary Clinton against anti-establishment Donald Trump in November. This could, in turn, bolster the case for ongoing dovishness at the Fed.
Swiss Central Bank Holds $5.3 Billion in Amazon, Apple, Google, Facebook and Microsoft Stocks (Pam and Russ Martens, Wall Street on Parade) The Martens have contributed to GEI. At the end of the first quarter of this year, Switzerland’s central bank held $119.7 billion in publicly traded stocks. The Swiss National Bank’s (SNB) web site indicates that it is now allocating 20 percent of its foreign currency reserves to stock investing. Twelve days ago, SNB made its quarterly filing with the U.S. Securities and Exchange Commission showing large positions in individual U.S. stocks. In just five tech names, SNB held over $5.3 billion with $1.489 billion invested in Apple; $1.2 billion invested in Alphabet, parent of Google; $1 billion in Microsoft; $803 million in Amazon and $741.5 million in Facebook. The Swiss National Bank is just one of more than a dozen central banks that are now investing in publicly traded stocks – a policy that looks like a train wreck in motion to quite a number of Wall Street veterans.
U.S. assessing if Russian use of Iran base violates U.N. resolution (Reuters) The United States is looking at whether Russia has violated a U.N. Security Council resolution on military dealings with Tehran by using an Iranian air base to carry out strikes inside Syria, the State Department said on Wednesday. State Department spokesman Mark Toner said U.S. government attorneys had not yet decided whether they think Russia's use of the Iranian base is a violation of U.N. Security Council Resolution 2231, which was passed as part of the Iran nuclear deal.
Olympic Committee Member Arrested for Scalping Rio Tickets (Bloomberg) Patrick Hickey, the head of Ireland’s national Olympic body and a high-ranking member of the International Olympic Committee, was arrested in Rio de Janeiro on Wednesday for allegedly scalping tickets to the 2016 games. Hickey, 71, was arrested following a wider investigation into illegal tickets sales, which have resulted in the seizure of more than 1,000 tickets. Police also issued arrest warrants for other people, including Marcus Evans, the millionaire owner of a U.K.-based corporate hospitality company.
Other Scientific, Health, Political, Economics and Business Items of Note - plus Miscellanea
The key concern over the Trans-Pacific Partnership is its potential effects on the public's right to control common assets. Both the treaty and its underlying economic philosophy are blatantly hostile to state-owned enterprises and, in the larger sense, the idea of noncommercial or extracommercial economic activity, even when such activity may be necessary to create stable markets.
In particular, TPP advocates voice open contempt for countries like Vietnam, Malaysia and Singapore, that "manage their economies through a state-capitalist model in which the government directly or indirectly controls many of the economy's productive assets, formal financial systems, and activities . . . They benefit from preferred access to bank capital, [and] below-market rate financing . . ." Sabina Dewan of the Center for American Progress expresses this concern in the context of protecting American workers from foreign competition. But Dewan doesn't add the obvious: that creating such protections also enables foreign financial enterprises to declare that a bank like the Bank of North Dakota will constitute unfair competition--or that enterprises, state or otherwise, benefiting from BND's low interest rates and more publicly-informed access to credit "unfairly" disadvantages private financial institutions that primarily serve shareholder profit rather than the public.
Economics is a broken science, living in a kind of Alice in Wonderland state believing in multiple inconsistent things at the same time. Prior to the financial crisis, mainstream economics argued simultaneously for small government on taxation, regulation and spending, but big government on monetary policy. After the financial crisis, economics is now arguing for more government spending and for less government spending.
The premise of this book is that the internal inconsistencies between economic theories - the apparently unresolvable debates between leading economists and the incoherent policies of our governments - are symptomatic of economics being in a crisis. Specifically, in a scientific crisis.
The good news is that, thanks to the work of scientist and philosopher Thomas Kuhn, we know what needs to be done to fix a scientific crisis. Moreover, there are two scientists in particular whose ideas could show how to do this for economics: Charles Darwin, the man who discovered evolution, and William Harvey, doctor to King Charles I and the first person to understand blood flow and the workings of the human heart.
In Fixing Economics, bestselling financial writer George Cooper explains how the ideas of Darwin and Harvey could revolutionise economics, making it more scientific and understandable, and might even reveal the true origin of economic growth and inequality.
General Equilibrium Theory: Sound and Fury, Signifying Nothing? (INET) This extended essay finds some disquieting factors associated with general equilibrium theory in economics. Among these are the absence of any forces which would "automatically lead economies to equilibria, and situations of multiple (or indeed potentially infinite) equilibria are less pathological than might originally have been imagined. Worse, it may not even be possible to identify all equilibria". Econintersect: It seems that imposition of equilibrium theory creates a situation not unlike the space-time concept of infinite parallel universes. (See the second excerpt below for rationale that was involved in pursing economic equilibrium theories.) The author reaches the conclusion that
... being compatible with so many possibilities, the theory lacks explanatory relevance, providing instead a language through which one can say both too much and too little. The theory’s abundance of riches within its own multiverse is to be contrasted with its complete neglect of some important aspects of real-world markets, such as for example the presence of increasing returns to scale, the role of institutions and their effects (including money), and the place of innovation, all of which are difficult to model within the theory.
Arguably, the importance attached to research in general equilibrium came in part from the need to address a contrary idea, which had been prominent in the late nineteenth century and the first half of the twentieth: that of the anarchy of the market — the idea that the market is not harmonious and self-adjusting, automatically making its way to equilibrium, but rather unstable and even wasteful and chaotic. General equilibrium has played a reassuring or even quietistic role in countering this view, as evinced from the fact that financial instability and business cycles appear in the theory only through suitable extensions (e.g. unanticipated technological shocks, or shifts from one equilibrium to another through belief coordinating ‘sunspots’). The theory has also found other uses, from establishing the conditions under which there could be so-called micro-foundations for macroeconomic models to providing tools for policy analyses, such as computable general equilibrium models used in domains such as international trade and public finance.
Economics can learn a lot from other sciences it has been neglecting, the influential contrarian economist Steve Keen has told BBC HARDtalk’s Stephen Sackur. (Econintersect: Steve Keen contributes to GEI.) When you fly, you trust that the engineers knew how to design something which is aerodynamic so it would take-off and land safely, he explained. See the three minute video excerpt below. Prof. Keen said:
"I'm trying to get us to think in a modern, complex systems way about the economy. Catch-up with what happened in genuine sciences that have adopted the idea of the world being a complex system."
“Engineers are experts. Economists unfortunately wear that mantle without having earned it because the economy will tick over whether the economists write a good theory or a bad theory.”
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