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What We Read Today 20 August 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:

  • Helicopter Money Debate Pitfalls

  • Circular Logic Defects in Helicopter Money Opposition

  • Arguments for an Independent Central Bank

  • Modeling:  What Has Been Done and What Should Be Done

  • Arctic Methane May Not be as Uniformly Distributed as Thought

  • Employment Problems and Opportunities for Older People in the U.S.

  • Will a Soft Fed Produce a Dollar Selloff?

  • A Discussion of How Aggregate Supply and Demand are Coupled

  • Age Demographic Divide in the GOP

  • Urjit Patel is Next Governor of the Reserve Bank of India

  • China's First Modern Overseas Military Outpost

  • Admiral Zheng He, Last Symbol of an Outward Facing China Until the Late 20th Century

  • How Canada Ignored Chinese Money Driven Vancouver Housing Bubble

  • And More

Articles about events, conflicts and disease around the world

U.S.

  • More Older People Are Finding Work, but What Kind? (The New York Times)   The rules of the job market aren’t the same for older workers.  As men and women 55 and older looking for employment probably suspect, at a certain point the kinds of jobs available to them narrow significantly. New research by Matthew Rutledge, an economist at the Center for Retirement Research at Boston College, found that they are increasingly being funneled into what he describes as “old-person” jobs.  And not surprisingly, older workers with the least education have the narrowest set of opportunities, though Mr. Rutledge found this effect was small.  It turns out that “old-person” jobs are a mix of high-skilled service work (like managers, sales supervisors and accountants) and low-skilled service work (like truck drivers, janitors and nursing aides). Absent from the top of the list are jobs calling for a fair amount of physical labor. Jobs in farming, manufacturing and repair represent less than a quarter of all new hires in this age bracket.  See first graphic (tables) below.  And older people have a much harder time finding new employment after an extended layoff - see second graphic below.

old.people.jobs

reemployment.age.effect

While the available indicators are still inconclusive, some indicators suggest that hysteresis should be a more present concern now than it has been during previous periods of economic recovery in the United States. We go on to argue that a significant portion of the recent damage to the supply side of the economy plausibly was endogenous to the weakness in aggregate demand—contrary to the conventional view that policymakers must simply accommodate themselves to aggregate supply conditions. Endogeneity of supply with respect to demand provides a strong motivation for a vigorous policy response to a weakening in aggregate demand, and we present optimal-control simulations showing how monetary policy might respond to such endogeneity in the absence of other considerations.

republican.conservative.moderate.age.demographics

India

  • Urjit Patel is new RBI Governor: Here's how India Inc, brokerages have reacted (Business Standard)  The government has announced Urjit Patel as the next governor of the Reserve Bank of India for a three-year term, succeeding Raghuram Rajan who in a surprise announcement in June said he did not want to stay on.  Patel, 52, is currently a deputy governor at the RBI and headed a committee on monetary policy reforms. The recommendations of the committee to set an inflation target and create a new Monetary Policy Committee were backed by Prime Minister Narendra Modi's government.  Patel is considered to be a p[olicy "hawk", in much the image of his predecessor. 

Japan

China

  • Hong Kong teachers warned they could be struck off for separatist talk in schools (South China Morning Post)  Education authorities issued a stern warning on Sunday that they would cancel registered teachers’ professional qualifications or refuse to qualify them if they advocated independence for Hong Kong in schools.  The warning coincided with a pro-establishment group of education administrators lashing out at teachers and education groups promoting the idea of splitting Hong Kong from China, and labeling such conduct as a breach of professional ethics and the law.

  • China builds first overseas military outpost (Fox News)  It was February this year when camel drivers first spotted the Chinese troops staking out a patch of coastal scrubland about 8 miles from the largest U.S. military base in Africa.  Chinese navy ships had visited the tiny East African nation of Djibouti before. They sometimes picked up supplies in the old French port, farther down the arid coast, during antipiracy patrols off Somalia.  This time, the Chinese military was here to stay. The camel herders watched as the troops secured a plot next to a construction site where a vast new bulk and container port is taking shape.  The 90-acre plot is where Beijing is building its first overseas military outpost—a historic step that marks a bold new phase in its evolution as a world power.

  • The Chinese admiral who spread Islam across Southeast Asia (South China Morning Post)  Seventy years before Columbus sailed across the Atlantic, Admiral Zheng He, a Chinese seafarer of Persian descent, sailed a fleet of 300 ships, many twice as big as the largest European vessels of the time, through the South China Sea and around southeast Asia.  But, before the 15th century ended and European colonialism began its ascent, China was shutting down:

After the Yongle Emperor’s death, the Ming court lost its global vision. Power was in the hands of the Confucius gentry-class, who jealously guarded against other schools of thoughts. China became increasingly introspective and insulated. The court stopped further expeditions and banned seafaring. The Chinese civilization gradually lost its vigor and started a long decline. 

Canada

But the “alarming” results of the auditors’ investigation were “ignored” by Canada Revenue Agency bosses who failed to commit the resources needed to tackle the issue, and just “wanted the problem to go away”, one of the auditors, now retired, told the South China Morning Post.  Instead, Vancouver went on to become one of the world’s most unaffordable housing markets, with rich mainland Chinese flocking to the city in recent years under the same wealth-migration model that raised the auditors’ concern two decades ago.

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

  • Eight pitfalls to avoid in the helicopter money debate (Philosophy of Money)  This is very critical summary of the article by Stephen Cecchetti and Kermit Schoenholtz:  A Primer on Helicopter Money.  (It was also posted at Voxeu.org and discussed in WWRT yesterday.)

  • Helicopter Money: missing the point (mainly macro)  See also next article.  Oxford professor Simon Wren-Lewis dissects the circular arguments against helicopter money (HM).  He points out that the purpose of the independent central bank (ICB) is to "avoid problems [that arise] when politicians do macro stabilization".  But then, it is stated by HM critics, money financed macro stabilization (MFMS) - as opposed to bond financed (deficit spending) - becomes impossible because an ICB is prohibited from directly financing government operations - to do so would "negate independence".  Wren-Lewis presents arguments that refute the the arguments of critics by showing the circular logic inconsistencies they employ.  He concludes:

So please, no more elaborate demonstrations that HM is equivalent to a MFFS, as if that is an argument against HM, without even noting that ICBs prevent a MFFS. No more vague references to HM threatening independence, without being precise about why that is. And please some recognition that the whole point of ICBs is not to have to rely on governments to do macro stabilization.

  • Monetary Policy Independence (Richmond Fed)  See also preceding article.  A Federal Reserve that is insulated from short-term political pressures but accountable to public concerns is more likely to pursue policies that align with its congressional mandate to promote stable prices, full employment, and moderate long-term interest rates:

Elected governments in a democratic society potentially face incentives to pursue accommodative monetary policies that promote output and employment for political gain in the short run, even when those policies would eventually lead to inflation. Central banks that are independent in the conduct of monetary policy can better maintain credibility for consistently pursuing price-level stability than those that do not enjoy independence. The case for central bank independence is necessarily limited in other non-monetary policy operations, however, as a central bank serves a public purpose and must be accountable to the government.

  • No, please don't show me your model (Copolla Comment)  See also the previous article by Frances Copolla, The Art of Economics.  To fully appreciate this pair of articles, read the comment stream for this one.  It makes clear that the debate is between a defense of what has been done in economic modeling and what should be done.  An essential element is that the defense correctly states that traditional models are internally self-consistent and the objection is, again correctly, that self-consistency and connection to reality are not necessarily strongly overlapping, since self-consistency is established including assumptions and reality (obviously) has no assumptions.  The defense makes a strong statement quoted below.  (Econintersect: We acknowledge the merit of the statement while still aligning with the opinions expressed by Copolla that models should be developed that do not make simplifying assumptions, fail to include all primary economic system variables and use linear math for complex, nonlinear functions.)  A key statement for the defense:

I think the problem seems to be you're asking mainstream economics to be a theory of everything, able to predict evolution in all possible economic variables in the economy. That's an unreasonable standard, economics is better served as conditionally predictive models coupled with statistical data.  

  • Rethinking Methane In the Arctic (YouTube)  Northern hemisphere frozen land masses have long been considered to store vast amounts of methane.  But new research shows that the presence of methane is widely variable and may not, in aggregate, be as great in amount as previous estimate.


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