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What We Read Today 26 December 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:

  • This Month in History - A Review for February

  • Long-term Costs of Fining Juvenile Offenders

  • Vocational Training is Needed to Make America Great Again

  • Democrats Will Fight Trump's Tax Plan

  • Why Obama Failed

  • Why Ludwig von Mises Stands Apart

  • There is a Crisis of Market Fundamentalism

  • Bill Maher Interview by Matthew Segal

  • Why Economists Don't Understand the Economy

  • Barclays Continue to Cast Off Business Clients Who are Not Actiuve Enough

  • ECB's Negative Interest Rate Policy Has Limits

  • UK Brick and Mortar Stores Losing Out to Online Retailers

  • Greece's Perpetual Crisis

  • IMF Denies Mia Culpa for Greek Problem

  • IMF Predicts Greek Disaster:  Wikileaks

  • Russia Looking in Black Sea for Plane Wreckage and Bodies

  • Russian Plane Crash Likely Mechanical Failure or Pilot Error

  • China Slashes Prices for Wind and Solar Power

  • And More

Articles about events, conflicts and disease around the world

Global

U.S.

  • The Long-Term Costs of Fining Juvenile Offenders (The New Yorker)  Imposing fines on children of poverty makes no sense, according to this author:  They don't have any money.  The outcomes are essentially debtors prisons for juveniles.  And that often does not lead to the desired result of producing a productive, law-abiding citizen.

  • Make America Make Again (Foreign Affairs)  Rising wages in developing countries, especially China, and increasing U.S. productivity have begun to make the United States much more attractive to manufacturers, who have added nearly half a million jobs since 2010.  But these jobs are not the same as the millions that have disappeared from the United States over the past four decades. Workers in contemporary manufacturing jobs are more likely to spend hours in front of a computer screen than in front of a hot furnace. To do so, they need to know simple programming, electrical engineering, and robotics. These are well-paying, middle-skill jobs that require technical qualifications—but not necessarily a four-year college degree. Between 2012 and 2022, these will account for half of all the new jobs created in the United States.  This article says that vocational training is sadly lacking in America and many of the developing jobs will go unfilled. 

  • Democrats Plotting ‘Collision Course’ With Trump’s Tax Plan (Bloomberg)  Congressional Democrats say they’ll try to thwart Republican plans to overhaul the U.S. tax code by portraying them as a boon for the rich that betrays President-elect Donald Trump’s campaign promise to fight for working Americans.  Representative Richard Neal, the Massachusetts Democrat who represents his party’s first line of defense as the next ranking member of the House’s tax-writing Ways and Means Committee, said:

  “There’s going to be opposition if these tax cuts are directed to the people at the top again.  We’re going to be pretty united.”

  • Why Obama Failed (Foundation for Economic Education)  What was the source of the failure? It was the same at the beginning that it was at the end. Despite his intelligence, erudition, earnestness, and public-relations genius, and the mastery of all the Hollywood-style theatrics of the presidency, Obama’s central problem was his failure to address the driving concern of all of American life: the economic quality of our own lives.  Econintersect:  The author, Jeffrey Tucker, doesn't mention one thing Obama did right.

EU

  • The ECB’s Negative Rate Policy Has Been Effective but Faces Limits (IMF Direct)  Two IMF economists rationalize the ECB negative interest rate (NIR) policy.  They say that NIR makes sense because if "commercial banks are charged (rather than remunerated) to deposit their excess liquidity at the ECB, they should be more inclined to lend to consumers and companies".  They conclude the policy has been a success because it has "contributed to a modest credit expansion—favorable to growth and inflation".  But they conclude that the ECB may have to rely more on asset purchases going forward.  Econintersect:  This discussion addresses only the supply of credit.  The cause of the malaise, too much debt, is never mentioned and that supresses the demand for credit.  And that is why they conclude that the policy may be reaching its limits (see graphics below) - but they never mention it (excessive debt).  This is like saying that the patient is reaching the limits of physical therapy without acknowledging the limits are significantly determined by the patient's weight of 500 pounds.

Click for larger images.

UK

  • The Boxing Day shopping expedition loses its allure (Financial Times)  The number of bargain hunters visiting the Boxing Day sales is likely to have fallen this year, marking a further shift away from bricks-and-mortar stores towards internet transactions.  By midday Monday, transactions were 11.5% higher online than the same period in 2015, according to Springboard, a retail consultancy.

Greece

  • Greece’s Perpetual Crisis (Yanis Varoufakis, Project Syndicate)  YV has contributed to GEI.  See also the next artiucle.  Varoufakis says that the "problem with Greece is that everyone is lying".  Here's the nub:

The European Commission and the European Central Bank are lying when they claim that the Greek “program” can work as long as Greece’s government does as it is told. Germany is lying when it insists that Greece can recover without substantial debt relief through more austerity and structural reforms. The current Syriza government is lying when it insists that it has never consented to impossible fiscal targets. And, last but not least, the IMF is lying when its functionaries pretend that they are not responsible for imposing those targets on Greece. 

  • The IMF is Not Asking Greece for More Austerity (IMF Direct)  The authors of this piece are Poul Thomsen, the director of the IMF’s European Department, and Maurice Obstfeld, its chief economist.  They wrote this to protest that the IMF did not "impose" austerity on Greece; Greece "agreed" to programs that would require austerity.  They point out that the IMF consistently criticized the "agreements".  (Econintersect:  But, Yanis Varoufakis points out in the preceding article, the program could not have been implemented unless the IMF ultimately acquiesced, which they did.)  The authors insist that what they (by implication the IMF) are calling for is not what has been imposed, with IMF acceptance. (Econintersect: This entire essay is essentially just a finger pointing exercise.  It's like the boy holding rocks for another saying the other guy broke the window by throwing the stone and he told him not to do it.)   They say:

Greece still needs to reform the structure of its taxes and spending—how the government raises its money and what it spends it on—because both are highly unfriendly to growth and equity. But the point of the measures we are calling for is not to generate more austerity and a higher primary surplus. To the contrary, the gains from these reforms should be used fully to increase spending or cut taxes to support growth. In our view, reforms like those we propose are indispensable: we do not believe that Greece can come close to sustaining even a modest primary surplus and realize its ambitious long-term growth target without a radical restructuring of the public sector. This should not—and cannot—happen overnight, but it is critical that a plan to create a more growth-friendly and equitable structure of the public finances over the medium term is adopted now.

Russia

  • Russia plane crash: Huge search for bodies in Black Sea (BBC News)  A huge search operation is continuing for a Russian military plane with 92 on board which crashed into the Black Sea.  Some 3,000 people, including more than 100 divers, as well as ships, planes, helicopters and submersibles are involved in the operation near Sochi.  The Tu-154 plane carrying soldiers, musicians and reporters was heading for Syria. All on board are feared dead.  Monday has been declared a national day of mourning.

  • Russian Investigators Eye Technical Problems, Pilot Error As Plane Crash Cause (NPR)  Russian officials say they are no longer considering terrorism a focus in their investigations into a military plane crash on Sunday morning. NPR's Lucian Kim reports:

"The Russian transportation agency considers technical problems or pilot error the most likely causes for the crash." 

China

  • China to Cut Solar, Wind Power Prices as Project Costs Fall (Bloomberg)  China is reducing the amount of money it pays to newly completed solar and wind power generators for their electricity, in order to reflect declines in construction costs, the country’s price regulator and economic planner said Monday.  The nation will cut tariffs paid to solar farms by as much as 19% in 2017 from this year’s levels, and by as much as 15% for wind mills in 2018 from current prices. The changes will help reduce subsidies paid to new photovoltaic and wind power projects by about 6 billion yuan ($863 million) annually.  The move comes as average solar panel prices have tumbled about 30% this year.

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

  • The Mises Reader: Why Ludwig von Mises Stands Apart (Mises.org)  Hat tip to John O'Donnell.  The most prominent among the leaders of the Austrian School of Economics is Ludwig von Mises.  He is fundamentally a philosopher, arguing the logic of a free society with all participants vying in self-interest to achieve an optimized result for the whole of society through the exchanges of a free market.  Austrians do not deal with models, they are not empiricists; they assert the preordinance of human behavior and defend fundamental principles of social conduct as the governing forces of an economic society.  This article provides a thorough discussion. of the contributions of von Mises to the field of economics. 

  • The Crisis of Market Fundamentalism (Project Syndicate)  Anatole Kaletsky, Chief Economist and Co-Chairman of Gavekal Dragonomics, says that free market fundamentalism has repeatedly run aground throughout history, and we're in the latest episode of that phenomenon now:

 The biggest political surprise of 2016 was that everyone was so surprised. I certainly had no excuse to be caught unawares: soon after the 2008 crisis, I wrote a book suggesting that a collapse of confidence in political institutions would follow the economic collapse, with a lag of five years or so.

We’ve seen this sequence before. The first breakdown of globalization, described by Karl Marx and Friedrich Engels in their 1848 The Communist Manifesto, was followed by reform laws creating unprecedented rights for the working class. The breakdown of British imperialism after World War I was followed by the New Deal and the welfare state. And the breakdown of Keynesian economics after 1968 was followed by the Thatcher-Reagan revolution. In my book Capitalism 4.0, I argued that comparable political upheavals would follow the fourth systemic breakdown of global capitalism heralded by the 2008 crisis.

  • Economists versus the Economy (Robert Skidelsky, Project Syndicate)  Prof Skidelsky recounts a frequent criticism of economists.  But this is worth reading because of Skidelsky's excellent presentation in a brief essay.  Two excerpts:

Most economics students are not required to study psychology, philosophy, history, or politics. They are spoon-fed models of the economy, based on unreal assumptions, and tested on their competence in solving mathematical equations. They are never given the mental tools to grasp the whole picture.

Today’s professional economists, by contrast, have studied almost nothing but economics. They don’t even read the classics of their own discipline. Economic history comes, if at all, from data sets. Philosophy, which could teach them about the limits of the economic method, is a closed book. Mathematics, demanding and seductive, has monopolized their mental horizons. The economists are the idiots savants of our time.

  • Barclays Severing Ties With Up to 7,000 Business Clients (Bloomberg)  Barclays Plc is preparing to tell 7,000 clients to do more trading with the firm or find another bank, the latest move in an industrywide trend of winnowing down customer lists to the ones that produce significant profits.  The British bank launched a new computer system, called Flight Deck, this month that ranks every customer of its trading unit by the return they generate on the firm’s capital, allowing Barclays to prioritize its most lucrative relationships and jettison those that have become a drag. Since 2014, the bank has culled 17,000 clients as tougher capital rules make dealing with many smaller firms less profitable, and the new system has identified a further 7,000 that may need to go.


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