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What We Read Today 26 February 2017

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:

  • No Cuts to Social Security, Medicare in Trump Budget

  • How to Survive the Trump Era

  • The Education Industry Shows Signs of Collapse

  • Why There has been No Major Tax Overhaul in 31 Years

  • Hotel Occupancy Softened in February, Still at Record Levels

  • Defective Arguments Against Tax Cuts

  • Voters’ perceptions of crime continue to conflict with reality

  • Five Facts about Crime in the U.S.

  • Economic Performance in the Eurozone

  • Great Depressions in Parts of Europe

  • Saudi Arabia's Oil May Not be Worth What the Country Thought

  • Iraqi Forces Keep Moving Deeper into Western Mosul

  • Wind Power Costs Plunge in Asian Auction

  • How Trump Trade War with China Could Hurt the U.S.

  • Business Investment in Australia is Weak, Threatens 25-Year Stretch without a Recession

  • And More

Articles about events, conflicts and disease around the world

U.S.

  • Man charged in crash at New Orleans Mardi Gras parade (Reuters)  A 25-year-old man accused of plowing a pickup truck into a crowd of spectators at a Mardi Gras parade in New Orleans was arrested and charged with injuring 28 people in a crash that brought chaos to the city's signature celebration, authorities said on Sunday.  New Orleans police booked Neilson Rizzuto after taking him into custody in "a highly intoxicated state" immediately after the accident on Saturday evening, the department said.  Rizzuto was charged with two charges of vehicular negligence injuring in the first degree, hit and run driving and the reckless operation of a motor vehicle, according to a statement.

  • How Imports Boost Employment (Project Syndicate)  According to today’s populists, “good jobs” in US manufacturing have been “lost” to competition from imports and preferential trading arrangements. But this narrative does not fit the facts, because imports create jobs, too.  Econintersect:  There are some logical gaps in arguments presented but also some worthwhile points.  One logical gap is the statement that imported cars require domestic labor for repair.  But that cannot justify value for imported cars because domestic cars also require repair.  Here is an excerpt:

For starters, many jobs are directly connected to trade. Think of the longshoremen who load and unload cargo, the pilots and crews who transport goods by air, the truckers who do so by land, and the wholesale and retail workers who stock and sell those goods.

Second, imports often provide cheaper inputs than what is available in the United States, which enables American manufacturers to compete better with foreign firms in export markets, and to maintain their share of domestic markets. Third, foreign direct investment (FDI) helps American companies acquire some inputs at less cost, while engaging in more research and development and other activities.

Last but not least, exporting to the US gives foreigners more income with which to buy imports from the US and other countries. Because export-industry jobs usually require more valuable skills, and thus pay more than jobs in industries that compete with imports, the additional exports generated by imports create better jobs overall.

Without imports, many jobs that exist today would disappear. According to some estimates, the jobs that service an imported consumer good account for more than half of its retail price. Many imports require local service facilities with American workers. Foreign automobiles, for example, would not be sold if the parts and mechanics for servicing them were unavailable.

  • With Shale Oil Production Like This, Who Needs Trump? (Bloomberg)  The second coming of shale could be even more powerful than the first. OPEC seems to be getting caught unawares.  The current boom in U.S. oil production is even stronger now than the run from July 2011 to April 2015. And this is with oil prices at half their previous level and before President Donald Trump has done anything to meet his pledge to "lift the restrictions on American energy and allow this wealth to pour into our communities." Output growth could accelerate if prices rise, or costs fall further.  This is not how it was meant to be. OPEC launched a strategy to protect market share in 2014 with a specific aim to knock out high-cost oil production such as shale. After the group succumbed to internal financial pressures and agreed in November to cut output by around 1.2 million barrels a day, Saudi oil minister Khalid Al-Falih said he didn't expect a big supply response from American shale producers in 2017.  Look's like Al-Falih was wrong.

Click for larger image.
new.shale.boom

Trump sees the world in terms of a zero-sum game. In reality, globalization, if well managed, is a positive-sum force: America gains if its friends and allies – whether Australia, the EU, or Mexico – are stronger. But Trump’s approach threatens to turn it into a negative-sum game: America will lose, too.

That approach was clear from his inaugural address, in which his repeated invocation of “America first,” with its historical fascist overtones, affirmed his commitment to his ugliest schemes. Previous administrations have always taken seriously their responsibility to advance US interests. But the policies they pursued usually were framed in terms of an enlightened understanding of national interest. Americans, they believed, benefit from a more prosperous global economy and a web of alliances among countries committed to democracy, human rights, and the rule of law.

If there is a silver lining in the Trump cloud, it is a new sense of solidarity over core values such as tolerance and equality, sustained by awareness of the bigotry and misogyny, whether hidden or open, that Trump and his team embody. And this solidarity has gone global, with Trump and his allies facing rejection and protests throughout the democratic world.

Higher education is more popular in America than ever before. U.S. per-capita college enrollment reached an all-time high in 2008 (the latest data available). … A larger percentage of Americans are in college today than ever before.

The top line in Figure 2 plots U.S. PhDs granted per capita from 1900–2008 (the latest data available), which has also reached a record high. The average U.S. PhD candidate requires 8.2 years to earn a doctorate,3 so we backset the line by eight years to reflect the moment of decision. Doing so reveals a fair correlation with the Dow Jones Industrial Average, our most sensitive indicator of social mood. It is unclear why the 1941 peak in PhDs lagged stocks by an additional three to four years.  Nonetheless it is clear that social mood–via waning optimism, economic decline and war–influences the decision to seek or not seek a PhD.

 Click for large image.

  • It's Been 31 Years Since the Last Tax Overhaul. Here's Why. (Bloomberg)  While a sweeping tax-reform bill is a top priority of both Trump and House Speaker Paul Ryan, with a goal of passing it by July, the odds are that it won't happen. A look at what took place in 1986 helps explain why.  Back then the two parties worked to get a compromise that was a comprehensive bill that slashed individual and corporate rates while compensating for the lost revenue by closing loopholes. That meant eliminating tax advantages enjoyed by powerful interest groups like the oil and real-estate industries and overcoming their formidable allies in Congress.  That won't happen today.  Included in the article is an interesting graphic showing the federal income tax rate history:

us.tax.rates.history

EU

  • Performance of Eurozone GDP (Twitter)  The divergence of economic performance among eurozone countires is dramatic.  Would be interesting to see other countries here, especially Spain.

Click for larger image.
ez.gdp.1998.2016

Saudi Arabia

  • Saudi Arabia's Oil Wealth Is About to Get a Reality Check (Bloomberg)   Saudi Arabia has said oil giant Saudi Aramco is worth more than $2 trillion, enough to consume Apple Inc. twice, and still have room for Google parent Alphabet Inc.  The kingdom may have to settle for less. A lot less.  Industry executives, analysts and investors told Bloomberg their analysis -- based on oil reserves and cash flow projections under different tax scenarios -- suggests Aramco is worth no more than half, and maybe as little as a fifth, of that amount. This means Saudi Arabia would earn a fraction of the $100 billion implied by its valuation if it sells 5% to the public in 2018, as planned.

Iraq

  • Iraqi forces aim to secure Mosul bridge, link up to east bank (Reuters)  U.S.-backed Iraqi forces pushed deeper into western Mosul on Sunday, aiming to capture a bridge across the Tigris which would link the city's government-held eastern bank with the ongoing offensive against remaining militants in the west.

India

  • Wind Power Costs Plunge in Asia's First Auction for Contracts (Bloomberg)   The cost of power generated from wind turbines plunged in Asia’s first auction for contracts to deploy the technology, a victory for India’s effort to reduce pollution and ensure supplies.  Solar Energy Corp. of India Ltd., which conducted the auction for the government, said late Friday that it received bids to supply wind power for 3.46 rupees (5 U.S. cents) a kilowatt-hour. Previously, feed-in tariffs for wind energy ranged from 4 rupees to 5 rupees a kilowatt-hour across India’s windy states.  The contest was the first of its kind for wind anywhere in Asia, repeating similar auctions for solar capacity that brought the cost of that technology to record lows. It underscores the success of auction mechanisms in forcing companies to reduce the price of renewable energy, increasing the competitiveness of wind and solar against fossil fuels.  It also indicates that, at least for now, wind can compete with rapidly falling solar costs.

China

  • Solar Squabble Shows How a Trump Trade War With China Could Backfire (Bloomberg)   After the U.S. slapped duties on Chinese solar panel exports in 2011, China shot back about a year later with measures against the American polysilicon exports used to make those units. Along with other producers in the U.S., REC Silicon, a Norwegian company which produces the material at factories in Moses Lake, Washington and Butte, Montana, was clobbered.  The company’s U.S. workforce shrank by about 350 workers over the past three years as orders plunged, Torvund said in an interview in Beijing. The fix: opening a $1 billion joint venture factory in the central Chinese city of Yulin that’ll employ up to 650 workers.  He said:

“We need to build capacity inside China since we do not have access to China from the U.S.. It started in the U.S. It’s what often happens: When one country makes a move, another country makes a different move.”

Australia

  • Business investment is weak, but an unfunded company tax cut won’t fix it (The Conversation)  Eight years after the global financial crisis (GFC), economic growth remains weak in many rich nations. Australia has been an exception to the malaise, but growth has slowed as the mining boom winds down.  Business investment is vital to economic growth and to lifting living standards, but a new Grattan report explores why Australian business investment is plummeting. Australia is now experiencing its biggest ever 5-year fall in mining investment, as a share of GDP. Non-mining business investment fell from 12% to 9% of GDP after 2009 and remains unusually low. The author discusses why is it low, and what should be done.

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

  • Hotels: Hotel Occupancy Softens in February (Calculated Risk)  After a solid start for 2017 - during the slow season - hotel occupancy has been weak over the last few weeks. But this data still shows occupancies equal to 2015, the best year on record.  No need to panic at this point.

 Click for large image.

  • Cutting corporate taxes produces long-term reduction of national income (tax revenues).

  • Running national budget deficits for Australia risks reducing future living standards.

  • A balanced budget (or budget surplus) is desirable for Australia, which has run a current account deficit for the past 35 years.

The government has proposed cutting the company tax rate from 30% to 25%, largely on the basis that the competition for mobile capital has intensified (see chart below). That would attract more foreign investment and could increase total business investment by up to half a percent a year. But such a cut would also reduce national income for years and would hit the budget. Committing to a tax cut before the budget is on a clear path to recovery risks reducing future living standards.


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