Saturday, May 31, 2014
Friday, May 30, 2014
S&P Closes Record High
Sorry about difficulty with the last financial times post. This article focuses on the U.S. bond market. It is worth noting that the current trends in the bond market mirror those that preceded the crash. Here is the article in totality:
Friday 21.00 BST. US stocks ended a gravity-defying week at record highs, even as Treasury bond yields held close to levels not seen for nearly a year – although activity was relatively subdued ahead of a series of key risk events next week.
“As was the case before the crash, US equity markets are providing signals about the economy that seem to conflict with those coming out of the other most liquid market in the world, the US bond market,” said Lena Komileva at G+ Economics.
ON THIS STORY
- Retail sales fall as Japan tax rise bites
- Kuroda says Japan shrugging off tax rise
- Global Market Overview US stocks march on to fresh records
- The Macro Sweep S Korean trade surplus reaches decade high
- Japan stock and forex parallel fades
GLOBAL MARKET OVERVIEW
“Similarly, traditional indicators of uncertainty and market volatility have continued to reach new lows. The result is that too many participants are starting to confuse the decline in market volatility with a decline in overall risk.”
But such concerns appeared to carry little weight on Wall Street – for now at least. The S&P 500 rose 0.2 per cent to 1,923, its fourth record close in five sessions. The US equity benchmark gained 1.2 per cent over the holiday-shortened week and 2.1 per cent for the month.
The CBOE Vix equity volatility index – often called Wall Street’s “fear gauge” – was down 1.5 per cent in late trade and hovering near its 2014 low.
Across the Atlantic, the FTSE Eurofirst 300 edged back 0.1 per cent from Thursday’s six-year closing high but recorded a weekly rise of 0.6 per cent and a monthly gain of 1.8 per cent.
In Tokyo, the Nikkei 225 slipped 0.3 per cent yesterday but rose 1.2 per cent over the week and 2.3 per cent in May as a whole – its first monthly gain this year.
The strong equity market performances came as highly rated US and German government bonds also attracted hefty buying.
The 10-year US Treasury yield – which moves inversely to its price – was up 3 basis points yesterday at 2.48 per cent, but down 6bp over the week. It touched 2.4 per cent on Thursday, the lowest since last June and some 60bp down from the start of year.
Analysts scrambled to explain the conundrum of rising equities and falling yields, which has caught many investors on the hop, given expectations for yields to rise this year as the Federal Reserve scales back its bond purchases.
US data releases have – on the surface at least – pointed to improving economic conditions in coming months, particularly in the labour market.
This week’s downward revision to US first-quarter GDP was attributed by many to sharply falling levels of inventories.
Most economists expected a strong rebound in the second quarter. Further clues on the health of the US economy may come next week with the release of manufacturing and non-farm payrolls figures.
Meanwhile, some strategists argued that the drop in yields had been exacerbated by investors caught out after they positioned for yields to rise.
Others suggested China was buying Treasuries in a move aimed at to weaken the renminbi.
An interesting theory was that bond investors had revised down their estimates of the longer-term natural, or equilibrium, interest rate – the rate consistent with full employment and stable inflation.
“Any estimate is highly uncertain, is unobservable and varies considerably over time,” said Ethan Harris, global economist at BofA-Merrill Lynch.
“Our tentative bottom-line – the real natural rate has dropped from a historic average of about 2 per cent to 1.5 per cent.”
Others said the drop in yields was encouraged by growing speculation that the European Central Bank would unveil a package of easing measures next week – including a negative deposit rate – to counter low eurozone inflation.
The German Bund yield ended the week at 1.36 per cent – up 1bp on the day but 6bp lower on the week. Peripheral eurozone sovereign debt was also in demand.
In spite of such speculation, the euro remained resilient. The single currency was up 0.2 per cent against the dollar at $1.3631 yesterday to stand barely changed on the week.
Petr Krpata, FX strategist at ING, warned that investors expecting the euro to fall on the back of a negative ECB rate could well be disappointed.
“We think such a move from the ECB is likely to cap the euro’s upside, via lower portfolio inflows and the increasing credibility of forward rate guidance, rather than actively driving it down,” he said.
“The other side of the euro/dollar equation – the dollar – has to start working to bring the cross lower. This may still take time.”
The strength of global stocks encouraged heavy selling of gold . The metal was down a further $10 yesterday at $1,244 an ounce – a drop of $48 over the week, its worst five-day performance in two months.
Copyright The Financial Times Limited 2014. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the
Please don't cut articles from FT.com and redistribute by email or post to the
UK's richest can save £18,680 a year as poorest 40% spend more than they earn | Money | The Guardian
A bit of data from the UK that supports Piketty's position over that of the FT:
The richest 20% of the population in Britain will have, on average, the spare sum of £18,680 to put into their savings this year, while the poorest 20% will spend £1,910 more than they earn, latest figures suggest. In research published this Thursday, the Post Office
said saving was still being driven by the wealthiest people while lower
earners were suffering a debt crisis. According to the Centre for
Economics and Business Research, which undertook the analysis, this
trend has been happening for the past 12 years.The poorest 40% of
the population have spent more than they have earned over this period,
in contrast to the top 40% of earners who had money to save every year.
UK's richest can save £18,680 a year as poorest 40% spend more than they earn | Money | The Guardian
Piketty also issued a 10 page response to the FT questions about his data. The tone is academic. I think it shows the difference between academic inquiry and journalistic inquiry. You can read it on his website or also at Huffington Post here. Note that he didn't post his response at the Huffington Post site...they copied it from his website.
The richest 20% of the population in Britain will have, on average, the spare sum of £18,680 to put into their savings this year, while the poorest 20% will spend £1,910 more than they earn, latest figures suggest. In research published this Thursday, the Post Office
said saving was still being driven by the wealthiest people while lower
earners were suffering a debt crisis. According to the Centre for
Economics and Business Research, which undertook the analysis, this
trend has been happening for the past 12 years.The poorest 40% of
the population have spent more than they have earned over this period,
in contrast to the top 40% of earners who had money to save every year.
UK's richest can save £18,680 a year as poorest 40% spend more than they earn | Money | The Guardian
Piketty also issued a 10 page response to the FT questions about his data. The tone is academic. I think it shows the difference between academic inquiry and journalistic inquiry. You can read it on his website or also at Huffington Post here. Note that he didn't post his response at the Huffington Post site...they copied it from his website.
Thursday, May 29, 2014
Africa Rising
I found this article to be interesting as it touches on some frequently discussed topics in our class: the role of debt in growth and its detriments, the IMF, and economic interplay between more developed and the so-called "developing" countries:
http://www.ft.com/intl/cms/s/0/6ae943e0-e751-11e3-8b4e-00144feabdc0.html?siteedition=intl#axzz339GK0oGk
Any thoughts?
http://www.ft.com/intl/cms/s/0/6ae943e0-e751-11e3-8b4e-00144feabdc0.html?siteedition=intl#axzz339GK0oGk
Any thoughts?
This Businessweek Cover Is Making Econ Geeks Swoon
I know I'm not blog leader this week but I just thought this was funny.
Wednesday, May 28, 2014
Innovation in Technology:
Here is an article regarding Apple's acquisition of Beats:
http://www.ft.com/intl/cms/s/0/4ebce752-e6a3-11e3-9a20-00144feabdc0.html#slide0
This quote, I believe, is indicative of the advantages of having numerous competitors in the tech market, generating new innovation:
“We’ve got a streaming service that we believe is the first to get it right,” Mr Cook [Apple CEO] told the FT. “They had the insight that human curation was very important . . . we think they’ve done an A plus job.”
Beats was superior to rival streaming services, he added. “Some of them are no more than a random set of songs put together.”
What do you think about Apple's acquisition of Beats? Do you believe that Apple's growth into becoming a veritable tech giant is detrimental to innovation within the industry much in the mold of a monopoly?
Here is an article regarding Apple's acquisition of Beats:
http://www.ft.com/intl/cms/s/0/4ebce752-e6a3-11e3-9a20-00144feabdc0.html#slide0
This quote, I believe, is indicative of the advantages of having numerous competitors in the tech market, generating new innovation:
“We’ve got a streaming service that we believe is the first to get it right,” Mr Cook [Apple CEO] told the FT. “They had the insight that human curation was very important . . . we think they’ve done an A plus job.”
Beats was superior to rival streaming services, he added. “Some of them are no more than a random set of songs put together.”
What do you think about Apple's acquisition of Beats? Do you believe that Apple's growth into becoming a veritable tech giant is detrimental to innovation within the industry much in the mold of a monopoly?
WSJ's CEO Pay Rises Moderately
Here is a WSJ article about the rising pay for CEOs.
http://online.wsj.com/articles/ceo-pay-rises-moderately-a-few-reap-huge-rewards-1401235102?mod=WSJ_hp_RightTopStories
Here is a quote:
The Wall Street Journal's annual compensation survey found that, for all the debate around high CEO pay, the biggest rewards go to a relative handful of executives at the very top, and that their pay doesn't necessarily correlate to their company's size or results.
http://online.wsj.com/articles/ceo-pay-rises-moderately-a-few-reap-huge-rewards-1401235102?mod=WSJ_hp_RightTopStories
Here is a quote:
The Wall Street Journal's annual compensation survey found that, for all the debate around high CEO pay, the biggest rewards go to a relative handful of executives at the very top, and that their pay doesn't necessarily correlate to their company's size or results.
A great blog post on a huge retail bubble
This is a post that underscores the inefficiency that massive monetary policy intervention has created in the United States:
Around 1990, for example, real median income was $56k per household and
now, 25 years later, it’s just $51k. Main street living standards
have plunged by about 9% during the last quarter century. But what has
not dropped is the opportunity for Americans to drop shopping: square
footage per capita during the same period more than doubled, rising from 19 square feet per capita at the earlier date to 47 at present....
When the aggregate level of shopping space is looked at during the
above longer-term time frame, the aberration is even more apparent. At
the time of the S&L fiasco around 1990, there were only about 5
billion square feet of shopping space in the nation; capacity tripled during
the subsequent a quarter century. Yet this was a period when the real
incomes of the middle class were essentially dead in the water. So what
market signals could have possibly given rise to such a disconnect?
The answer is the relentless drive for yield among fixed income
investors during a period when time and again the Fed intervened in
financial markets to prevent the benchmark rate – the 10 year Treasury
note – from finding its natural economic price/yield in what was
becoming a savings parched economy. Accordingly, a massive tidal wave
called “retail operating leases” developed that quenched this thirst for
yield – helped along by accounting loopholes which allowed trillions of
these operating leases to be kept off borrower balance sheets and which
thrived on the illusion that the proliferating chains of new retail
concepts served up by the Wall Street IPO machine were “national credit
tenants.” These overnight sensations had such solid and sustainable
“business models” as to imply blue chip credit status. They had such
attractive terms (10-15 years) and interest rate spreads over benchmark
rates that retail occupancy costs were dirt cheap relative to the true
long-run economics and risks.
Testosterone Pit - Home - Why Retail Results In America Are Not Better Than Expected, But Worse Than Ever!
Around 1990, for example, real median income was $56k per household and
now, 25 years later, it’s just $51k. Main street living standards
have plunged by about 9% during the last quarter century. But what has
not dropped is the opportunity for Americans to drop shopping: square
footage per capita during the same period more than doubled, rising from 19 square feet per capita at the earlier date to 47 at present....
When the aggregate level of shopping space is looked at during the
above longer-term time frame, the aberration is even more apparent. At
the time of the S&L fiasco around 1990, there were only about 5
billion square feet of shopping space in the nation; capacity tripled during
the subsequent a quarter century. Yet this was a period when the real
incomes of the middle class were essentially dead in the water. So what
market signals could have possibly given rise to such a disconnect?
The answer is the relentless drive for yield among fixed income
investors during a period when time and again the Fed intervened in
financial markets to prevent the benchmark rate – the 10 year Treasury
note – from finding its natural economic price/yield in what was
becoming a savings parched economy. Accordingly, a massive tidal wave
called “retail operating leases” developed that quenched this thirst for
yield – helped along by accounting loopholes which allowed trillions of
these operating leases to be kept off borrower balance sheets and which
thrived on the illusion that the proliferating chains of new retail
concepts served up by the Wall Street IPO machine were “national credit
tenants.” These overnight sensations had such solid and sustainable
“business models” as to imply blue chip credit status. They had such
attractive terms (10-15 years) and interest rate spreads over benchmark
rates that retail occupancy costs were dirt cheap relative to the true
long-run economics and risks.
Testosterone Pit - Home - Why Retail Results In America Are Not Better Than Expected, But Worse Than Ever!
Drizzle alone will not provide a path to prosperity : Climate and Growth
One of my favorite columnists from the Financial Times, John Kay, wrote a piece summarizing some of the theories about economic development in hot climates. Sanjay mentioned one of these theories last night. From the article:
Jeffrey Sachs has
emphasised disease: hot, humid climates may not be congenial
environments for humans but they are congenial to many unpleasant
parasites. Malaria
alone is a major obstacle to economic development. Another geographic
explanation comes from Jared Diamond. The crops and animals on which
modern agriculture is based – such as corn, pigs and sheep – thrive in
temperate zones. In an ingenious twist, Prof Diamond argues that this is
why Eurasia – a horizontally positioned land mass where agricultural
practices could be transmitted to similar climates to the east and west –
developed more readily than America, a vertically positioned landmass
in which agricultural practice could not easily be transmitted from
north to south....In their 2001 paper, The Colonial Origins of Comparative Development,
Daron Acemoglu, Simon Johnson and James Robinson of MIT point out that
you would have seen a very different relationship between temperature
and per capita income if you had looked at the world in 1500, when the
Mogul and Aztec civilisations were at their height. But then western
Europe developed the political, social and economic institutions that
make modern economic prosperity possible – and in subsequent centuries
transmitted these around the world......But in India and the Congo Europeans had no interest in permanent
settlement: the institutions they installed were those of exploitation,
and a legacy of exploitation continued to afflict these countries even
after the colonisers departed. It is not an accident that Montesquieu
was the first person (in 1748) to observe the correlation between
climate and prosperity: not only was he from a colonial power, but he
was writing at precisely the time that imperialism was creating the
phenomenon he described.
Drizzle alone will not provide a path to prosperity - FT.com
Jeffrey Sachs has
emphasised disease: hot, humid climates may not be congenial
environments for humans but they are congenial to many unpleasant
parasites. Malaria
alone is a major obstacle to economic development. Another geographic
explanation comes from Jared Diamond. The crops and animals on which
modern agriculture is based – such as corn, pigs and sheep – thrive in
temperate zones. In an ingenious twist, Prof Diamond argues that this is
why Eurasia – a horizontally positioned land mass where agricultural
practices could be transmitted to similar climates to the east and west –
developed more readily than America, a vertically positioned landmass
in which agricultural practice could not easily be transmitted from
north to south....In their 2001 paper, The Colonial Origins of Comparative Development,
Daron Acemoglu, Simon Johnson and James Robinson of MIT point out that
you would have seen a very different relationship between temperature
and per capita income if you had looked at the world in 1500, when the
Mogul and Aztec civilisations were at their height. But then western
Europe developed the political, social and economic institutions that
make modern economic prosperity possible – and in subsequent centuries
transmitted these around the world......But in India and the Congo Europeans had no interest in permanent
settlement: the institutions they installed were those of exploitation,
and a legacy of exploitation continued to afflict these countries even
after the colonisers departed. It is not an accident that Montesquieu
was the first person (in 1748) to observe the correlation between
climate and prosperity: not only was he from a colonial power, but he
was writing at precisely the time that imperialism was creating the
phenomenon he described.
Drizzle alone will not provide a path to prosperity - FT.com
Tuesday, May 27, 2014
Health Sectors, Unite?
Here's an article about the continued teamwork of Health Insurers and Hospitals with health care.
http://www.nytimes.com/2014/05/26/upshot/when-hospital-systems-buy-health-insurers.html?ref=economy
What do you think about the team up of the two different sectors? Are there any obstacles that may appear in this teamwork in the long run? How beneficial is it to the people buying health insurance?
http://www.nytimes.com/2014/05/26/upshot/when-hospital-systems-buy-health-insurers.html?ref=economy
What do you think about the team up of the two different sectors? Are there any obstacles that may appear in this teamwork in the long run? How beneficial is it to the people buying health insurance?
Piketty and the FT: shots fired
Piketty and others (including the Economist) have come out defending his work from the barrage of criticism from FT. Things may get ugly.
http://www.theguardian.com/business/2014/may/26/thomas-piketty-financial-times-dishonest-criticism-economics-book-inequality
http://www.theguardian.com/business/2014/may/26/thomas-piketty-financial-times-dishonest-criticism-economics-book-inequality
Monday, May 26, 2014
A new rating system for universities and colleges
"The rating system is in fact a radical new effortby the federal government to hold America’s 7,000 colleges and universities accountable by injecting the executive branch into the business of helping prospective students weigh collegiate pros and cons. For years that task has been dominated by private companies like Barron’s and U.S. News & World Report.
Mr. Obama and his aides say colleges and universities that receive a total of $150 billion each year in federal loans and grants must prove they are worth it. The problem is acute, they insist: At too many schools, tuition is going up, graduation rates are going down, and students are leaving with enormous debt and little hope of high-paying jobs.
White House officials said the government rating system would provide new incentives for colleges to hold down costs and broaden access to a more diverse student population — and provide an alternative to the private rankings, where colleges often battle for spots by erecting lavish new athletic centers and libraries and by becoming more selective in whom they admit. The officials said Mr. Obama’s system would not rank schools numerically but would give them grades or ratings like “excellent,” “good,” “fair” or “poor.”"
Does this new ranking system by the government, according to this article, sound like a good idea to you? There are many flaws in the ranking done by the private companies. I don't think building a building a lavish structure should push the rankings by a considerable amount. The presidents of various colleges do not like this idea, however Obama is keeping a very strong opinion on the issue.
http://www.nytimes.com/2014/05/26/us/colleges-rattled-as-obama-presses-rating-system.html?hpw&rref=education&_r=0
Mr. Obama and his aides say colleges and universities that receive a total of $150 billion each year in federal loans and grants must prove they are worth it. The problem is acute, they insist: At too many schools, tuition is going up, graduation rates are going down, and students are leaving with enormous debt and little hope of high-paying jobs.
White House officials said the government rating system would provide new incentives for colleges to hold down costs and broaden access to a more diverse student population — and provide an alternative to the private rankings, where colleges often battle for spots by erecting lavish new athletic centers and libraries and by becoming more selective in whom they admit. The officials said Mr. Obama’s system would not rank schools numerically but would give them grades or ratings like “excellent,” “good,” “fair” or “poor.”"
Does this new ranking system by the government, according to this article, sound like a good idea to you? There are many flaws in the ranking done by the private companies. I don't think building a building a lavish structure should push the rankings by a considerable amount. The presidents of various colleges do not like this idea, however Obama is keeping a very strong opinion on the issue.
http://www.nytimes.com/2014/05/26/us/colleges-rattled-as-obama-presses-rating-system.html?hpw&rref=education&_r=0
Blogs of the Future
Blogging seems to be the epitome of spreading information across the world. This article suggests that it can become like another Twitter. The creator of Blogger, Mr. Williams, seems to be working on another form of blogging called Medium.
http://www.nytimes.com/2014/05/26/business/media/a-platform-and-blogging-tool-medium-charms-writers.html?ref=business&_r=0
Since we have been using blogs to record our thoughts about current events, I wanted to know what everyone thinks about blogging. Has it helped to be able to use them? What are the disadvantages of using it? Advantages?
http://www.nytimes.com/2014/05/26/business/media/a-platform-and-blogging-tool-medium-charms-writers.html?ref=business&_r=0
Since we have been using blogs to record our thoughts about current events, I wanted to know what everyone thinks about blogging. Has it helped to be able to use them? What are the disadvantages of using it? Advantages?
Sunday, May 25, 2014
Is Piketty All Wrong? - NYTimes.com
A writer for the Financial Times took a hard look at some of Piketty's wealth data and found some problems. His conclusion is that Piketty is wrong. Others, including Paul Krugman, call for more explanation by Piketty of why he made the data manipulation choices that he made. At the same time, they doubt that Piketty's main conclusions have been refuted. Its all a big controversial mess in academia. Read Krugman's take here:
Is Piketty All Wrong? - NYTimes.com
Is Piketty All Wrong? - NYTimes.com
Saturday, May 24, 2014
The Ripple Effects of Rising Student Debt
"In many cases, the choices that student borrowers make are just common sense, based on the financial realities they face. Taken together, they seem to be having a substantive — many would say negative — effect on the economy.
Is that enough reason for schools or the government to step in with a solution? Not many schools are like Anon U (as the researchers above called it), which could afford to take loans off the table. If society wants to change the skewing effect of student loans, some tough decisions about allocating educational resources may well lie ahead."
In what ways can government step in to minimize the ripple effects of rising student debts?
Here is the link to the article.
Net Traffic Controller?
There's been a lot of talk about having Net companies control the amount of traffic or ads that pop up on computers. This has lead to a proposal from FCC (Federal Communications Commission) to make all companies who use ads or pop ups to discretely.
Here's the link below:
http://www.foxnews.com/tech/2014/05/22/why-should-be-upset-at-fccs-proposed-changes-to-net-neutrality/
What are your thoughts? Do you think that Net Traffic should be controlled? If passed, would this proposal affect companies' rights to post and discriminate between which ads to post?
Here's the link below:
http://www.foxnews.com/tech/2014/05/22/why-should-be-upset-at-fccs-proposed-changes-to-net-neutrality/
What are your thoughts? Do you think that Net Traffic should be controlled? If passed, would this proposal affect companies' rights to post and discriminate between which ads to post?
Friday, May 23, 2014
A New Critique of Piketty Has Its Own Shortcomings
The data used by the Piketty's book is a hot topic currently. Here is an interesting article that supports for Piketty's data or criticizes the people who are saying the data is flawed. The author appreciates the work done by the Financial Times but support's Pikkety's data.
Here is the link to the article.
A piece of advice from Warren Buffet
This article summarizes Warren Buffet's suggestions for business owners seeking for rapid growth.
“Keep things simple and don’t swing for the fences.”
What do you think?
“Keep things simple and don’t swing for the fences.”
What do you think?
Piketty's Data is Flawed
An interesting article I found in the FT...I don't think many of you will have access to the link so I am posting the entire article here.
One apparent example of straightforward transcription error in Prof Piketty’s spreadsheet is the Swedish entry for 1920. The economist appears to have incorrectly copied the data from the 1908 line in the original source.
May 23, 2014 7:00 pm
Thomas Piketty’s exhaustive
inequality data turn out to be flawed
By Chris Giles and Ferdinando
Giugliano
Thomas Piketty is in no doubt that
data underpin the conclusions of his best selling economics book, “Capital in the Twenty-First Century” .
He writes, in the introduction:
“Compared with previous works, one reason why this book stands out is that I
have made an effort to collect as complete and consistent a set of historical
sources as possible in order to study the dynamics of income and wealth
distribution over the long run”.
While the conclusions of his work,
including his call for an international wealth tax, have stirred
controversy among academics, commentators and policy makers, even his critics
have generally praised the ambition and quality of the data presented in the
text.
Reviewing the book this month, Lord Mervyn King,
former governor of the Bank of England, said, “the principal weakness of the
book is that the carefully assembled data do not live up to Piketty’s rhetoric
about the nature of capitalism”.
The sense of diligence in Professor
Piketty’s compilation of trends in wealth is bolstered by an online technical annex and spreadsheets
containing the data, with sources.
An investigation by the Financial
Times, however, has revealed many unexplained data entries and errors in the
figures underlying some of the book’s key charts.
These are sufficiently serious to
undermine Prof Piketty’s claim that the share of wealth owned by the richest in
society has been rising and “the reason why wealth today is not as unequally
distributed as in the past is simply that not enough time has passed since
1945”.
After referring back to the original
data sources, the investigation found numerous mistakes in Prof Piketty’s work:
simple fat-finger errors of transcription; suboptimal averaging techniques;
multiple unexplained adjustments to the numbers; data entries with no sourcing,
unexplained use of different
time periods and inconsistent uses of source data.
Together, the flawed data produce long
historical trends on wealth inequality that appear more comprehensive than the
source data allows, providing spurious support to Prof Piketty’s conclusion
that the “central contradiction of capitalism” is the inexorable concentration
of wealth among the richest individuals.
Once the data are cleaned and
simplified the European results do not show any tendency towards rising wealth
inequality after 1970.
The US source data are also too
inconsistent to draw a single long series. But when the individual sources are
graphed, none of them supports the view that the wealth share of the top 1 per
cent has increased in the past few decades. There is some evidence of a rise in
the top 10 per cent wealth share since 1970.
The FT uncovered several types of
defect.
One apparent example of straightforward transcription error in Prof Piketty’s spreadsheet is the Swedish entry for 1920. The economist appears to have incorrectly copied the data from the 1908 line in the original source.
A second class of problems relates to
unexplained alterations of the original source data. Prof Piketty adjusts his
own French data on wealth inequality at death to obtain inequality among the
living.
However, he used a larger adjustment scale for 1910 than for all the
other years, without explaining why.
In the UK data, instead of using his
source for the wealth of the top 10 per cent population during the 19th
century, Prof Piketty inexplicably adds 26 percentage points to the wealth
share of the top 1 per cent for 1870 and 28 percentage points for 1810.
A third problem is that when averaging
different countries to estimate wealth in Europe, Prof Piketty gives the same
weight to Sweden as to France and the UK – even though it only has one-seventh
of the population.
There are also inconsistencies with
the years chosen for comparison. For Sweden, the academic uses data from 2004
to represent those from 2000, even though the source data itself includes an
estimate for 2000.
Prof Piketty’s documents explaining
his sources and methods, suggest that he uses similar data from death duty
records around the world. In fact, he interchanges between such source material
and surveys of the living, which often give very different answers. Switching
between the two sorts of data series, particularly for the US is important to
his results.
Some of the biggest defects relate to
the UK data, where his original sources consistently show very large declines
of near 10 percentage points in wealth held by the rich in the highly
inflationary 1970s.
Conversely, Prof Piketty shows the
super rich held a greater share of wealth by 1980 and the top 10 per cent saw
their share fall only 1.5 percentage points.
The official data series that Prof
Piketty says he used for the UK after 1980 shows little increase in inequality
over the next 30 years, while his figures show a steep rise.
The Hackers Are Back...
A while ago, there was a scandal with the Internet in China about several people's use of it. The Internet was hacked in the US and information was being sent to China. Most of the info taken by the hackers included some data from the US' FBI and about the US military. The last time it has happened, nothing concrete was done by China or the US to solve the problem.
http://www.nytimes.com/2014/05/23/world/asia/china-threatens-security-checks-for-tech-firms-after-us-indictments.html?ref=world
What do you think should happen? Should there be a law to stop this? Should the hackers be arrested in China?
http://www.nytimes.com/2014/05/23/world/asia/china-threatens-security-checks-for-tech-firms-after-us-indictments.html?ref=world
What do you think should happen? Should there be a law to stop this? Should the hackers be arrested in China?
Thursday, May 22, 2014
Too Much Information? Facebook, Google Face Backlash Over Logins
We all needed a google account to access this blog site. Everyday we use number of apps where we use our facebook and google account to login. Facebook and google already has enough information about us and when we hit the login to a separate app using facebook/google account, we accept the policy that we are ready to share the socail media information and our contacts. Google and facebook charges the apps and thus they are making money with our private information.
How frequently do you login to other sites using google/facebook accounts? Do you feel safe?
Here is the link to the article.
How frequently do you login to other sites using google/facebook accounts? Do you feel safe?
Here is the link to the article.
A drug deal goes bad
"CREATING the world's largest drug company was never going to be easy. But Pfizer probably didn't expect it would be this hard. After months of speculation, mounting opposition and multiple offers, the American pharmaceutical giant looks set to give up its attempt to take over AstraZeneca, Britain's second largest drugmaker, which would have created the biggest drug company in the world."
Few weeks ago we discussed the advantages of Pfizer shifting its major location from US to Europe. Pfizer attempt to take over AstraZeneca has failed and it cannot make another bid for the next 6 months from now.
Personally, I don't support monopoly in most of the cases but there are few people out there who believe creating large monopoly in the medical field is beneficial. Creating such large monopoly is killing the innovation and furthermore, shifting the location from US to Europe will destroy lots of R&D jobs in US. Do you think the regulators should act against it when Pfizer comes back again with a bid after 6 months?
Here is the link to the article.
Few weeks ago we discussed the advantages of Pfizer shifting its major location from US to Europe. Pfizer attempt to take over AstraZeneca has failed and it cannot make another bid for the next 6 months from now.
Personally, I don't support monopoly in most of the cases but there are few people out there who believe creating large monopoly in the medical field is beneficial. Creating such large monopoly is killing the innovation and furthermore, shifting the location from US to Europe will destroy lots of R&D jobs in US. Do you think the regulators should act against it when Pfizer comes back again with a bid after 6 months?
Here is the link to the article.
Senate's Fate to Who?
I have kept up with what was happening in the Senate for the upcoming elections and I am blown out of the water. I was at first surprised by some of the issues that seemed to be coming up in terms of how much power women who are aiming for positions in the Senate have on which party controls the flow of politics.
One such article that got me to thinking was this one:
http://www.cnn.com/2014/05/21/politics/senate-midterms-women-candidates/index.html?hpt=po_c1
What are your thoughts about the upcoming elections? What issues might come up if women are left in control of the Senate? Is it a problem? Could this mean a change in how some laws are passed or amended?
One such article that got me to thinking was this one:
http://www.cnn.com/2014/05/21/politics/senate-midterms-women-candidates/index.html?hpt=po_c1
What are your thoughts about the upcoming elections? What issues might come up if women are left in control of the Senate? Is it a problem? Could this mean a change in how some laws are passed or amended?
Piketty's Inequality Story in Six Charts from The New Yorker
This short piece reviews the basic graphs from the first part of the book. I found it very helpful as an outline for understanding the relatively dense chapters.
Piketty's Inequality Story in Six Charts : The New Yorker
Piketty's Inequality Story in Six Charts : The New Yorker
Piketty Review Roundup: “Capital in the 21st Century” : Blog of the Century
If anyone wants to read a review of Piketty, here is a list of them.
Piketty Review Roundup: “Capital in the 21st Century” : Blog of the Century
Piketty Review Roundup: “Capital in the 21st Century” : Blog of the Century
Wednesday, May 21, 2014
After Fed, Bernanke Offers His Wisdom, for a Big Fee
According to this article, Bernanke is charging fees in the region $200,000-$400,000 for his few hours of words of wisdom.
"During his eight years as steward of the world’s largest economy, Mr. Bernanke’s salary was about $200,000 a year. Now he makes that in just a few hours speaking to bankers, hedge fund billionaires and leaders of industry. This year alone, he is poised to make millions of dollars from speaking engagements."
Is it worth to pay him such large amount? It is not illegal to advise someone. However, when an ex-public regulator charges such huge sums for one private dinner, I have a feeling that something is wrong. Unless he brings new things to the dinner table, why would any one pay such huge figures when they can "read what Janet Yallen and Mark Carney have to say and draw same conclusions." What do you think about this?
"During his eight years as steward of the world’s largest economy, Mr. Bernanke’s salary was about $200,000 a year. Now he makes that in just a few hours speaking to bankers, hedge fund billionaires and leaders of industry. This year alone, he is poised to make millions of dollars from speaking engagements."
Is it worth to pay him such large amount? It is not illegal to advise someone. However, when an ex-public regulator charges such huge sums for one private dinner, I have a feeling that something is wrong. Unless he brings new things to the dinner table, why would any one pay such huge figures when they can "read what Janet Yallen and Mark Carney have to say and draw same conclusions." What do you think about this?
Is It For The Money?!
To start off this blog, I thought about 9/11. It is almost upon us and has been an issue for a while in the U.S.
I want to hear your thoughts about the following article regarding a situation that has occurred using it as a money making scheme. Here's the link to the article:
http://www.cnn.com/2014/05/19/us/9-11-memorial-museum-gift-shop/index.html?hpt=us_c2
What are your thoughts about the issue? Should the museum be allowed to do this? What other issues can arise from the museum's mission? Is it just a case of morality?
Tuesday, May 20, 2014
Austrian School's Capital in the 21st Century
Here is an interview of German economist Andreas Marquant who recently co-authored a book titled (translated to English) "Why Others are Getting Rich at Your Expense."
http://mises.org/daily/6753/How-Fractional-Reserves-and-Inflation-Cause-Economic-Inequality
At the very end of the interview, Marquant makes a strong criticism of Piketty's book.
Piketty’s biggest error is to conclude from the data collected that under capitalism the rich get richer in relation to everyone else. I’m afraid that such a claim is nonsense. Piketty takes his data from a period that is characterized by both capitalism and socialism, and then he attributes everything he dislikes to capitalism. Yet his data is not from a capitalist world. The economic system in which we live today is a crony capitalist system or, we might say, a system of money socialism. And that’s Piketty’s greatest error: to blame capitalism for the negative effects of crony capitalism and money socialism. But perhaps it is no error. Perhaps, he only wants to be loved by politicians and the IMF. I think they love him already, though.
Marquant argues that the income inequality is a result of crony capitalism and monetary socialism, not the free market. There are some strengths in Marquant's argument because it supports Piketty's argument of inflation's contribution to the growing income inequality and the crony capitalism that has been mentioned in the other books we have read in class.
I'll have to finish reading the book before I make my final opinion of Piketty's arguments.
http://mises.org/daily/6753/How-Fractional-Reserves-and-Inflation-Cause-Economic-Inequality
At the very end of the interview, Marquant makes a strong criticism of Piketty's book.
Piketty’s biggest error is to conclude from the data collected that under capitalism the rich get richer in relation to everyone else. I’m afraid that such a claim is nonsense. Piketty takes his data from a period that is characterized by both capitalism and socialism, and then he attributes everything he dislikes to capitalism. Yet his data is not from a capitalist world. The economic system in which we live today is a crony capitalist system or, we might say, a system of money socialism. And that’s Piketty’s greatest error: to blame capitalism for the negative effects of crony capitalism and money socialism. But perhaps it is no error. Perhaps, he only wants to be loved by politicians and the IMF. I think they love him already, though.
Marquant argues that the income inequality is a result of crony capitalism and monetary socialism, not the free market. There are some strengths in Marquant's argument because it supports Piketty's argument of inflation's contribution to the growing income inequality and the crony capitalism that has been mentioned in the other books we have read in class.
I'll have to finish reading the book before I make my final opinion of Piketty's arguments.
Chapters review of Thomas Piketty's "Capital"
Here are the links to the review of each chapter from the "Economist". I have only included the links of Chapter 1-6, which is this week's reading.
http://www.economist.com/blogs/freeexchange/2014/03/book-clubs-0
http://www.economist.com/blogs/freeexchange/2014/03/book-clubs-1
http://www.economist.com/blogs/freeexchange/2014/03/book-clubs-2
http://www.economist.com/blogs/freeexchange/2014/04/book-clubs
http://www.economist.com/blogs/freeexchange/2014/03/book-clubs-0
http://www.economist.com/blogs/freeexchange/2014/03/book-clubs-1
http://www.economist.com/blogs/freeexchange/2014/03/book-clubs-2
http://www.economist.com/blogs/freeexchange/2014/04/book-clubs
Congratulations to Class of 2014, Most Indebted Ever - WSJ
Pretty sad trends in this article. Some good graphics in the article to look at. What are your thoughts? What should be done, and how?
Some excerpts:
"The average Class of 2014 graduate with student-loan debt has to pay back some $33,000, according to an analysis of government data by Mark Kantrowitz, publisher at student-marketing company Edvisors."
"A little over 70% of this year’s bachelor’s degree recipients are leaving school with student loans, up from less than half of graduates in the Class of 1994."
"The good news for the Class of 2014 is that they likely won’t hold the title of “Most Indebted Ever” very long. Just as they took it over from the Class of 2013, the Class of 2015 will probably take it from them."
"A good rule of thumb is that undergraduate and graduate students should borrow no more for their entire education than their expected salary at graduation."
"The problem developing is that earnings and debt aren’t moving in the same direction."
Some excerpts:
"The average Class of 2014 graduate with student-loan debt has to pay back some $33,000, according to an analysis of government data by Mark Kantrowitz, publisher at student-marketing company Edvisors."
"A little over 70% of this year’s bachelor’s degree recipients are leaving school with student loans, up from less than half of graduates in the Class of 1994."
"The good news for the Class of 2014 is that they likely won’t hold the title of “Most Indebted Ever” very long. Just as they took it over from the Class of 2013, the Class of 2015 will probably take it from them."
"A good rule of thumb is that undergraduate and graduate students should borrow no more for their entire education than their expected salary at graduation."
"The problem developing is that earnings and debt aren’t moving in the same direction."
Two economists debate over Piketty's "Capital"
https://www.youtube.com/watch?v=kBl5V-pQOAw
In this video Heather Boushey of Washington Center for Equitable Growth and Kevin Hassett of American Enterprise Institute debate Piketty's data and conclusions. Boushey thoughtfully agrees with Piketty's conclusions while Hassett can only nitpick on the fact that Piketty's data is based on pretax income. In the debate, Hassett comes off as a pretentious intellectual/technocrat and only Boushey is able to recognize the big picture, that large concentrations of wealth are calcifying into even greater ones and this pattern is likely to continue until drastic action is taken. Furthermore, the fact that Piketty's conclusions actually still hold up after taxes really dulls the blade of Hassett's criticism.
What is your take on Piketty's data and conlclusions in "Capital" so far? Do you agree with Boushey or Hassett?
In this video Heather Boushey of Washington Center for Equitable Growth and Kevin Hassett of American Enterprise Institute debate Piketty's data and conclusions. Boushey thoughtfully agrees with Piketty's conclusions while Hassett can only nitpick on the fact that Piketty's data is based on pretax income. In the debate, Hassett comes off as a pretentious intellectual/technocrat and only Boushey is able to recognize the big picture, that large concentrations of wealth are calcifying into even greater ones and this pattern is likely to continue until drastic action is taken. Furthermore, the fact that Piketty's conclusions actually still hold up after taxes really dulls the blade of Hassett's criticism.
What is your take on Piketty's data and conlclusions in "Capital" so far? Do you agree with Boushey or Hassett?
Monday, May 19, 2014
Should we just, do what we love?
Not my week to post but this article is starting to make rounds again, published earlier this year:
https://www.jacobinmag.com/2014/01/in-the-name-of-love/
In it the author tears apart the idea that we should "do what we love" from more than one angle. Here are a couple snippets...
"Ironically, DWYL reinforces exploitation even within the so-called lovable professions where off-the-clock, underpaid, or unpaid labor is the new norm: reporters required to do the work of their laid-off photographers, publicists expected to Pin and Tweet on weekends, the 46 percent of the workforce expected to check their work email on sick days. Nothing makes exploitation go down easier than convincing workers that they are doing what they love."
"Do what you love and you’ll never work a day in your life! Before succumbing to the intoxicating warmth of that promise, it’s critical to ask, “Who, exactly, benefits from making work feel like non-work?” “Why should workers feel as if they aren’t working when they are?” Historian Mario Liverani reminds us that “ideology has the function of presenting exploitation in a favorable light to the exploited, as advantageous to the disadvantaged.”"
What do you all think? Should we do what we love, or demand something more from our employment? Is the author right?
Good food for thought as we all approach graduation...
https://www.jacobinmag.com/2014/01/in-the-name-of-love/
In it the author tears apart the idea that we should "do what we love" from more than one angle. Here are a couple snippets...
"Ironically, DWYL reinforces exploitation even within the so-called lovable professions where off-the-clock, underpaid, or unpaid labor is the new norm: reporters required to do the work of their laid-off photographers, publicists expected to Pin and Tweet on weekends, the 46 percent of the workforce expected to check their work email on sick days. Nothing makes exploitation go down easier than convincing workers that they are doing what they love."
"Do what you love and you’ll never work a day in your life! Before succumbing to the intoxicating warmth of that promise, it’s critical to ask, “Who, exactly, benefits from making work feel like non-work?” “Why should workers feel as if they aren’t working when they are?” Historian Mario Liverani reminds us that “ideology has the function of presenting exploitation in a favorable light to the exploited, as advantageous to the disadvantaged.”"
What do you all think? Should we do what we love, or demand something more from our employment? Is the author right?
Good food for thought as we all approach graduation...
Fed's Rate-Change System Up for Revamp - WSJ
A change is likely to occur to the way that the Fed changes interest rates, something that has not been done in decades. Below are two major concerns for the Fed when deciding how to approach this situation:
"One worry: As Fed officials move toward a new system, trading in the fed funds market could dry up and make the fed funds rate unstable. That could unsettle $12 trillion worth of derivatives contracts called interest rate swaps that are linked to the fed funds rate, posing problems for people and institutions using these instruments to hedge or trade."
"Another worry: If they make overnight reverse repo trades more appealing than bank reserves, they could drive activity in short-term lending markets away from banks and toward unregulated money funds."
This article describes that the Fed are in unchartered grounds right now, however the they are confident that they can control and tighten credit conditions in the U.S. What are your thoughts?
AT&T acquires DirecTV for $48.5 billion
On Sunday, AT&T agreed to acquire DirecTV for $48.5 Billion:
http://www.reuters.com/article/2014/05/19/us-directv-att-idUSBREA4B0W220140519
Although AT&T is saying this deal will allow them to supply superior services to customers, some consumers and regulators are concerned because the AT&T-DirecTV merger would effectively cut the number of video providers from four to three for about 25 percent of U.S. households. Such a situation could result in higher prices for consumers.
Should the government challenge this merger?
http://www.reuters.com/article/2014/05/19/us-directv-att-idUSBREA4B0W220140519
Although AT&T is saying this deal will allow them to supply superior services to customers, some consumers and regulators are concerned because the AT&T-DirecTV merger would effectively cut the number of video providers from four to three for about 25 percent of U.S. households. Such a situation could result in higher prices for consumers.
Should the government challenge this merger?
Criticism and Summary of Capital in the 21st century
For your convenience, this is the criticism surrounding Capital in the 21st century and the summary of the book in the Economist (Sanjay posted this before I believe).
Below is what I find most relevant to the first 6 chapters (including intro, which provides a great overview of different schools of thoughts):
<<
“Capital” makes three big contributions in its 577 pages. First, Mr Piketty, a pioneer in using tax statistics to measure inequality, painstakingly documents the evolution of income and wealth over the past 300 years, particularly in Europe and America. In doing so, he shows that the period from about 1914 to the 1970s was an historical outlier in which both income inequality and the stock of wealth (relative to annual national income) fell dramatically. Since the 1970s both wealth and income gaps have been rising back towards their pre-20th-century norms. There are surely a few snafus in these statistics, but this work has transformed understanding of the history of wealth, with eye-popping results. Who knew, for instance, that the annual value of inheritances in France has tripled from less than 5% of GDP in the 1950s to about 15%, not all that far from the 19th-century peak of 25%? As a piece of empirical sleuthing, the book is indisputably brilliant.
Mr Piketty’s second contribution is to come up with a theory of capitalism that explains these facts and offers a prediction of where wealth distribution is heading. His central claim is that the free-market system has a natural tendency towards increasing the concentration of wealth, because the rate of return on property and investments has consistently been higher than the rate of economic growth. Two world wars, the Depression and high taxes pushed down the return on wealth in the 20th century, while rapid productivity and population rises pushed up growth. But without such countervailing factors, Mr Piketty argues, higher returns on capital will concentrate wealth—especially when, as now, an ageing population means that growth should slow.
Mr Piketty’s expectation of rising wealth concentration is not outlandish. However, it is a prediction based on extrapolating from the past, not an inherent model of capitalism. He assumes that the returns to capital will not fall substantially even as the stock of wealth rises. That may prove to be true, but the Piketty prediction is a hypothesis, not an iron law.
>>
Below is what I find most relevant to the first 6 chapters (including intro, which provides a great overview of different schools of thoughts):
<<
“Capital” makes three big contributions in its 577 pages. First, Mr Piketty, a pioneer in using tax statistics to measure inequality, painstakingly documents the evolution of income and wealth over the past 300 years, particularly in Europe and America. In doing so, he shows that the period from about 1914 to the 1970s was an historical outlier in which both income inequality and the stock of wealth (relative to annual national income) fell dramatically. Since the 1970s both wealth and income gaps have been rising back towards their pre-20th-century norms. There are surely a few snafus in these statistics, but this work has transformed understanding of the history of wealth, with eye-popping results. Who knew, for instance, that the annual value of inheritances in France has tripled from less than 5% of GDP in the 1950s to about 15%, not all that far from the 19th-century peak of 25%? As a piece of empirical sleuthing, the book is indisputably brilliant.
Mr Piketty’s second contribution is to come up with a theory of capitalism that explains these facts and offers a prediction of where wealth distribution is heading. His central claim is that the free-market system has a natural tendency towards increasing the concentration of wealth, because the rate of return on property and investments has consistently been higher than the rate of economic growth. Two world wars, the Depression and high taxes pushed down the return on wealth in the 20th century, while rapid productivity and population rises pushed up growth. But without such countervailing factors, Mr Piketty argues, higher returns on capital will concentrate wealth—especially when, as now, an ageing population means that growth should slow.
Mr Piketty’s expectation of rising wealth concentration is not outlandish. However, it is a prediction based on extrapolating from the past, not an inherent model of capitalism. He assumes that the returns to capital will not fall substantially even as the stock of wealth rises. That may prove to be true, but the Piketty prediction is a hypothesis, not an iron law.
>>
Sunday, May 18, 2014
Richard Koo's "Balance Sheet Recession"
I’m posting a video on this topic
again because I think there’s a lot the U.S. can learn from Japan’s “lost
decade” and this will give us some insight into what kind of monetary/fiscal
policy the U.S. should pursue and why the Fed is still keeping interest rates at record lows for such a long time. In this video economist Richard Koo says
that what the world is experiencing right now, a "balance sheet
recession," is different from traditional recessions. Below is a more in-depth blog post on
the “balance sheet recession”:
Do you think the deleveraging is over
yet? Does this explain why the Fed has kept
interest rates low for such a long time and/or why the U.S. is doing so much better
than Europe? If the deleveraging is not over, what
will be the effect of cutting spending (government or otherwise)? Apparently Ben Bernanke met Richard Koo
and thanked him for his work; do you think the Fed has learned from Japan’s
experience?
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