China's Wage Hikes Ripple Across Asia

The article reports that more and more asian governments across Asia now are increasing wages as a way to prevent outbreaks of labor unrest by pressing businesses like increasing the minimum wage level. Malaysia has approved the country's first-ever minimum wage to be imposed soon. Other regions in the region from Thailand to Indonesia follow efforts by China over the past two years to boost pay after years of widening gaps between rich and poor. All these efforts raises the specter of higher manufacturing costs for global companies and the products they sell world-wide.

The Reason for Rising Oil Prices: Dan Yergin

Tensions over Iran and the sanctions against the country are the main reasons for surging oil prices.

The sanctions are set to take effect this summer and are expected to reduce the flow of Iranian oil into the world market. While they are anticipated, they are not fully priced into the oil market. 

In other words, once the sanctions go into effect, he expects oil prices to rise further. While people may be looking at Iraq, Angola, and Libya to help replace the Iranian barrels in the market, don’t count out the United States.

http://www.cnbc.com/id/46765040

Jobless numbers defy economic theory

The unemployment rate is also influenced by the labor participation rate – that is, the percentage of working-age persons who are employed as well as unemployed and searching for work. While labor participation has been stabilizing recently, it has declined considerably over the years. And at 64%, the rate is two perecentage points lower than its pre-recession level. As Fortune pointed out last week, the drop might have less to do with discouraged workers giving up their job hunt (as economists widely believe), but also the flux of aging baby boomers retiring and leaving the labor pool altogether.

The Resource Curse?

http://www.economist.com/node/21547793
This article presented an interesting look on the general belief behind the resource debate.  Natural resources are a major shaping factor and influence in the economy and organization of the economic system of a country. The supported theory has been that resources are a curse through the attraction of rent seekers, but also the "Dutch Disease" with a less competitive manufacturing center.  However, this article points out that in Texas currently and some of the other oil rich areas we are not seeing a curse, but rather a boon.   As one of the other bloggers posted, petroleum engineers are in high demand in the economy and although oil itself as a fuel source is not sustainable there has been a lot of growth and wealth in the industry.  What do you think will happen as sources dwindle further?  Might Texas experience some of the same effects of the "Dutch Disease" that has commonly afflicted more developed oil-rich areas?

Energy, Jobs, and High Salaries

As the energy market heats up, new drilling technology allows for development of new oil reservers, and many Engineers in the energy industry are hitting retirement there is a perfect storm for a high demand and high wage career. Today Petroleum Engineering has the highest job placement rate and highest salary out of any engineering sector, under graduate students are taking notice more are pursuing the field of student. Energy companies are hard at work to insure they are able to attract the best students and have used wage as a driving factor. Do you think it is right that today a Petroleum Engineering is likely to make nearly $20,000 more then a Civil Engineer?

Body of evidence Is a concentration of wealth at the top to blame for financial crises?

IN THE search for the villain behind the global financial crisis, some have pointed to inequality as a culprit. In his 2010 book “Fault Lines”, Raghuram Rajan of the University of Chicago argued that inequality was a cause of the crisis, and that the American government served as a willing accomplice. From the early 1980s the wages of working Americans with little or no university education fell ever farther behind those with university qualifications, he pointed out. Under pressure to respond to the problem of stagnating incomes, successive presidents and Congresses opened a flood of mortgage credit.

In 1992 the government reduced capital requirements at Fannie Mae and Freddie Mac, two huge sources of housing finance. In the 1990s the Federal Housing Administration expanded its loan guarantees to cover bigger mortgages with smaller down-payments. And in the 2000s Fannie and Freddie were encouraged to buy more subprime mortgage-backed securities. Inequality, Mr Rajan argued, prepared the ground for disaster.

Mr Rajan’s story was intended as a narrative of the subprime crisis in America, not as a general theory of financial dislocation. But others have noted that inequality also soared in the years before the Depression of the 1930s. In 2007 23.5% of all American income flowed to the top 1% of earners—their highest share since 1929. In a 2010 paper Michael Kumhof and Romain Rancière, two economists at the International Monetary Fund, built a model to show how inequality can systematically lead to crisis. An investor class may become better at capturing the returns to production, slowing wage growth and raising inequality. Workers then borrow to prop up their consumption. Leverage grows until crisis results. Their model absolves politicians of responsibility; inequality works its mischief without the help of government.

New research hints at other ways inequality could spur crisis. In a new paper* Marianne Bertrand and Adair Morse, both of the University of Chicago, study patterns of spending across American states between 1980 and 2008. In particular, they focus on how changes in the behaviour of the richest 20% of households affect the spending choices of the bottom 80%. They find that a rise in the level of consumption of rich households leads to more spending by the non-rich. This “trickle-down consumption” appears to result from a desire to keep up with the Joneses. Non-rich households spend more on luxury goods and services supplied to their more affluent neighbours—domestic services, say, or health clubs. Had the incomes of America’s top 20% of earners grown at the same, more leisurely pace as the median income, they reckon that the bottom 80% might have saved more over the past three decades—$500 per household per year for the entire period between 1980 and 2008, or $800 per year just before the crisis. In states where the highest earners were wealthiest, non-rich households were more likely to report “financial duress”.

The paper also reveals how responsive government is to rising income inequality. The authors analyse votes on the credit-expansion measures cited in Mr Rajan’s book. When support for a bill varies, the authors find that legislators representing more unequal districts were significantly more likely to back a loosening of mortgage rules.

Inequality may drive instability in other ways. Although sovereign borrowing was not a direct contributor to the crisis of 2008, it has since become the principal danger to the financial system. In another recent paper Marina Azzimonti of the Federal Reserve Bank of Philadelphia, Eva de Francisco of Towson University and Vincenzo Quadrini of the University of Southern California argue that income inequality may have had a troubling effect in this area of finance, too.

The authors’ models suggest that a less equitable distribution of wealth can boost demand for government borrowing to provide for the lagging average worker. In the recent past this demand would have coincided with a period of financial globalisation that allowed many governments to rack up debt cheaply. Across a sample of 22 OECD countries from 1973 to 2005, they find support for the notion that inequality, financial globalisation and rising government debt do indeed march together. The idea that inequality might create pressure for more redistribution through public borrowing also occurred to Mr Rajan, who acknowledges that stronger safety nets are a more common response to inequality than credit subsidies. Liberalised global finance and rising inequality may thus have led to surging public debts.

Reasonable doubt

Other economists wonder whether income inequality is not wrongly accused. Michael Bordo of Rutgers University and Christopher Meissner of the University of California at Davis recently studied 14 advanced countries from 1920 to 2008 to test the inequality-causes-busts hypothesis. They turn up a strong relationship between credit booms and financial crises—a result confirmed by many other economic studies. There is no consistent link between income concentration and credit booms, however.

Inequality occasionally rises with credit creation, as in America in the late 1920s and during the years before the 2008 crisis. This need not mean that the one causes the other, they note. In other cases, such as in Australia and Sweden in the 1980s, credit booms seem to drive inequality rather than the other way around. Elsewhere, as in 1990s Japan, rapid growth in the share of income going to the highest earners coincided with a slump in credit. Rising real incomes and low interest rates reliably lead to credit booms, they reckon, but inequality does not. Mr Rajan’s story may work for America’s 2008 crisis. It is not an iron law.

'Stupid' and Oil Prices Obama's Forrest Gump analysis of rising gas prices.

'Stupid' and Oil Prices

'The American people aren't stupid," thundered President Obama yesterday in Miami, ridiculing Republicans who are blaming him for rising gasoline prices. Let's hope he's right, because not even Forrest Gump could believe the logic of what Mr. Obama is trying to sell.

To wit, that a) gasoline prices are beyond his control, but b) to the extent oil and gas production is rising in America, his energy policies deserve all the credit, and c) higher prices are one more reason to raise taxes on oil and gas drillers while handing even more subsidies to his friends in green energy. Where to begin?

To what extent do you believe President Obama can control gas prices? How important are gas prices to inflation?

American exports ~ $2.1 trillion

This short article depicts America's exports. We mostly sell good, despite our service oriented economy. Most of these goods are capital goods and industrial products. We export services are travel and, surprisingly enough, royalties.

This is a good article, check it out.

Innovation in China

http://www.economist.com/node/21549938

 

This article discusses the growth process in China. As we all know, China has seen considerable growth in recent decades and has become a center for international manufacturing and production. This is, in part, to firms taking advantage of the huge supply of human labor available in the country. Urbanization has occurred and sped up the process considerably.  The Chinese government has recognized that this type of growth is not sustainable so they have invested a lot of money into Research and Development. However, too few of these funds have led to actual research for improved goods or developing new ideas. Critics believe this is because of the government involvement in the system. Can China overcome this common problem?

China’s dilemma reminds me of our discussion of intensive and extensive growth.  The government either needs to find a better way of improving its intensive growth – through changing the incentive system for innovation or lessening the government’s control of the market. Will there be such a substantial decline in the growth rate that China will be forced to do something or will they gradually change their policy to improve their long-term growth?

Japan shutting down nuclear power industry

The tsunami and earthquake that hit Japan left the whole country rattled and in ruins. Many lost homes, businesses and loved ones. This has set the country back substantially, this is common knowledge. A large problem caused by the disasters is the affects it had on the nuclear power plants. The nuclear power plants where hit so hard that the foundations cracked, leaks began, and reactors became unstable. japan was faced with the harsh reality of shutting down their power plants, temporarily. They have been providing a third of the countries electricity. The community is nervous to get the generators back online but Yoshihiko Noda wants thems back up and running as soon as possible. They are already incurring large cost from trying to clean up and dispose of contaminated water. Measures have been taken to help aid the countries energy, alternative sources and conservative daily habits. If Japan doesn't fix their power crises, there will be a detrimental chain of events that will economic destruction.

http://www.msnbc.msn.com/id/46676913/ns/world_news-the_new_york_times/

Jobs Numbers and the Economics of Emotion

http://business.time.com/2012/03/09/jobs-numbers-and-the-economics-of-emotion/?iid=biz-main-lede

This article talks about how our mood plays a significant role in the way events take shape. It states that our mood dictates the market and not the other way round. This can be related to speculators and arbitragers who invest in stocks because they are confident about it or have a positive feeling about it. This confidence can translate into a market experiencing a boom.