Growing Size of Firms May Help to Explain Rising Inequality

The article relates income inequality with rising size of firms. As firms grow bigger they can achieve economies of scale that allow their workers to be more productive resulting in higher pay. Therefore, at big companies a bathroom cleaner and a top executive should have higher pay than their counterparts in smaller firms. However, the benefits of scale are not shared equally among all workers as there is a rising gap in wages of top executives from the bottom as the firm size increases. Thus, only the senior workers enjoy benefit of scale because of their skill sets. Moreover, the number of workers employed by 100 biggest firms rose by 53% between 1986 to 2010 resulting in greater wage disparity, and income inequality.

One solution the article proposes is to spur competition by removing barriers to entry to smaller firms. This will distribute workers to smaller firms which will reduce income inequality, and boost economic growth. What do you think?

Link

Lending to poor farmers: Seeding the market

http://www.economist.com/news/finance-and-economics/21646267-non-profit-proves-rural-collectives-make-safe-and-profitable

The article begins with a short story about a man named Mr. Foote, founder of Root Capital, who quit his job as a Wall Street analyst and lent $73,000 to a coffee co-operative in Guatemala that has since expanded to 25 countries in Latin America, Africa, and Indonesia.  Essentially, Mr. Foote's business is lending to the owners of small farms in poor countries.  An estimated 450 million of these smallholdings exist worldwide, providing a subsistence-at-best income for more than 2 billion of the poorest people on the planet.

Mainstream finance has largely ignored this group of 2 billion people.  They face hardships including poor land quality, lack of infrastructure, and a constant threat of extreme weather.  The lack of access to credit for working capital and investment makes these hardships worse.

Both microcredit outfits that deal in tiny loans as well as businesses such as Mr. Foote's, which deal in larger loans, are proving that the poorest of the poor can be perfectly responsible borrowers.  In fact, the company says that less than 3% of its loans go bad.  

Mr. Foote's loans come with free advice and training in how to best use the money, increasing productivity as well as income for the various farmers.  The money also protects the farmers from having to sell their wares cheaply to the first available buyer.  More than half of Mr. Foote's borrowers see their income increase by at least 20% a year after receiving a loan; it rises by over 50% for nearly a third of them.

Mr. Foote's company offers credit and technical advice to roughly 550 borrowers.  In February, its portfolio of loans reached $100 million for the first time.  The cumulative total of loans the company has made since 1999 is expected to pass $1 billion later this year.  Mr. Foote's company has capitalized on the growing enthusiasm for sustainably farmed or organic goods among consumers in the rich world.  The company itself is a non-profit.  Foote believes that since the company has proven itself as viable, private investors will buy in.  Most of Foote's company's loans of $350,000 or more (roughly 25% of its portfolio) are profitable at interest rates of no more than 13% per year.

I found this article to be both interesting as well as inspiring.  I feel that it attests to the potential of economics on a global scale while demonstrating work towards income equality through investments and loans.

Seattle Restaurants

http://www.seattlemag.com/article/why-are-so-many-seattle-restaurants-closing-lately

Seattle just set a new minimum wage requirement of $15 for all employees, and it seems this among other factors is having a major effect on restaurants in the area. While the article does discuss location and other factors in restaurant closures, this doesn't seem to go too far beyond the norm (as the article states, throughout the country roughly 60,000 restaurants open each year and 50,000 close) for shutdowns. The only real new factor is the wage increase requirements, which make the average small restaurant unprofitable due to labor costs.
This is interesting too in that it provides some data on restaurant shutdowns that translates to Delaware as well -- namely that the ones that survive are based primarily on establishing a group of regulars. Considering how many restaurants in Delaware go in and out of business, with Hamburger Inn and a few others surviving consistently, this likely explains the majority of the restaurants around here.
All in all, the new minimum wage in Seattle already seems to be having an effect (as people close restaurants before they become unprofitable), and the good and bad effects in the future are something worth watching.

U.S. Banks Pass Stress Tests, Some With an Asterisk

Bank of America, the nation’s second-largest bank by assets afterJPMorgan Chase, passed only provisionally and could still fail later this year if it does not fix deficiencies that the Fed identified. The Fed said that Bank of America stumbled this year because it had shown weaknesses in its internal controls and in how it had projected losses and revenue in the tests. Citigroup passed this year, a result that will come as relief to its top managers, who faced criticism after the Fed failed the banking giant in 2014 for having a deficient disaster plan.JPMorgan, Goldman and Morgan Stanley had to change their plans to pay out capital to pass the tests. After the stress test results came out, Morgan Stanley announced a plan to buy back $3.1 billion of common stock. “Today’s actions reflect the hard work of our employees over the last several years as we have been executing our strategic priorities,” James P. Gorman, Morgan Stanley’s chief executive, said in a statement.

Car Hub Project to Spur Philippine Manufacturing

http://www.bloomberg.com/news/articles/2015-03-10/car-hub-project-to-spur-philippine-manufacturing-southeast-asia

Philippines, one of  Asia's fastest  growing economies is aiming at becoming the region's car production hub. And to achieve this the Philippines will offer tax breaks to 3 automakers.

However, car makers will need to meet the minimum production levels of 40,000 vehicles fully built in the country to be eligible for the tax breaks.

The tax breaks will be implemented by the CARS(Comprehensive Automotive Resurgence Strategy) program. The CARS program is projected to save  around $17 billion in import costs by 2022. This program will benefit both the government and the private sector.

"The Philippines is seeking to replicate Thailand's success in building its auto industry, betting that a young workforce and its biggest economic boom since the 1950s will lure companies such as Volkswagen and AG."

The Philippines government is also increasing its spending on road & airport development and maintenance, as this will increase FDI and could lead to a growth by 8%.

The Philippines claim of not competing with Thailand in car production but have a vision of being the regional mass producer.  Do you think the CARS program will be a successful model?

“The Dollar is Crushing Other Currencies”

The U.S. dollar has appreciated significantly, now at a 12 year high against the euro and an 8 year high against the yen.  This is deemed mostly as a result of the U.S.’s superior emergence out of the recession compared to most of the world.  People planning to travel internationally or purchase foreign produced goods in the near future welcome the news, since foreign goods become relatively cheaper when the dollar appreciates.  However, investors have a different reaction.  Companies who rely on sales in international markets will experience poor currency translation, which will hurt their overall revenue.  Investors are expecting the companies to present weak quarterly reports because of this, and are selling their stocks now.  Also, American companies, such as Ford for example, will find it tough to compete with foreign manufacturers, since their cars are now relatively expensive due to the appreciation of the dollar.  Is this good news, or do the negatives outweigh the positives?

http://money.cnn.com/2015/03/10/investing/strong-dollar-pros-cons/index.html?iid=HP_LN

Oil Prices

http://www.economist.com/news/business-and-finance/21646096-price-oil-has-bounced-recovery-some-way-dead-cat-bounce

Recently, because of the high demand for oil, the prices have increased dramatically. According to the article, some of the factors causing the spike in the oil prices are temporary.  Also according the the article, Americans are wanting more and more gas guzzilling cars. Because of the demand for these gas guzzilling cars, there will be a surge in demand for energy, but not for awhile. The article concludes with the idea that it will be at least 5 months before oil prices become stable again.

Brazil curbing inflation.

Brazil's stalled growth is causing high inflations. Despite political opposition the countrys president, Rousseff, is cutting spending and raising taxes in order to lower the deficit. The article mentions another issue that I wrote about in a blog entry: The Petrobras corruption scandal. The currency is also falling to a low. How will Brazil recover from this “trip?” Will they be able to move on and regain their growth?

http://www.bbc.com/news/business-31744918

US economy adds 295,000 jobs in February

According to the article, this February marked the longest streak of the U.S economy generating more than 200,000 jobs per month since 1994 at 12 consecutive months. Situation has been getting more and more positive, as unemployment rate drops down to 5.5% compared to the peak of 10%. Additionally,  average wage has also rose slightly. All in all, the labor market in the U.S has been getting better and better, alongside other good economic signals of a recovery.

In my opinion, i know many economists and market players are still highly skeptical of this recovery but for the past year or so the economy has been steadily climb up, employment rate decreasing at a stable rate and there have been more positives every day. The stronger dollar, while also being a byproduct of weakened yen and euros, are also a good indicator of U.S economy getting back on its feet. I think we can expect the U.S economy to return to the way it was in a few years given its current rate, and I don't think the same mistake in 2008 would reappear anytime soon.

Sources: http://www.bbc.com/news/business-31768388