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.

Good jobs report means Fed should sit tight

 http://money.cnn.com/2012/03/09/markets/thebuzz/index.htm?iid=SF_E_LN

According to this article, more than 200,000 jobs have been added to payrolls for the third straight month. Although the unemployment rate remained 8.3%, it is much lower from the 9% at a year ago. Moreover, the so-called underemployment rate has dropped from 16% in October to 14.9% last month. This strong February jobs report indicates that the economy is steadily improved. Some economists/professionals pointed out that this could be a signal showing that there is no need for more QE, quantitative easing.(Since the finance crisis of 2008, the Fed has bought about $1.6 trillion in Treasury bonds in order to keep long-term rates low.) Alternatively, the Fed could buy more long-term bonds and then borrow the money back from investors; it could limit criticism saying that the Fed is fueling inflation by printing more money. On the other hand, some other economists/professionals held a more cautious attitude. Michael Materasso, senior vice president and co-chair of the fixed income policy committee at Franklin Templeton in New York, concluded that jobs gains are encouraging and the Fed should acknowledge that, but the Fed (might) still want to do QE3 as a concern of the still weak housing market.

U.S. Extends Its Run of Strong Job Growth Another Month

The number of jobs in the economy has increased by over 200,000 for each of the last three months. However, the unemployment rate did not decrease, because people have returned to the labor force. This increase looks good for the economy and Obama, although Republicans are arguing that Obama is slowing the growth. Economists are hopeful, but Ellen Zentner points out that the economy seemed to be recovering at this time last year. She says that if these trends continue past April, she will relax. Economists also pointed out that growth needs to be stronger and last longer to significantly effect the unemployment rate. Some of the long-term unemployed people are beginning to see a difference, although others are only able to find part-time or temporary work.
Mitt Romney has said that Obama has failed since the unemployment rate has not been below 8% for 37 months. The household surveys also show that the economy seems to be recovering. The final point the article makes is that there are now more people looking for work because they quit their job or are returning to the labor force than because they were fired. This is definitely a good sign for the economy.

Japan Looks Beyond Its Borders for Investors

http://www.nytimes.com/2012/03/09/business/global/japan-looks-beyond-its-borders-for-investors.html?ref=business

A very interesting article on how Japan is trying to open up its economy to foreign investor.

Once an industry powerhouse, Japan is famous for establishing businesses outside its border while maintaining a strict wall of regulation against foreign companies. It has  one of the lowest levels of foreign investment relative to its overall economy.

However, after decades of economic recession and a year of natural disasters, businesses are weakened and even Japanese entrepreneurs do not prefer to open new businesses domestically.Likewise, current Japanese companies would rather invest in opportunities abroad than reinvest in the home country, according to data by the Japanese Finance Ministry.

Thus, Japan is welcoming companies from abroad, especially China, to invest in it. For Chinese company, learning to satisfy the high demand of Japanese customers would provide invaluable lesson to dominate global markets. In turn, these new ventures will provide more jobs in Japan.

My only concern would be, due to the high cost of living in Japan, such investment will need to yield very high return in order to offset the high labor cost. That being said, other than a skilled and disciplined work force, I can hardly find any other reasons to offshore businesses Japan when other third world countries are catching up really fast in term of labor improvement. 

Federal Reserve Mulls New Bond-Buying Technique

This article is interesting as it explains how the FED plans to deal with a growing balance sheet. The US central bank is concerned that the expansion of their balance sheet by $2.3 trillion will spark increased levels of inflation. The FED is considering another technique of expansionary monetary policy called reverse-repo. This happens when the FED buys long term mortgages or treasury bonds then keeping that new money out of the economy by borrowing it back from investors for short periods. It will be interesting to see if the FED decides to implement this policy and if they do, what how well the predicted results match what actually happens.

Greece Says 75% Of Private Creditors Agree To Crucial Bond Swap

Over 75% of private creditors agreed to a make-or-break swap on holdings of government debt, which saved Greece's economy.

The government said it needed to reach 3/4 of its debt to save bondholders from losing their money to the debt. They had until 3 pm today to reach this agreement.

The final level of participation will be announced tomorrow morning.

The results of this have been positive in Italy and Spain with a sharp rise in bank stocks and a fall in government bonds.

This is the final precondition from the IMF and the EU to get the requested bailout loan of $172 billion. The final approval is expected on Friday morning once the final level of participation is announced.

Spain's lost generation: youth unemployment surges above 50 per cent

http://www.telegraph.co.uk/news/worldnews/europe/spain/9044897/Spains-lost-generation-youth-unemployment-surges-above-50-per-cent.html

They are calling themselves generation zero.  The Spanish young persons (16-24) unemployment rate is 51.4 percent about double the European Union average.  Young Spaniards are now living at home longer, drug use is increasing and depression rates are up.  The average age of independence is well into its thirties now.

Many students are not satisfied with how little a university education guarantees.  The problem does not just stay with the youth.  With longer periods of dependency average savings with diminish and the Spanish government will be in an even deeper hole with their liabilities and promises.

To digress, this is a fundamental cultural and institution problem.  When I was living in Spain I was astounded with how much time out of the day was spent either preparing for or opening up after siesta.  I don't know what the average work day is, but whatever it is the data is low.  It is inconceivable to think that a country will have healthy rates of unemployment when the hours that can be worked is a 1/4 of where it should be elsewhere because of Siesta.  This is more of a personal rant because it was so frustrating to go shopping when I had free time to only have half the stores in town be closed. 

I don't have sympathy.

Swiss Economy at a stand still?

During the recent months Europe has seen a great deal of economic turbulence, with the bail out in Greece and declining GDP in many countries. It was forecasted that europe would see a minor recession during the winter months, and Switzerland was included in this category. Even with their survival during the most recent months, the Swiss are not forecasted to see much improvement in growth over all, in fact they are hitting somewhat of a stagnation in growth and are not seen to change much until later this year.

http://www.4-traders.com/news/Swiss-Economy-Stagnating-Rather-Than-In-Recession-BAKBasel--14198997/

Conflict About Chinese Economic Power Precedes Rare Transition

Later in 2012, a new administration will take control of the Standing Committee of the Politburo. Consequently, powerful politicians in China have been positioning themselves to become one of the nine new members of the Politburo. This competition and posturing was furthered when the World Bank and a Chinese research organization produced a report ("China 2030") that encouraged Chinese policymakers to move further in the direction of a market economy. A Chinese publication with a great deal of government connections harshly criticized the report, calling it 'unconstitutional' and subversive to socialism. Despite the antagonism between the countries, the criticism was remarkably similar to many criticisms of American policy, if you just replace 'socialism' with 'capitalism'. However, Chinese power was not unified against decreasing government's control of markets. The editor of China's top business magazine, Caixin, published a an essay that emphasized socialist inefficiencies, including inefficient use of capital, and corruption. I am curious to see how the transition of power plays out in China, and what side of the fence the new Chinese government will fall on. I will also be curious to see the effect of foreign opinions on Chinese policy.

Amid recession, an uptick in wives outearning their husbands

Amid recession, an uptick in wives outearning their husbands

Since the recession 38% of women are making more income than their husbands which is up 3% since 2008. In families where the husband is not set back (laid off) 28% of women are making more. The article contributes this to the recession and set back of men in their jobs as well as the overall advancement of women in the work place. Less than a century ago, almost all wives stayed at home to care for the family. I'd say the wives' roles have significantly changed and continually doing so.

Six Business Proposals from Washington You Should Know About

http://www.entrepreneur.com/article/223026

If Republicans and Democrats continue to work together a promising JOBS act known as Jumpstart Our Business Startups includes six key legislative changes that could greatly improve the entrepreneurial spirit of America.  It is interesting that this act is labeled as making small business start-ups easier, however the proposed legislation seems to simply make it easier for companies to go public.  Not that this is a good or bad thing, it just seems that these six legislative changes are designed by the big business minded and intended to support shareholders not stimulate job growth.


1. The Reopening American Capital Markets to Emerging Growth Companies Act would make it easier for companies to go public by allowing them temporary relief from certain U.S. Securities and Exchange Commission (SEC) regulations.
2. The Access to Capital for Job Creators Act aims to help small companies raise capital by removing a SEC regulatory ban that says small businesses cannot use advertisements to attract investors.
3.  The Entrepreneur Access to Credit Act also claims to ease entrepreneurs' efforts to raise capital by eliminating SEC restriction on “crowdfunding,” an increasingly popular way for small business to raise money from a large pool of individual investors.
4. The Small Company Capital Formation Act would help small businesses go public by elevating the threshold of companies that are exempted from SEC regulation to $50 million from $5 million.
5. The Private Company Flexibility and Growth Act is expected to give small companies more room to grow before having to go public by expanding the shareholder limit for registration with the SEC to 1,000 from 500. The current SEC regulation asks many small companies to purposefully impede their own growth or force them to look for buyers when they start hitting up against the current regulatory roof.
6. The Capital Expansion Act would increase the number of shareholders allowed to invest in a community bank to 2,000 from 500, as is currently dictated by the SEC. The goal is to reduce regulation that community banks, some of the biggest lenders to smaller businesses, have to deal with allowing them to spend more time making loans.

When in France, tax the rich

http://economy.money.cnn.com/2012/03/05/when-in-france-tax-the-rich/?iid=SF_E_River

Taxing the rich is not a common debate here in the United States but also in France. The French, socialist presidential candidate, Francois Hollande proposed last week a 75% tax rate on income above 1 million euros.  People have debated that this increase in the tax rates will cause French citizens to move to other European countries that offer lower rates.  His reason for the high tax rate is that it is "patriotic to agree to pay a supplementary tax to get the country back on its feet." A recent survey shows that majority of French citizens agree with this tax rate. The people that it would upset the most are French "football players" who are very wealthy and they are upset because it would "end in catastrophe for French football." 

In the article it links this situation to the presidential debate for this year in the US, Obama's argument that the rich should pay higher taxes. However, in the United States the top two tax rates are 33% and 35% and Obama wants them to go back to pre-2001 rates of 36% and 39.6%. Which these rates are very small compared to French presidential candidate's 75%.    

Grantham wonders if Marx was right after all

http://www.marketwatch.com/story/grantham-wonders-if-marx-was-right-after-all-2012-02-29?siteid=rss&rss=1


Jeremy Grantham, a legendary value investor like Warren Buffett and the co-founder of the Boston-based investment firm GMO LLC, suggested in his annual shareholder letter that maybe Marx was right on capitalism. 
Unlike Buffet, who is comparatively optimistic about the future in his letter, Grantham takes a longer view, and isn’t so “aw shucks” about the future of our broken economic system. “Capitalism,” he writes, “threatens our existence.”
He talks about issues such as globalization, debt, lobbying and the principal agent problem. He says that although capitalism does better on almost everything than other economic system, a sustainable economic system cannot be based on ever-increasing debt.
I think his view on flaws of globalization is interesting and I agree with his statement that a sustainable economic system cannot rely on borrowing.

The Surprising Science of Motivation

Dan Pink criticizing our society's incentive system. While methods of motivation may make one want to be more productive, they actually narrow vision and dull creativity. Pink argues that we need more "intrinsic" motivation- motivation that comes from the desire to be more productive because of interest or morals. Wikipedia is a great example of how this intrinsic motivation works. Some companies in North America have tried a different type of management based on the concept of intrinsic motivation called ROWE (Results Only Work Environment). Eliminating schedules and focusing more directly on getting work done, these companies have seen an increase in both productivity and satisfaction. We've seen economic systems which focus on material incentives and ones that focus on coercion; is there a possibility for a system that emphasizes moral incentives? 

video:

http://www.ted.com/talks/dan_pink_on_motivation.html

transcript of his speech:

http://dotsub.com/view/e358ac0c-314e-473a-b051-f0a2deaa3a7b/viewTranscript/eng

Monkey Business

http://www.nytimes.com/2005/06/05/magazine/05FREAK.html?pagewanted=1&ei=5090&en=af2d9755a2c32ba8&ex=1275624000&partner=rssuserland&emc=rss&adxnnlx=1118160068-1EGJuan4FJH1LooxHYd5%2Fg

In this article posted in the New York Times, it talks about Keith Chen and his research being done on Capuchin monkeys. Recognizing they have the ability to make monetary exchanges, Chen realized that economics (basically the study of incentives) is applicable to all aspects of life. A lot of what we've been talking about in class (especially in Japan) have to deal with incentives and how much effort your willing to put into gaining economic success. If monkeys can do it, then anyone should be able to do it.

The international monetary system-- The role of gold

The international monetary system

The role of gold

Feb 29th 2012, 16:43 by Buttonwood

CHATHAM House yesterday launched a report on the role of gold in the international monetary system. It is a noteworthy event, not least because the group's last study on the issue was in September 1931, just as Britain was about to leave the gold standard, accelerating the system's demise (Keynes was on the original working group).

It seems a subject that is at least worthy of consideration, not least because central banks the world over are pursuing policies that would, in earlier decades, have been considered highly unorthodox. In recent days, I have ben struck by the number of investors who have told me that central banks have "thrown in the towel", citing the ECB's three year loans to banks (another €530 billion accepted today), the Bank of Japan's stepped-up commitment to QE, the extra £50 billion pledged by the Bank of England, the willingness of the Swiss to create money to cap their exchange rate and so on. The investors see all this as bullish for real assets, like equities, but potentially inflationary in the medium term.

It will be no surprise that the Chatham House experts do not view a formal role for gold as likely, given that

the lessons of both the Gold Standard era and the post-war Bretton Woods period suggest that reintroducing gold as an anchor would undoubtedly be impractical or even damaging, given bullion's deflationary bias.

The group does see a continued role for gold as a part of central bank reserves although that is hardly a surprise. There is a limit, given the metal's lack of liquidity, to the proportion of reserves it can form. The table (on page 21 of the report) shows that some countries have a lot of reserves, and some have a lot of gold, but only switzerland has both, with gold reserves at 9.5% of GDP. Of the rest, only Italy has a level above 5%.

The taskforce also rules out adding gold to the basket that forms the special drawing right (SDR), a portmanteau currency that some hope might become an alternative to the dollar. The reasoning is that

as SDRs are a right to claim reserve currencies from IMF member countries, their utility depends on the willingness of fund members to accept them. If they were gold-laced, the liability of the countries that undertake to provide US dollars and other leading currencies in exchange for SDRs would be dependent on the price of gold. The behavioural pattern of the price of gold means that such liabilities would increase in money value just at the time when they were hardest to meet. As a result, it is likely that the countries that provide liquidity to SDRs would resist the inclusion of gold in the basket, and their resistance would be decisive since they are essential to the functioning of the SDR scheme.

The most intriguing section is on the role of gold as an economic indicator. Here the taskforce decrees that

there appears to be no consitent and reliable correlation between bullion and a large number of key economic variables that could be employed to inform policy decision-making more effectively.

There is not much in the actual report to back up this assertion and Chatham House points to a paper on its website by John Gault (an in-joke for Ayn Rand fans?) which shows a variety of charts linking gold to various measures. At first sight, gold's role doesn't seem that bad; the correlation with the consumer price index (p13) is 0.749 and with commodities generally (p7) 0.862. There have been occasions when a rising gold price has given a useful signal, the panel says, but the lags are variable in length. It seems to me that gold's historic role suggests it's worth researching this subject rather more deeply; the recent Marsh, Dimson and Staunton report found, for example that gold was the only asset that had a positive correlation with inflation.

On this note, Dave Ranson of Wainwright Economics often argues that gold does lead other inflationary indicators and one could argue that its weakness in the late 1990s preceded the deflationary scare of 2002-03. Mr Ranson would also argue that commodity prices are real inflation in the sense that they measure constant quantities over time. Consumer inflation measures are adjusted for hedonics (improvements in quality) which may bias the numbers; one can adjust for improvements like computing power but not for deteriorations in quality (eg on airlines, the need to spend more time in security, pay to take baggage, the lack of meals and the restricted leg room).

I am not sure one can accept this argument whole-heartedly but it does seem that the persistent rise of gold over the last decade must be telling us something, and central banks should at least take note.

The correlation of income inequality and savings rate

This article posits a link between income inequality and the savings rate. If we accept their fairly well documented premise what does this mean for investment and economic growth? Just because the savings rate has fallen does not necessarily imply a fall in gross national savings. This is to say it is possible that as money is transferred to the rich they would save more. If their savings rate increased enough it would offset the loss of savings.
Unfortunately this is not the case, gross national savings has declined. As a percent of GDP (the proportion of GDP being saved) it declined 7% from 1970 to 2010 (you can see the figures here). This coincides with the rise in income inequality and the fall in the savings rate. Clearly in the transfer of wealth the rich do not save enough to offset the loss from the poor. While the U.S. has not seen a corresponding fall in investment, this is due to the continued influx of foreign investment. This has serious implications for our economic systems long term viability and stability. If, relative to other economies, we cannot remain an attractive investment or if there is a global financial shock there will be serious repercussions.
The government should therefore work to curb inequality, not just because it will benefit the poor, but because it will make for a more stable and viable economic system.

Ohio manufacturing: Good times are back (sort of)

A good news to see!

Manufacturing, the largest sector in Ohio's economy, is revving up production and employment after being hit hard by the Great Recession. The revival in Ohio is being fueled by the return of the American auto industry, the growth of energy production in the U.S. and the skyrocketing demand for steel and other building materials overseas. The recovery of manufacturing also drove the whole economy in Ohio.

But on the other hand, it is explained in the news that because of the enhanced productivity: newer machine and technologies, the employment rate will hardly go back to the pre-recession level. Jobs are not coming back, and some of them will be lost forever. I think, according to what we learned in class, this is not surprising. There is no short term way to solve this problem. Instead of blaming China's stealing jobs from US, a better job matching and training system is needed. Input on public education will work too, but effect only can be seen in the future. How to relocate jobless people will be the main issue to deal with now.

Money and Morals

http://www.nytimes.com/2012/02/10/opinion/krugman-money-and-morals.html?scp=9&sq=income%20distribution&st=cse

The article discusses how the Congressional Budget Office supplied data on the widening income gap, which has produced more conversations about inequality in the United States. In comparison to other rich countries, the United States is the place where economic and social status is most likely to be inherited. The main disagreement with inequality is whether it is about morals or money. People who say that the problem is morals explain how there have been a decrease in the working-class family values. On the other hand, people who say that the problem is money explain how many Americans have a high school education or less, marriage rates and male labor force participation have decreased, and births out of wedlock have increased. The article discusses how these negative aspects of Americans cause terrible implications for the society as a whole. Also, one obvious answer for these negative aspects of Americans includes the decrease in the work opportunities available to less-educated Americans. Due to the decrease in employment benefits, health benefits, and entry-level wages for lower-education working Americans, the United States has become a society in which less-educated Americans have a hard time finding jobs with decent wages and good benefits. Therefore, the social changes that have taken place in America’s working classes are the consequence of rising inequality, but not the reason for it.             

Europe strengthens fiscal ties

In a step toward greater economic and political integration, all but two members of the 27-nation EU signed a treaty aimed at ensuring fiscal discipline.
The goal is to prevent a future crisis and foster economic growth by ensuring that governments do not spend beyond their means and rack up unsustainable debts, said European Council president Herman Van Rompuy at Friday's signing ceremony.

'Stingray' Phone Tracker Fuels Constitutional Clash

Stingray is a great example of how certain policies affect markets.  Designed to locate a mobile phone whether or not it is in use,  there is a strong demand for the product from law enforcement bodies. however some argue that the device violates the fourth amendment and to regulate its use.

http://online.wsj.com/article/SB10001424053111904194604576583112723197574.html

US Pushes Target for Hiring the Disabled

http://online.wsj.com/article/SB10001424052970204520204577251303726662194.html?mod=WSJ_hps_sections_careerjournal
This idea is interesting, though controversial.  The government seems to be trying to create incentives for the hiring of disabled Americans by having a policy that could remove government contracts from companies that do not have the required employment rate (7%) of disabled to non-disabled workers.  There are questions as to whether this violates the 1990 Americans with Disabilities Act or is progressing the 1973Rehabilitation Act.  But one reason I think the government has this policy is to successfully reincorporate veterans from Iraq and Afghanistan into the workforce, because when veterans returned home from Vietnam in the late 1960s and early 1970s most faced discrimination in the workplace.