It is Time to Reconsider Political Risk

The standard assumption/belief that emerging markets are riskier than advanced economies appears increasingly shaky. 

FT’s Gillian Tett has a great piece on the topic: Political risk means all 2017 investment bets are off

https://www.ft.com/content/4cc59f38-c6cb-11e6-8f29-9445cac8966f

Tett notes:

“Twenty years ago, when I was a rookie reporter, a colleague told me that the “problem” with emerging market assets was that they were irritatingly hard to value. …But the bigger issue was politics: emerging markets were more unpredictable than markets in Europe or America because they suffered from political risks such as revolutions, coups and capricious demagogues — or so the theory went.

How times change. A decade ago, investors were forced to rethink one of these assumptions when America and Europe were engulfed by the 2008 financial crisis. Now they are being forced to evaluate a second assumption, about political risk.

Most notably, 2016 was the year when western markets were rocked by political shocks almost as startling as anything seen recently from the emerging markets world.”

Related:

http://vivekjayakumar.blogspot.com/2016/10/rethinking-political-risk.html

http://vivekjayakumar.blogspot.com/2016/09/why-financial-markets-and-global.html

Silicon Valley’s Big Bet on AI

Artificial Intelligence Comes of Age

https://www.wired.com/2016/11/google-facebook-microsoft-remaking-around-ai/

“FEI-FEI LI IS a big deal in the world of AI. As the director of the Artificial Intelligence and Vision labs at Stanford University, she oversaw the creation of ImageNet, a vast database of images designed to accelerate the development of AI that can “see.” And, well, it worked, helping to drive the creation of deep learning systems that can recognize objects, animals, people, and even entire scenes in photos—technology that has become commonplace on the world’s biggest photo-sharing sites. Now, Fei-Fei will help run a brand new AI group inside Google, a move that reflects just how aggressively the world’s biggest tech companies are remaking themselves around this breed of artificial intelligence.”

Middle Class Borrowing and the US Housing Bubble

Interesting new research on the origins of the 2007-09 financial crisis:
http://mitsloan.mit.edu/newsroom/articles/rethinking-how-the-housing-crisis-happened/

Temperature, Climate and Long-Run Economic Growth

Fascinating (and scary) new research on how climate change affects economic growth and development over the long run:

https://www.technologyreview.com/s/603158/hotter-days-will-drive-global-inequality/

Punchline: Russia, Scandinavia and Canada may turn out to be the big winners this century and most of the rest of the world will be losers to varying degrees if temperatures continue to rise.

Economics, Politics and International Affairs – Key Readings to Prepare for the Future

Columbia University economist Jeffrey Sachs on international affairs:

https://www.project-syndicate.org/commentary/multipolar-world-faces-american-resistance-by-jeffrey-d-sachs-2016-12

[UPDATE] Leading experts in economic development issue a statement on sustainable economic development:
https://www.project-syndicate.org/commentary/update-development-policy-inequality-by-kaushik-basu-et-al-2016-12

Chicago economist and former RBI Governor Raghuram Rajan on economic and political freedom:

http://www.livemint.com/Opinion/rahmkurmguGzR334xGcuHK/Raghuram-Rajan--Democracy-inclusion-and-prosperity.html

MIT economist Simon Johnson offers an assessment of political and economic risks facing the US under the incoming Trump administration:

https://www.project-syndicate.org/commentary/trump-extreme-oligarchy-by-simon-johnson-2016-12

Corporate Tax Reform

Efficacy of Corporate Tax Holidays

http://www.nytimes.com/2016/12/26/business/dealbook/will-donald-trumps-corporate-tax-holiday-create-jobs-not-necessarily.html

Meanwhile, John Cassidy makes an important point:

http://www.newyorker.com/news/john-cassidy/ayn-rand-and-corporate-tax-cuts-wont-mend-the-economy

“Several things should be noted. Firstly, there isn’t much evidence that what has been holding back corporate investment is high corporate taxes. Because the U.S. tax code is riddled with loopholes, the tax rate that big businesses actually pay isn’t anything like thirty-five per cent. Between 2008 and 2012, according to a recent study by the nonpartisan Government Accountability Office, they paid a tax rate of about fourteen per cent, on average. Small corporations tend to pay even less. From 2006 to 2012, two-thirds of all incorporated businesses didn’t pay anything, the study found.”

GAO Report: Most Large Profitable U.S. Corporations Paid Tax but Effective Tax Rates Differed Significantly from the Statutory Rate

http://www.gao.gov/assets/680/675844.pdf

The House GOP’s Idea for Business Taxes Could Win Bipartisan Support by Peter Coy

https://www.bloomberg.com/news/articles/2016-12-09/the-house-gop-s-idea-for-business-taxes-could-win-bipartisan-support

Evolution of Economics

A highly readable piece on the role played by Cambridge University in the evolution of economics during the 20th century:
http://www.economist.com/news/christmas-specials/21712057-history-famous-faculty-shows-way-economics-taught-depends-what

Soccer Bubble in China?

Ridiculous pay packages in China’s Super League raise fears of a massive football related bubble in the country:

http://www.straitstimes.com/sport/football/football-china-in-bubble-warning-as-spending-tops-us1-billion

Carlos Tevez signs for Shanghai Shenhua in deal worth £615,000 a week
https://www.theguardian.com/football/2016/dec/29/carlos-tevez-shanghai-shenhua-chinese-super-league

Britain’s Love Affair with Foreign Kleptocrats

London Rolls Out the Blood-Red Carpet for Kleptocrats by BEN JUDAH

http://www.nytimes.com/2016/12/29/opinion/london-rolls-out-the-blood-red-carpet-for-kleptocrats.html

“British law is on the side of the kleptocrats. All an autocrat on the run has to do is create a shell company to hide his identity and the source of his illicit wealth, and then use this instrument to purchase property incognito. … Such anonymous companies now own nearly 40,000 London properties. Some of these purchases may be entirely legitimate and innocent, but these tools of secrecy are well known to be favored by money launderers: The anticorruption organization Transparency International has found that this technique has been used for three-quarters of properties whose owners have been investigated for corruption in Britain.

Just because there aren’t bodies on the streets of London doesn’t mean London isn’t abetting those who pile them up elsewhere. The British establishment has long feigned ignorance of the business, but the London Laundromat is destroying the country’s reputation.”

US Economy and New Presidents

FT has created a series of fantastic charts illustrating the economic conditions inherited by incoming US Presidents since the 1970s:
https://www.ft.com/content/4e5af7e4-c88d-11e6-8f29-9445cac8966f

Princeton economist Alan Blinder on Trump:
https://www.project-syndicate.org/commentary/trump-economic-positions-unpopular-by-alan-s--blinder-2016-12

Fixing the US Electoral System

Two Nobel Prize Winning Economists – Erik Maskin and Amartya Sen – propose a new system for America:

The Rules of the Game: A New Electoral System

http://www.nybooks.com/articles/2017/01/19/rules-of-the-game-new-electoral-system/

“Americans have been using essentially the same rules to elect presidents since the beginning of the Republic. …

Primary elections for president have also remained largely unchanged since they replaced dealings in a “smoke-filled room” as the principal method for selecting Democratic and Republican nominees. …

These rules are deeply flawed. For example, candidates A and B may each be more popular than C (in the sense that either would beat C in a head-to-head contest), but nevertheless each may lose to C if they both run. The system therefore fails to reflect voters’ preferences adequately. It also aggravates political polarization, gives citizens too few political options, and makes candidates spend most of their campaign time seeking voters in swing states rather than addressing the country at large.”

Confirmation Bias and a Gullible Electorate

Catherine Rampell notes:

https://www.washingtonpost.com/news/rampage/wp/2016/12/28/americans-especially-but-not-exclusively-trump-voters-believe-crazy-wrong-things/

“Many Americans believe a lot of dumb, crazy, destructive, provably wrong stuff. Lately this is especially (though not exclusively) true of Donald Trump voters, according to a new survey.

The survey, from the Economist/YouGov, was conducted in mid-December, and it finds that willingness to believe a given conspiracy theory is (surprise!) strongly related to whether that conspiracy theory supports one’s political preferences.”

Related:

Technology and Political Polarization

http://vivekjayakumar.blogspot.com/2016/11/technology-news-and-political.html

Sunday Shopping and the Greek Economy

Technocrats and the Future of Democracies

An interesting piece from NYU economist William Easterly:
http://foreignpolicy.com/2016/12/23/democracy-is-dying-as-technocrats-watch/

Language and Personal Identity

An evocative piece:
TO SPEAK IS TO BLUNDER: Choosing to renounce a mother tongue by Yiyun Li

http://www.newyorker.com/magazine/2017/01/02/to-speak-is-to-blunder

Thought-Provoking Articles

Alain de Botton – Why You Will Marry the Wrong Person

http://www.nytimes.com/2016/05/29/opinion/sunday/why-you-will-marry-the-wrong-person.html

John Lanchester – What the West can Learn from Japan about the Cultural Value of Work

http://www.nytimes.com/2016/12/13/magazine/what-the-west-can-learn-from-japan-about-the-cultural-value-of-work.html

Megan McArdle’s great column on the economics of gift giving:

https://www.bloomberg.com/view/articles/2016-12-23/go-ahead-exchange-gifts-forget-the-economic-logic

“We think of “the economy” as a single vast sphere, where cash is king and caveat emptor. But in fact, every American lives in two economies: the market economy, dominated by arms-length transactions with strangers; and the “gift economy,” regulated by what anthropologists call reciprocal altruism. Market transactions are specified exchanges of value for value, with few residual obligations on either party once the contract has been executed, the sale completed. Reciprocal altruism is a lot fuzzier; it’s a sort of favor bank, where you and I (tacitly) agree that we will help each other out without knowing when or how that help might be demanded.”

Trumponomics and the Global Economy

An interesting Bloomberg piece correctly notes:

https://www.bloomberg.com/news/articles/2016-12-22/how-trump-could-accidentally-fuel-a-global-trade-boom

““The policies of the Trump administration are likely to lead to a strong dollar and a widening U.S. current account deficit,” Stein notes in a report last week. “Some—exporters to the U.S. (Canada, the Eurozone, China, Korea), oil and commodity exporters—will benefit to a greater or lesser degree.”

Stein draws this perspective from what’s known as sectoral financial balances. Put simply, national current accounts reflect the interaction between savings and investment; the amount saved in an economy equals the amount invested, as a matter of accounting. If corporate America invests, for example, and neither the household nor the public sectors increase their savings by a corresponding level, the current account balance must, by definition, fall into negative territory, mirroring a rise in net inflows of savings from abroad.”

Updates: 

Risk of a Global Trade War in 2017 - Yale economist Stephen Roach offers a warning:

https://www.project-syndicate.org/commentary/trump-trade-war-with-china-by-stephen-s--roach-2016-12

Paul Krugman on the Risks of a Trade War

http://www.nytimes.com/2016/12/26/opinion/and-the-trade-war-came.html

Globalization, Technology and Cultural Values

FT Interview with 2015 Nobel Prize Winner in Economics Angus Deaton – A Must Read:

https://www.ft.com/content/bbf54b3e-c5f3-11e6-9043-7e34c07b46ef

“Deaton’s 2013 book The Great Escape argued that the world we live in today is healthier and wealthier than it would otherwise have been, thanks to centuries of economic integration. He sees efforts to blame globalisation for woes in the US Rust Belt or Britain’s beleaguered industrial areas as a mistake.

“Globalisation for me seems to be not first-order harm and I find it very hard not to think about the billion people who have been dragged out of poverty as a result,” he says. “I don’t think that globalisation is anywhere near the threat that robots are.””

Related:

The Long-Term Jobs Killer Is Not China. It’s Automation by CLAIRE CAIN MILLER

http://www.nytimes.com/2016/12/21/upshot/the-long-term-jobs-killer-is-not-china-its-automation.html

A Real-World Tax Experiment – Kansas

A timely article from the WSJ:

Sam Brownback Calls on Donald Trump to Mimic His Kansas Tax Plan by RICHARD RUBIN and WILL CONNORS

http://www.wsj.com/articles/sam-brownback-calls-on-donald-trump-to-mimic-his-kansas-tax-plan-1482489006

“Sam Brownback, the Kansas governor whose tax cuts brought him political turmoil, recurring budget holes and sparse evidence of economic success, has a message for President-elect Donald Trump: Do what I did.

In 2013, Mr. Brownback set out to create a lean, business-friendly government in his state that other Republicans could replicate. He now faces a $350 million deficit when the Kansas legislature convenes in January and projections of a larger one in 2018. The state’s economy is flat and his party is fractured.”

Investment Advice for 2017

The esteemed Christopher Wood (strategist for CLSA Asia-Pacific Markets) offers some excellent advice and analysis

http://www.barrons.com/articles/bullish-on-china-india-doubtful-on-the-philippines-1482555886

It is worth noting that before joining the financial sector, Christopher Wood was the Tokyo bureau chief for the Economist.
--

US Outlook:

http://www.cnbc.com/2016/12/23/since-trumps-win-investors-have-fallen-for-fairy-dust-citi-economist.html

CNBC reports:

“William Lee, head of North America economics at Citigroup, said Thursday on CNBC's "Trading Nation" that the markets have gotten "way ahead of themselves" on hopes that financial services regulations will ease and the government will spend bigtime on infrastructure under Trump's administration.

"Everyone is sprinkling around the word 'infrastructure' like some fairy dust. Like somehow, infrastructure is going to make the world better. Yes, it could, but not the kind of fiscal infrastructure spending that President-elect Trump is talking about," Lee said.”

Government and the Economy

Three interesting articles from the current issue of the National Review:

https://www.nationalreview.com/magazine/2016-12-31-0000/donald-trump-carrier-deal-government

https://www.nationalreview.com/magazine/2016-12-31-0000/anti-free-trade-argument

https://www.nationalreview.com/magazine/2016-12-31-0000/donald-trump-job-conservatives

Catherine Rampell on irrational voter behavior

https://www.washingtonpost.com/opinions/why-the-white-working-class-votes-against-itself/2016/12/22/3aa65c04-c88b-11e6-8bee-54e800ef2a63_story.html

Related:

Voters often appear to vote against their own self-interest.

http://www.nybooks.com/articles/2016/11/10/american-right-inside-the-sacrifice-zone/

Economics of Time

A thought-provoking piece from Derek Thompson:

https://www.theatlantic.com/business/archive/2016/12/a-brief-economic-history-of-time/510566/

“What is an economy? You might say it is how people who cannot predict the future deal with it. 

People save money to protect themselves from calamity. Banks charge interest to account for risk. People trade stocks to bet on the earnings trajectory of a company. The first taxes were levied to support standing armies that could fight in the event of an invasion.

Time’s unknowable perils contributed to the flourishing of economic thought. But then something interesting happened. The creature became the creator: The economy re-invented time. Or, to put things less obliquely, the age of exploration and the industrial revolution completely changed the way people measure time, understand time, and feel and talk about time.”

Related:

Why time management is ruining our lives by Oliver Burkeman

https://www.theguardian.com/technology/2016/dec/22/why-time-management-is-ruining-our-lives
“Given that the average lifespan consists of only about 4,000 weeks, a certain amount of anxiety about using them well is presumably inevitable: we’ve been granted the mental capacities to make infinitely ambitious plans, yet almost no time at all to put them into practice. The problem of how to manage time, accordingly, goes back at least to the first century AD, when the Roman philosopher Seneca wrote On The Shortness of Life. “This space that has been granted to us rushes by so speedily, and so swiftly that all save a very few find life at an end just when they are getting ready to live,” he said, chiding his fellow citizens for wasting their days on pointless busyness, and “baking their bodies in the sun”.

Book Recommendations - Winter 2016/2017

Economics

Economic Growth in Advanced Economies – The Long View

Book Review - An Extraordinary Time by Marc Levinson

https://www.bloomberg.com/news/articles/2016-11-03/the-postwar-boom-isn-t-coming-back-anytime-soon

Money and Finance

Book Review - The Man Who Knew: The Life and Times of Alan Greenspan by Sebastian Mallaby

http://www.economist.com/news/books-and-arts/21707908-was-alan-greenspan-blame-financial-crisis-man-dock

Globalization – For the Intelligent Reader

Book Review – The Great Convergence: Information Technology and the New Globalization by Richard Baldwin

http://www.economist.com/news/books-and-arts/21710240-first-free-movement-goods-then-ideas-momentum-may-stop-free-exchange

History/International Affairs

Lasting Consequences of American Adventures in the Middle East

Book Review – Debriefing the President by John Nixon

http://www.nytimes.com/2016/12/18/books/review-debriefing-the-president-tears-into-the-cia.html

http://www.newyorker.com/news/john-cassidy/the-road-from-saddam-hussein-to-donald-trump

British Empire – Fact versus Fiction

Book Review - An Era of Darkness: The British Empire in India by Shashi Tharoor

http://www.livemint.com/Leisure/LaKl8M7mYQo7lfHKI7qcAN/The-empire-strikes-back.html

Book Review - The Chaos of Empire: The British Raj and the Conquest of India by Jon Wilson

https://www.ft.com/content/dfb65a78-6eb3-11e6-a0c9-1365ce54b926

FT notes:

“But are the achievements of empire really something to boast about? Those who think so will cite the usual litany of railways built, sound laws conferred, economies developed: civilising mission accomplished. But Jon Wilson, a specialist in Indian history at King’s College London, disagrees. In India Conquered, Wilson suggests that far from rescuing India from chaos, the British caused it. And the pride many feel for that empire is really just the afterglow of the only thing the Raj was outstandingly good at — boosterish propaganda.”

Science

Book Review – The Pope of Physics by Gino Segrè and Bettina Hoerlin

http://www.wsj.com/articles/father-of-the-atomic-age-1477074176

Globalization’s Big Winner – Walt Disney Co.

Walt Disney Co. – An American Company that Benefits Massively from Globalization

https://www.theguardian.com/film/2016/dec/20/walt-disney-sets-7bn-box-office-record-2016-star-wars-rogue-one

Disney in China

http://knowledge.ckgsb.edu.cn/2016/12/15/conversations/shanghai-disney-resort-behind-scenes/

China and the Environmental Kuznets Curve

China maybe ahead of historic trends in prioritizing clean air and environmental cleanup: https://www.bloomberg.com/view/articles/2016-12-20/how-china-beats-the-u-s-at-clean-air-progress

Economist Tyler Cowen notes:

“To help predict when countries will start a successful fight against air pollution, economists have developed a metric known as the environmental Kuznets Curve. This curve shows that societies create more pollution as they move from poverty to wealth, but at some point they become so wealthy that they clean up the environment and then pollution declines. Well-off people don’t like breathing bad air and will sacrifice some economic growth for better surroundings.”

Political Risk in Advanced Economies

The Stock Market Looks Awfully Expensive Since the Trump Rally by NEIL IRWIN

http://www.nytimes.com/2016/12/19/upshot/the-stock-market-looks-awfully-expensive-since-the-trump-rally.html

New OMB Director and the US Treasury Bond Market – A Possible Trigger for the Next Global Financial Crisis?

https://www.washingtonpost.com/opinions/trumps-omb-pick-seems-poised-to-ignite-a-worldwide-financial-crisis/2016/12/19/6d3190c8-c631-11e6-85b5-76616a33048d_story.html

“Madman Theory” and Foreign Policy
https://www.washingtonpost.com/news/powerpost/paloma/daily-202/2016/12/20/daily-202-donald-trump-embraces-the-risky-madman-theory-on-foreign-policy/58583391e9b69b36fcfeaf47/

Yellen and Education and US Labor Market Conditions

Interesting speech from Janet Yellen – Chairwoman of the Federal Reserve:

https://www.federalreserve.gov/newsevents/speech/yellen20161219a.pdf
“For decades, technological advances have increasingly allowed simpler, repetitive tasks to be done more cheaply and safely by machines. This kind of work in factories, stores, and offices often required only a high school education. At the same time, technological advances have increased demand for workers with the education necessary to perform the ever-growing share of jobs where technology is important.

More recently, further advances are automating increasingly complex tasks and allowing workers with the ability and flexibility to use technology to be more productive.”

Digitization and Economic Development

Quietly, India is undertaking one of the most radical experiments in economic development:
http://www.economist.com/news/business/21712160-nearly-all-indias-13bn-citizens-are-now-enrolled-indian-business-prepares-tap

Uncertainty and Business Investment

Policy uncertainty discourages innovation and hurts the environment by Lucas Davis

http://theconversation.com/policy-uncertainty-discourages-innovation-and-hurts-the-environment-70261
“When there is uncertainty, there is “option value” to delaying irreversible investments. In other words, it is often better to wait and see what happens, rather than to make a costly mistake. R&D investments are particularly affected by uncertainty, because the return on these investments is sensitive to what happens with policy.”

[For the Intelligent Reader] Job Losses Arising from International Trade: Fact versus Fiction

Thank god, we are still left with a few reasonably smart Homo Sapiens:

http://www.international-economy.com/TIE_Su16_Katz.pdf

http://www.economist.com/blogs/freeexchange/2016/12/overreactions

https://www.gc.cuny.edu/CUNY_GC/media/LISCenter/pkrugman/Trade-and-Manufacturing-Employment.pdf

“It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy. ... If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage.” – Adam Smith (1776)

The Slowdown in Technological Progress – Fresh Perspectives

A great example from Megan McArdle: Tech Upgrades Just Aren't That Great Anymore

https://www.bloomberg.com/view/articles/2016-12-16/macbook-and-iphone-upgrades-just-aren-t-what-they-used-to-be

WSJ piece - The slowdown in innovation is a cause for concern:
http://www.wsj.com/articles/the-economys-hidden-problem-were-out-of-big-ideas-1481042066

For a more theoretical perspective, check out the new working paper from Chad Jones and company:

Are Ideas Getting Harder to Find?

http://web.stanford.edu/~chadj/IdeaPF.pdf

Related:

Gordon versus Mokyr

http://vivekjayakumar.blogspot.com/2016/12/long-term-us-economic-growth-gordon.html

BBC Series – 50 Things That Made the Modern Economy

http://www.bbc.co.uk/programmes/p04b1g3c

Tim Hartford on Rudolf Diesel’s contribution:

http://www.bbc.com/news/business-38302874

Will Economists Ever Settle the Minimum Wage Debate?

Will Economists Ever Settle the Minimum Wage Debate?

Short Answer: No

New research adds further fuel to the long-running debate on the impact of higher minimum wages:

https://www.theatlantic.com/business/archive/2016/12/minimum-wage-debate/510383/

“Though some people may never be convinced, the wave of new minimum-wage regulations at the state and municipal level (not to mention some of these raises are significant) means that the years ahead will provide more opportunities for data and research, which will hopefully bring economists to greater agreement about how wage increases impact the economy.

“Because of the federal election, any action on minimum wages will be at the state and local level. We are going to see increasingly wider gaps between the regulations and policies of different states,” David Card said in an email. “I think that economists will be very interested in following how this pans out: Will workers and consumers and firms in states that adopt tougher regulations (higher minimum wages, more generous health insurance, tougher air quality regulations, etc.) be helped or harmed?”

That said, even with solid evidence to the contrary, some people will not budge from their positions, whether because of ideological rigidity or personal financial interest (or both)”

Related:

http://vivekjayakumar.blogspot.com/2016/10/the-minimum-wage-debate-microeconomics.html

http://vivekjayakumar.blogspot.com/2016/06/the-minimum-wage-debate.html

Obamacare/Affordable Care Act – Stillborn?

The numerous compromises made to achieve the passage of the healthcare act is worth revisiting – it should be no surprise that a highly-flawed system was the inevitable consequence of bad political deal making and extensive lobbying by industry groups.

http://www.pbs.org/wgbh/frontline/film/obamasdeal/

The political price of Obamacare

https://www.washingtonpost.com/graphics/national/obama-legacy/obamacare.html

--
Obama's Economic Legacy
https://www.washingtonpost.com/opinions/the-obama-legacy-that-cant-be-repealed/2016/12/18/a4075212-c3c1-11e6-9a51-cd56ea1c2bb7_story.html

Finland Experiments with Universal Basic Income

An interesting Finish experiment:
http://www.nytimes.com/2016/12/17/business/economy/universal-basic-income-finland.html

Related:
https://www.cato.org/multimedia/cato-daily-podcast/defense-universal-basic-income

Thomas Schelling – Unique Economist Who Will be Long Remembered

Update – The Economist on Thomas Schelling

http://www.economist.com/news/finance-and-economics/21712133-any-time-somebody-talks-about-deterrence-theyre-influenced-schelling-thomas

Nobel Laureate Thomas Schelling – Economist who applied Game Theory to Cold War Politics:

https://www.washingtonpost.com/news/monkey-cage/wp/2016/12/13/thomas-schelling-has-died-his-ideas-shaped-the-cold-war-and-the-world/

http://news.harvard.edu/gazette/story/2016/12/thomas-schelling-game-theory-pioneer-95/

http://timharford.com/2016/12/thomas-c-schelling-1921-2016/

http://www.wsj.com/articles/economist-found-a-higher-calling-saving-the-world-from-nuclear-war-1481900404

Poor Analysis and Bad Political Outcomes [Must Read]

Noted development economist William Easterly has written a timely and important piece warning about the dangers of pseudo-analysis:

https://www.bloomberg.com/view/articles/2016-12-16/stereotypes-are-poisoning-american-politics

“One of the greatest insights of economics is that individual incentives work while group rewards and punishments don’t. Collective guilt doesn't work to change anyone's behavior. In the end, collective guilt, fashioned from bogus analysis and delight in stereotypes, is mere slander. It's a formula for constant antagonism and it's poisoning American politics.”

Private versus Public Infrastructure – An Indian Case Study

Lessons from Gurgaon, India’s private city by Shruti Rajagopalan and Alexander Tabarrok

https://mason.gmu.edu/~atabarro/Lessons%20from%20Gurgaon.pdf

Financial Models versus Reality

Financial Models and Investment Decisions - An interesting piece from Noah Smith

https://www.bloomberg.com/view/articles/2016-12-14/when-to-send-an-investing-model-into-retirement

Economic and Financial Forecasts and Reality

https://www.bloomberg.com/view/articles/2016-12-14/put-forecasting-in-its-final-resting-place

Post-Truth Truth

Trump is refreshingly candid about his campaign promises –
http://www.cc.com/video-clips/i9tog6/the-daily-show-with-trevor-noah-trump-lets-the-truth-come-out-post-election

US Political Economy - Interesting Items

US Job Market – Plenty of Jobs?

https://www.bloomberg.com/news/articles/2016-12-15/there-are-plenty-of-jobs-out-there-america

A Bipartisan Corporate Tax Reform Plan

https://www.bloomberg.com/news/articles/2016-12-09/the-house-gop-s-idea-for-business-taxes-could-win-bipartisan-support

The $6 Billion Cabinet

https://www.bloomberg.com/graphics/2016-trump-cabinet/

Out of Africa – Climate Change and the Migration Crisis

An important piece from the NYTIMES

http://www.nytimes.com/interactive/2016/12/15/world/africa/agadez-climate-change.html

“The men and boys on the migrant trail out of countries like Niger and Mali say fickle rains and hotter days leave them no option but to risk their lives to gain a livelihood.”

Technology, Automation and the Labor Market

An interesting piece from Elizabeth Kolbert

http://www.newyorker.com/magazine/2016/12/19/our-automated-future

“Meanwhile, the global economy kept growing, in large part because of the new machines. As one occupation vanished, another came into being. Employment migrated from farms and mills to factories and offices to cubicles and call centers.

Economic history suggests that this basic pattern will continue, and that the jobs eliminated by Watson and his ilk will be balanced by those created in enterprises yet to be imagined—but not without a good deal of suffering. If nearly half the occupations in the U.S. are “potentially automatable,” and if this could play out within “a decade or two,” then we are looking at economic disruption on an unparalleled scale. Picture the entire Industrial Revolution compressed into the life span of a beagle.”

Perfect Competition, Milton Friedman and Economic Reality

A great blog post from UC Berkeley Professor Maximilian:

 http://blogs.berkeley.edu/2016/12/14/milton-friedman-is-dead/

“…the problem is that perfectly competitive markets are about as common as Susan B. Anthony coins. Most markets are in fact not perfectly competitive, which Milton Friedman of course acknowledged. Market failures abound. The key question is whether the costs of intervening in the markets to address the failure outweigh the benefits.”

A few related posts:

http://vivekjayakumar.blogspot.com/2016/09/market-power-and-pricing-power.html

http://vivekjayakumar.blogspot.com/2016/05/less-than-perfect-competition.html

http://vivekjayakumar.blogspot.com/2016/11/business-consolidation-and-income.html

US Federal Reserve Rate Cycle [Updated]

A nice graphic tool from Bloomberg:
https://www.bloomberg.com/graphics/2016-fed-interest-rate-hike/

Updates:

Fed may raise rates more aggressively in 2017:

https://www.bloomberg.com/news/articles/2016-12-14/fed-raises-rates-boosts-outlook-for-borrowing-costs-in-2017

Fed Statement - December 14, 2016:

https://www.federalreserve.gov/newsevents/press/monetary/20161214a.htm

The Best Piece on International Trade [Must Read]

Economist Russ Roberts has written a wonderful piece that everybody should read: The Human Side of Trade

https://medium.com/@russroberts/the-human-side-of-trade-7b8e024e7536#.lzq7nfjzd

Related:

Toward a Rust Belt Powerhouse by Jim O'Neill (former chairman of Goldman Sachs Asset Management and former Commercial Secretary to the UK Treasury)

https://www.project-syndicate.org/commentary/rust-belt-revitalization-northern-powerhouse-by-jim-o-neill-2016-12

Long-Term US Economic Growth - Gordon versus Mokyr

Two prominent Northwestern University economists debate US long-term growth prospects:

College Towns versus Rust Belt Cities

Concentration of educated workers has allowed American college towns to flourish in the era of the knowledge economy:

There’s an Antidote to America’s Long Economic Malaise: College Towns – WSJ

http://www.wsj.com/articles/theres-an-antidote-to-americas-long-economic-malaise-college-towns-1481558522
“Universities boost more than just highly educated people, says Enrico Moretti, an economics professor at the University of California at Berkeley. The incomes of high-school dropouts in college towns increase by a bigger percentage than those of college graduates over time because demand rises sharply for restaurant workers, construction crews and other less-skilled jobs, he says.
Tapping the resources of nearby colleges and universities helps communities cope with economic turmoil. The U.S. has about 4,700 two- and four-year colleges, giving almost everywhere a potential anchor for economic development.”

Post-Election Stock Market Rally

A few interesting items on the dramatic post-US elections stock market rally:

http://www.economist.com/news/finance-and-economics/21711331-investors-bet-tax-cuts-repatriated-profits-and-deregulation-winners-and-losers

https://www.ft.com/content/ea5b01f6-be2a-11e6-8b45-b8b81dd5d080

https://www.bloomberg.com/view/articles/2016-12-09/six-things-to-consider-as-stocks-break-records

Technology and Privacy

Sue Halpern makes a great point:

http://www.nybooks.com/articles/2016/12/22/they-have-right-now-another-you/

“It would be naive to think that there is a firewall between commercial surveillance and government surveillance. There is not.

Many of us have been concerned about digital overreach by our governments, especially after the Snowden revelations. But the consumerist impulse that feeds the promiscuous divulgence of personal information similarly threatens our rights as individuals and our collective welfare. Indeed, it may be more threatening, as we mindlessly trade ninety-eight degrees of freedom for a bunch of stuff we have been mesmerized into thinking costs us nothing.”

US Manufacturing – Reality versus Politics

A great read for students of economics and politics:

http://knowledge.wharton.upenn.edu/article/can-trump-anyone-bring-back-american-manufacturing/

““If you try to understand how so many jobs have disappeared, the answer that you come up with over and over again in the data is that it’s not trade that caused that — it’s primarily technology,” says Harrison. “Eighty percent of lost jobs were not replaced by workers in China, but by machines and automation. That is the first problem if you slap on tariffs. What you discover is that American companies are likely to replace the more expensive workers with machines.”

The other problem, Harrison points out, is that a lot of what the U.S. exports is dependent on a supply chain that uses components produced cheaply elsewhere. “So if we slap tariffs on Mexico and China, it will make our own manufacturing less competitive,” she says. Starting a trade war with Mexico, China or both would mean that “the most likely immediate consequence is that they are going to turn around and play the same game by putting tariffs on things we produce for the world, so Mexico would likely slap tariffs on our agricultural exports, which are massive, and China would put a tariff on highly sophisticated machinery. If that escalates you end up in a situation where the economy is worse off.””

Financial Services and Payment Technology Revolution in Emerging Markets

Kenya leads the way with the M-PESA system:

http://news.mit.edu/2016/mobile-money-kenyans-out-poverty-1208

One potential benefit from India’s costly demonetization experiment – a shift towards a cashless society:

http://money.cnn.com/2016/12/01/technology/india-cash-ban-digital-payments/

https://rctom.hbs.org/submission/cashless-indian-economy-money-demonetization-to-mobile-digitization/

UPDATE:

WSJ piece - Inside India’s Unprecedented Assault on Cash

http://www.wsj.com/articles/inside-indias-unprecedented-assault-on-cash-1481538604

Economics of Asset Bubbles

Noah Smith summarizes recent research on housing and financial bubbles

https://www.bloomberg.com/view/articles/2016-12-08/a-better-theory-to-explain-financial-bubbles

International Affairs – Interesting Items

Turkey’s Autocratic Turn by YAROSLAV TROFIMOV

http://www.wsj.com/articles/turkeys-autocratic-turn-1481288401

“Mr. Erdogan’s Turkey has come to look increasingly like just another troubled corner of the Middle East. And, many Turks and Westerners fear, the country is becoming infected with the same sicknesses—intolerance, autocracy, repression—that have poisoned the region for decades.”

France – 2017 Elections May Prove to be a Turning Point

http://www.spiegel.de/international/europe/fillon-victory-shows-france-returning-to-conservative-roots-a-1124908.html

UK Foreign Secretary Boris Johnson finally says something intelligent and quickly gets criticized

https://www.theguardian.com/politics/2016/dec/09/boris-johnson-refuses-to-apologise-for-saudi-arabia-comments

Wall Street and US Politics

Goldman Sachs alumni attain leading roles in the Trump administration

https://www.bloomberg.com/view/articles/2016-12-09/economists-are-out-goldman-is-back-in

Geopolitics and Populism [Must Read]

A great piece from two noted scholars - DANNY QUAH and KISHORE MAHBUBANI:

https://www.project-syndicate.org/commentary/populism-driven-by-geopolitical-change-by-danny-quah-and-kishore-mahbubani-2016-12
“The big question in Asian countries right now is what lesson to take from Donald Trump’s victory in the United States’ presidential election, and from the United Kingdom’s Brexit referendum, in which British voters opted to leave the European Union. Unfortunately, the focus is not where it should be: geopolitical change.”

Related –

The Complexity of Inequality by Michael Heise
https://www.project-syndicate.org/commentary/complexity-of-global-inequality-by-michael-heise-2016-12

A Wacky View of the Future

Eduardo Porter of the New York Times has written an interesting article:

http://www.nytimes.com/2016/12/06/business/economy/a-dilemma-for-humanity-stark-inequality-or-total-war.html
“History — from Ancient Rome through the Gilded Age; from the Russian Revolution to the Great Compression of incomes across the West in the middle of the 20th century — suggests that reversing the trend toward greater concentrations of income, in the United States and across the world, might be, in fact, nearly impossible.

That’s the bleak argument of Walter Scheidel, a professor of history at Stanford, whose new book, “The Great Leveler” (Princeton University Press), is due out next month. He goes so far as to state that “only all-out thermonuclear war might fundamentally reset the existing distribution of resources.” If history is anything to go by, he writes, “peaceful policy reform may well prove unequal to the growing challenges ahead""

Corporate America and US Political Regime – A Brave New World?

The Economist has a couple of excellent articles in its latest issue:

http://www.economist.com/news/briefing/21711498-whatever-he-thinks-dealmaking-wont-help-mr-trumps-trade-negotiations-donald-trumps-trade
http://www.economist.com/news/briefing/21711500-tradition-politicians-intervening-business-corporatisms-long-history-america

Related:
A closer look at the promised $50 billion Softbank investment in the US:
https://www.washingtonpost.com/news/fact-checker/wp/2016/12/08/the-dubious-claims-about-softbanks-investments-in-the-u-s/

Italy’s Banking Woes and the Future of the Euro

Interesting piece from economist Philippe Legrain

https://www.project-syndicate.org/commentary/italy-referendum-eurozone-by-philippe-legrain-2016-12

Meanwhile, ECB has extended its QE program

http://www.economist.com/blogs/freeexchange/2016/12/non-taper-taper

https://www.bloomberg.com/news/articles/2016-12-08/draghi-says-ecb-can-do-more-as-stimulus-reaches-2-4-trillion

Free Movement of Labor and the European Union
http://www.economist.com/news/finance-and-economics/21711327-why-free-movement-labour-essential-europes-economic-project-economic