Tuesday's Top 10 with NZ Mint: Economics agreement; US drought; auto industry recovers; reviewing Geithner's term; the world in 2030; the new mercantalist challenge; Dilbert, and more

Here's my Top 10 links from around the Internet at 10:00 am today in association with NZ Mint.

Bernard is on his summer break and will be back on January 22, 2013, from Wellington.

As always, we welcome your additions in the comments below or via email to david.chaston@interest.co.nz.

See all previous Top 10s here.

1. Finding common ground 
Chrystia Freeland reports on an effort to counter the undermining of expert economic knowledge.

She says that the economics profession is actually much more united in its analysis than most people would realise.

This is a tough time for experts. Empowered by the Internet and embittered by the sour economy, many people doubt the wisdom of expert elites.

Journalism sometimes casts further doubt by seeking polarised positions that can draw an attention-grabbing debate, or by taking refuge in he-said-she-said accounts to avoid the harder job of figuring out who’s right.

Now one tribe of specialists – economists – is striking back. Concerned that the great unwashed have come to see all economic proposals as being equally valid, the University of Chicago Booth School of Business has led an effort to figure out what economists agree on, where they diverge and how certain they are about their views.

To do that, the Booth school called on reputable economists to join its panel of experts. Each week, the panelists are asked whether they agree or disagree with a particular economic idea.

"Among practicing economists, it is understood that the media and the political process paints economists as more divided than they are," explained Anil K. Kashyap, a professor of economics and finance at the University of Chicago and a leader of the project. "It is more sensational and maybe makes for better reading to have point-counterpoint. It seemed reasonable to provide some context. There’s a lot more settled issues than most people have a sense of."

2. A drought's far-reaching grasp
The middle grain-producing areas of the US are in the grip of a long drought. In fact, the mighty Mississippi River is getting so low, some are forecasting it may soon cease to be navigable. And when the water is low, people start fighting over it. Could get serious:

"If this goes on, we're going to be forced to sell our cows this next spring," says Phillip Smith. He and his wife, Doris, have been farming and ranching the land in Amarillo - growing wheat, grain sorghum and hay for cattle - for more than 50 years.

The Smiths tell Lyden that they have already sold off a lot of the herd, and this year might be the last for the "Sunshine Ranch," as they've dubbed their farmstead. As the drought began, Phillip Smith says, submoisture allowed them to produce a "less than average" crop for two years, but this year they might not be able to grow anything.

"There is nothing growing on [the fields], it's pretty much bare ground," Doris Smith says. "Even the crops that we did plant in the late summer and early fall, because of the lack of moisture, those crops have died." Their farm is just one example of what is happening across the US., she says, and when agriculture suffers, we all suffer. "If you eat you are involved in agriculture [and] this really affects everybody," she says.

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3. More half full/half empty debate
The warming planet will produce winners and losers. It is easy to focus on the losers. But there could well be a third impact - people will change what they do, adapting to the world as it changes. Or so says an optimist:

Consider the newest global-warming exaggeration: an article from Newsweek shrilly claiming that rising temperatures are heralding “The End of Pasta.” All of the major grains – rice, corn, and wheat – are already suffering from global warming, the article explains, but wheat is the most vulnerable to high temperatures. So, as warming increases, we will see “shockingly high prices” for pasta and bread. Its central message is straightforward: “If humans want to keep eating pasta, we will have to take much more aggressive action against global warming.”

The argument is almost entirely wrong.

Yields of all major crops have been rising dramatically in recent decades, owing to higher-yielding crop varieties and farmers’ greater use of fertilizer, pesticides, and irrigation. Moreover, CO2 acts as a fertilizer, and its increase has probably raised global yields more than 3% over the past 30 years.

But increasing temperatures will harm some crops while benefiting others. Because most crops are already grown where they do best, it is not surprising that climate models show that temperature increases will reduce yields if farmers change little or nothing. In fact, farmers will adapt, especially over the course of a century. They will plant earlier, grow more heat-loving varieties, or change their crop entirely. And, as growing wheat and grains becomes possible higher north in Canada and Russia, even more opportunities will open up.​​

4. Today's raw market data ...
A quick holiday update:

5. A Detroit resurgence
The American auto industry is gearing up to sell more than 17 million vehicles, the same number as in the previous peak in 2007. In fact in 2015/16 they expect "serious pent-up demand" to come to market. It is a "remarkable turn-around".

The Detroit Three auto makers, which downsized dramatically by closing dozens of factories during the 1990s and 2000s, are almost reaching the point where they need to open new vehicle assembly plants. While they report healthy profits because of deep cost cuts made during the downsizing and what is now a solid recovery in North American sales, Chrysler, Ford. and General Motors, are staring at analysts’ forecasts for an even more robust market later in the decade.

6. The 'new' mercantilist challenge
The history of economics is largely a struggle between two opposing schools of thought, 'liberalism' and 'mercantilism.' Economic liberalism, with its emphasis on private entrepreneurship and free markets, is today’s dominant doctrine. But its intellectual victory has blinded us to the great appeal – and frequent success – of mercantilist practices. Dani Rodrik reviews who's on first:

The mercantilist model can be derided as state capitalism or cronyism. But when it works, as it has so often in Asia, the model’s “government-business collaboration” or “pro-business state” quickly garners heavy praise. Lagging economies have not failed to notice that mercantilism can be their friend. Even in Britain, classical liberalism arrived only in the mid-nineteenth century – that is, after the country had become the world’s dominant industrial power.

A second difference between the two models lies in whether consumer or producer interests are privileged. For liberals, consumers are king. The ultimate objective of economic policy is to increase households’ consumption potential, which requires giving them unhindered access to the cheapest-possible goods and services.

Mercantilists, by contrast, emphasize the productive side of the economy. For them, a sound economy requires a sound production structure. And consumption needs to be underpinned by high employment at adequate wages.

These different models have predictable implications for international economic policies. The logic of the liberal approach is that the economic benefits of trade arise from imports: the cheaper the imports, the better, even if the result is a trade deficit. Mercantilists, however, view trade as a means of supporting domestic production and employment, and prefer to spur exports rather than imports. Liberals should be happy to have their consumption subsidized by mercantilists.

Indeed, that, in a nutshell, is the story of the last six decades: a succession of Asian countries managed to grow by leaps and bounds by applying different variants of mercantilism. Governments in rich countries for the most part looked the other way while Japan, South Korea, Taiwan, and China protected their home markets, appropriated “intellectual property,” subsidized their producers, and managed their currencies.

We have now reached the end of this happy coexistence. The liberal model has become severely tarnished, owing to the rise in inequality and the plight of the middle class in the West, together with the financial crisis that deregulation spawned. Medium-term growth prospects for the American and European economies range from moderate to bleak. Unemployment will remain a major headache and preoccupation for policymakers. So mercantilist pressures will likely intensify in the advanced countries.

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7. 'Little known escape clause'
If things improve faster in the US than the Fed has counted on (or economists expect), then Bernanke has room to react quicker than previously signaled.

Federal Reserve Chairman Ben S. Bernanke is giving himself an escape clause from his latest stimulus steps in case the economy finally gains momentum. He’s made his third round of quantitative easing open-ended - meaning the program doesn’t have a set time frame - and signaled he may adjust its pace if needed. In December, the policy-setting Federal Open Market Committee added outright Treasury purchases to its mortgage-bond buying, saying it would acquire US. government debt “initially” at a pace of $45 billion a month on top of $40 billion in home-loan debt. Policy makers at their last December meeting saw the economy continuing to expand at a “moderate pace” as concerns about the so-called fiscal cliff restrained growth.

The strategy gives officials maneuvering room to slow purchases if gross domestic product expands at a more robust pace than forecast, said Dean Maki, chief US. economist at Barclays Plc. Fed officials in December projected growth in a range of 2 percent to 3.2 percent in 2013, already more optimistic than Wall Street’s median estimate of 2.2 percent, based on 57 analysts in a Bloomberg survey conducted Jan. 4 to Jan. 9. The Fed “doesn’t want to box itself in,” Maki, a former Fed board economist, said in a telephone interview from his New York office. “You could have a situation where financial markets improve and that leads to better growth. They want to not be committed to keep policy on hold, even if that stronger cycle were to get going.”

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8. The Geithner era
It has been a tough four years for Tim Geithner, and he wants out. He is stepping down from a role where few expected him to shine. But many close observers think he did shine, and shine brighter than many of the stars around him at the Obama cabinet table.

It’s a result few would have forecast after his first few months in Washington. Called in from the presidency of the New York Federal Reserve Bank for his expertise in financial crisis management, Geithner was initially the lowest-profile member of the economic team. He lacked the sterling academic reputations of CEA chair Christina Romer and National Economic Council director Larry Summers, or the D.C. profiles of Summers or OMB director Gene Sperling. Nor was he a longtime confidante of the president. They’d never met during Obama’s stint in the Senate, and he played no role in the presidential campaign or the broader universe of aughts-era Democratic Party politics.

And in the early months it showed. Geithner was unsteady in his public appearances, and his team was an awkward blend of N.Y. Fed people who didn’t know Washington, and D.C. operatives who didn’t know him. But what looked initially like an error by a rookie president turned into a triumph. Geithner outlasted Summers and Romer, along with three chiefs of staff and two defense secretaries. And unlike Hillary Clinton, he became not just the head of a major government agency but a real adviser to the president - part of the inner circle of decision-makers.

9. Looking forward
If you have a long term investment decision to make, you may well want to have some idea about what the world will look like in 2030. The US National Intelligence Council has taken a crack at answering that. US centric, of course, but a useful basis to test some ideas. What do you think? You can read it here »

The NIC foresees a transformed world, in which "no country – whether the US, China, or any other large country – will be a hegemonic power."

This reflects four 'megatrends': individual empowerment and the growth of a global middle class; diffusion of power from states to informal networks and coalitions; demographic changes, owing to urbanization, migration, and aging; and increased demand for food, water, and energy.

Each trend is changing the world and "largely reversing the historic rise of the West since 1750, restoring Asia’s weight in the global economy, and ushering in a new era of ‘democratization’ at the international and domestic level."

The US will remain “first among equals” in hard and soft power, but "the ‘unipolar moment’ is over."

10. Today's quote
"It is an unfortunate human failing that a full pocketbook often groans more loudly than an empty stomach." Franklin Delano Roosevelt