Wednesday's Top 10 with NZ Mint: Not like a credit card; what is special about start-ups; 58% over valuation; Saudi panic; Helen Clark and the Peter Principle; 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. Why public debt is not like credit card debt 
One big part of the campaign for economic austerity is the contention that the public debt is like a national credit card.

If we keep charging on it, the argument goes, we’ll get overwhelmed with interest costs, suffer a reduced standard of living and, pretty soon, go bankrupt.

But its a false analogy, says Robert Kuttner:

The Peterson Foundation is the leading sponsor of this brand of bogus economics. It is a spurious metaphor on so many levels that it’s hard to know where to begin.

Most important, this credit-card metaphor is a totally false analogy because, unlike a consumer on a spending spree who later has to pay the piper, government’s borrowing strategy directly affects economic growth. When deficit spending helps increase growth, that, in turn, makes the debt less burdensome.

The Federal Reserve also has the power to buy public debt ‑ a prerogative not available to consumers. The U.S. economy has vast productive potential that remains idle in a deep recession. When everyone who wants a job has one, and people use their purchasing power to buy goods and services, the economy is maximizing that potential. So the analogy between the government and the family fails on all levels. If our government listens to the austerity-mongers, it will tighten the national belt and make a bad situation worse.

The idea that the debt inflicts a burden on our grandchildren and depresses their standard of living has it backward. What is destroying the prospects of future generations is our failure to generate a recovery with decent jobs. The clouded future of our children and grandchildren is compounded by our failure to alleviate private debts, which are the fruit of bad government policy.

By failing to adequately finance public universities, we’ve compelled non-wealthy kids who want college educations to take on $1 trillion of student debt. That’s a real hit to living standards. Recent graduates, unlike government, do have to worry about maxing out their credit cards.

So public borrowing (and taxing) to alleviate that burdensome private borrowing would be smart policy. The next time you hear someone compare the public debt to your credit cards, keep your hand on your wallet.

2. Small start-ups create jobs, not big capital intensive firms
What's to blame for the low jobs growth in the US recovery? Two Citibank economists think the woes of small businesses might have something to do with it. And not just any small business.

Sheets and Sockin say more than 65 per cent of jobs created in the past 30 years came from small companies, although in recent years it is more like 61 per cent. Yet many small businesses are in innovative sectors and provide local services such as real estate and construction. But again, it’s not just any small firms that are job creators - it’s young small firms: A complementary point is that not all small firms are significant job creators. Rather, the academic literature emphasizes that the powerful impulse to job creation comes from young small firms.

It is the process of large numbers of entrepreneurs starting businesses and having a fraction of those businesses grow rapidly that is a prime driver of new employment in the US economy. And yet, it is small businesses that are suffering the most difficulty accessing credit.

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3. $400,000 over valuation
Just how frothy the current Auckland housing market is, is shown by this sale. A house outside the sought-after Grammar Zone has sold for $1,075,000, 58% above its Council valuation of $680,000. Its a 3 bedroom 1920s stucco bungalow. More detail in the story in the NZ Herald.

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

5. Deadbeat nation?
President Barack Obama on Monday rejected any negotiations with Republicans over raising the nation's borrowing limit, accusing his opponents of trying to extract a ransom for not ruining the US economy in the latest fiscal fight. More from Reuters:

"They can act responsibly, and pay America's bills or they can act irresponsibly, and put America through another economic crisis," he said. "But they will not collect a ransom in exchange for not crashing the American economy." Republicans want Obama to cut some government spending to rein in the deficit before they agree to raise the debt limit again.

"If congressional Republicans refuse to pay America's bills on time, Social Security checks and veterans' benefits will be delayed. We might not be able to pay our troops, or honor our contracts with small business owners. Food inspectors, air traffic controllers, specialists who track down loose nuclear material wouldn't get their paychecks," he said.

Obama reminded Republicans than he won the November election partly on his approach to fiscal issues. The debt limit is one of a trio of deadlines looming around the end of February, including automatic deep spending cuts that were temporarily put off in the fiscal cliff deal, and the end of a stopgap government funding measure. A number of Republicans have said they would be willing to allow a U.S. debt default or a government shutdown to force the Obama administration to accept deeper spending cuts than the White House would like. Obama said he would agree to talk about steps to trim the U.S. budget deficit, but made clear he wants to keep that discussion separate from the debt ceiling increase.

"The issue here is whether or not America pays its bills," he said. "We are not a deadbeat nation. And so there's a very simple solution to this: Congress authorizes us to pay our bills."

6. The worry grows
The economic costs of Chinese pollution mount, and are expected to cause their economy "to stumble". More from ChinaDaily.com.cn:

As a number of cities try to clear the air, specialists in Beijing warn that the pollution and emergency responses to reduce it could damage the economy and tourism. Authorities in the capital said on Monday they had ordered 58 factories with high emissions to suspend operations. Work at construction sites that could cause dust, such as leveling land, were also halted. The move followed similar action in Shijiazhuang, in neighboring Hebei province, where authorities stopped work at more than 700 construction sites.

Apparently one catalyst for a more honest attention to the issue is that the US Embassy in Beijing installed air quality monitoring equipment and started publishing the results publicly. Locals applauded.

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7. Is Saudi Arabia starting to panic?
FTAlphaville has pointed to some market commentary from Olivier Jakob at Petromatrix regarding the current state of oil market (dis)equilibrium and the potentially precarious position of Saudi Arabia.

Is Saudi Arabia starting to panic? Yesterday it was widely leaked that the Saudi crude oil production level in December was at 9.0 myn b/d , a drop of -0.5 myn b/d versus November and -1.1 myn b/d below the peaks of 2012 (April and June). The official Saudi production number is supposed to be released on Jan 20th but the number shown yesterday were precise enough that we have to assume that it is the official number that was leaked.

This is the largest monthly drop in production since January 2009 which was the reaction to Brent reaching 36 $/bbl.

With this cut of production, Saudi Arabia is already acting as if Brent had broken the support of 100 $/bbl and we have to assume that they have enough market inputs to fear that break in a very near future. Saudi Arabia is taking oil out of the market so on one hand that can be seen as supportive but in our opinion that is supportive only if the supply and demand is slightly out of balance.

If more oil needs to be taken out then Saudi Arabia is in trouble and this because OPEC has stopped working as an institution for the last two years and the coordinated cuts seen in the past (eg 2008-2009) will this time be more difficult to implement.

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8. Bernanke unplugged
Much is made of the fact that Ben Bernanke, the Federal Reserve chairman, is more open and candid than his predecessors, but in fairness, that’s a low bar. His public appearances are infrequent by comparison with other national leaders, his remarks are guarded and his personal life is carefully obscured. Except when Bernanke, a former college professor, speaks with students.

The Fed chairman seemed relaxed and happy as he answered questions at the University of Michigan on Monday, much the same as he did last year when he taught a series of classes at George Washington University. So how are things looking, Ben? “As long as fiscal policy isn’t getting too messed up, consumers seem to be more upbeat,” he said. Local governments have stopped cutting jobs. Better yet, people are building houses again. “That’s one factor that’s going to help us have a better year, I hope, in 2013,” he said.

So what’s the deal with all these experimental strategies? The problem with central bankers in the 1930s, Mr. Bernanke said, is that “they were afraid to do anything that was unorthodox.” “Sometimes,” he went on, “you need to consider unorthodox approaches.” Some of those things have worked; others not.

9. Needs to do better
It looks like Helen Clark is under fire for not doing her job at the UNDP properly - tackling poverty. And this is insider criticism from its own board. More from RadioNZ. Aunty H will be grumpy. Does this prove the Peter Principle?

10. Today's quote
""I've got all the money I'll ever need - if I die by four o'clock this afternoon." Henry Youngman