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- RBNZ hikes, but signals pause 57
- Taskforce to target 'loopy' council rules 51
- Bernard's election diary - July 22 46
- Bernard's election diary - July 23 40
- Time for government to wake up 29
- What happened Wednesday 21
- Landlords' rental yields declining sharply 19
- 90 seconds at 9 am: Markets ignore non-economic tensions 17
- Bernard's Top 10 at 10 13
- Brownlee offers to resign; Key says no 11
Monday's Top 10: Airpocalapse; droughts; mispricing oil; the age of distruption; factory jobs; the value of infinity; Dilbert, and more
Here's my edition of Top 10 links from around the Internet at 11:00 am today. We now have a Monday-Wednesday-Friday schedule for Top 10.
Bernard will be back with his version this Wednesday. We will have another guest posting on Friday.
As always, we welcome your additions in the comments below or via email to firstname.lastname@example.org.
What's clean air worth? If you don't have it, its a lot more than an Auckland house, that's for sure.
It's been so bad in Beijing in the past week, on a scale of 1 - 500, the reading came in at 755.
They are now broadcasting the sunrise on TV, because you can't see it out your window.
New Zealand has tied its economic future to China. To be fair, its not like this all over the country, but their big cities have big problems.
However, a lot of this is reminiscent of similar issues that some big western cities (like London, New York, Chicago) used to have.
Industrial revolution London was famous for its smog.
When the voters got mobilised, governments made sensible rules (which business pushed back on at the time), and things got better.
Actually, the story is better than that. Things got better very quickly. London's river went from being a sewer to sustaining fish in a very short time.
However, China has much more than just a clean air problem. Contamination is everywhere. They will be buying 'clean food' for a long time yet.
“How does the smog differ from the apocalypse?” Joe Wong, a comedian from northeast China, wrote on his microblog on Wednesday night, when the pollution levels had begun surging. “After the apocalypse, you no longer worry about the smog.”
On Wednesday night, the United States Embassy in Beijing began sending out online warnings that the air quality level had gone above 500, the upper limit of the measurement scale, and was now “beyond index” (or “crazy bad,” as one embassy employee had written on an official embassy Twitter account several years ago.) It stayed at that level until Thursday, when it dipped to “hazardous” from “beyond index.” Hazardous means an air quality index above 300, at which point the concentration of fine particulate matter in the air is many times the exposure limit recommended by the World Health Organization. American health officials say a hazardous rating means people should avoid venturing outdoors.
When you first read this, it is likely to be raining outside. That is great. It is what makes New Zealand. And its summer. Even better, in my book. Not everyone is so lucky. A major drought has been declared in the US West, California especially. It's serious and severe. Australia has its own problems and maybe as severe. We don't know how lucky we are.
I was living in California in the 1970s when there was also a big drought. This one may even get to be as bad. Who knows. The one thing is, they end. That 1970s one ended, and more or less 40 years of fairly normal rainfall followed. That allowed populations and farming to develop. So the impacts will be higher this time (even if the drought itself doesn't turn out to be as bad). This is the NY Times report:
Cattle ranchers have had to sell portions of their herd for lack of water. Sacramento and other municipalities have imposed severe water restrictions. Wildfires broke out this week in forests that are usually too wet to ignite. Ski resorts that normally open in December are still closed; at one here in the Sierra Nevada that is open, a bear wandered onto a slope full of skiers last week, apparently not hibernating because of the balmy weather.On Friday, Gov. Jerry Brown made it official: California is suffering from a drought, perhaps one for the record books. The water shortage has Californians trying to deal with problems that usually arise in midsummer.With little snow in the forecast, experts are warning that this drought, after one of the driest years on record last year, could be as disruptive as the severe droughts of the 1970s.
The Folsom Lake marina, high and dry.
3. A huge mispricing event
The energy business has everyone scratching their collective heads. US shale, natural gas, and the US export ban are all working to create a very distorted marketplace.
But back to those distorted energy markets. If oil is currently mispriced, a lot of other things are being mispriced as well. The folks at FTAlphaville explain it this way:
[T]here is a battle taking place in the oil markets at the moment.
On one side there are conventional oil producers like Opec members desperate to stop oil prices from following the declining trajectory of the wider commodity complex. On the other side there are the new US shale oil producers, who - due to the US export ban - are unable to capture the full earnings potential of their production (on account of an inability to tap foreign bids directly).
The problem for Opec types is that the break-even rates they seek to defend are now too high to prevent the new class of producer from being incentivised to keep producing. This despite the fact that the export bottleneck only ends up transferring much of the profitability to the refining sector instead of the US producer.
As pressures mount, it’s fair to presume that at some point something will have to give. One group will be forced by to scale back production, whether they like it or not.
Ending the US export ban would of course serve the interests of the US producers. Global prices would be equalised with US levels, the WTI-Brent spread would reconnect, and Opec would be pressured to cut supply to offset. What was lost by Opec would be America’s gain.
At the same time, however, ending the export ban would see the US lose its competitive advantage on crude processing grounds, jeopardise the US refining industry and with it a whole bunch of domestic jobs.
4. Realism and optimism
I know we are magnet for gloomsters, but this overall long term perspective is useful (even if it does come from someone the gloomy types love to hate).
We do seem to have dna that makes us yawn when the news is good, and completely turn off if it keeps getting better. Editors know this, so we get an endless stream of news that accentuates problems. 'You' won't read or watch it otherwise. But it does have a corrosive impact on our leaders. They react the same way. The only problem is, it is becoming less rooted in reality. (There are medical terms for that.)
Anyway, it is helpful to occasionally take a big-picture view of the sweep of gains we seem to be making. Robert Shiller has been making a similar point, although his is more on the lack of tolerance for complexity in public policy decisions. This particular one comes from Bjorn Lomberg at Project Syndicate:
[I]t is worth stepping back and recognizing that many indicators point to a world that is improving. New data from the World Bank show that the proportion of extremely poor people has more than halved over the last 30 years, from 42% of the global population in 1981 to 17% in 2010. While 1.2 billion people in the developing world still live on less than $1.25 per day – a problem that we certainly must address – the rate of extreme poverty has never been lower. Economists estimate that in 1820, more than 80% of all people were extremely poor.
Similarly, consider the amazing improvements in education. Illiteracy today still afflicts 20% of the world’s population, but that is down sharply from an estimated 70% in 1900. In the prosperous West, rapid increases in literacy were achieved early in the twentieth century. In developing countries, similarly large (and continuing) gains were made from 1970 to 2000, with China recording the biggest improvement.
Together with the Copenhagen Consensus, economists have attempted to assess the cost of illiteracy. We estimate that if there had been no illiteracy in 1900, the world would have been $240 billion richer (in inflation-adjusted terms), equivalent to about 12% of global GDP at the time. So, the global illiteracy problem in 1900 can be said to have cost the world 12% of GDP. Today, the cost of global illiteracy is down to 7% of GDP. By 2050, when illiteracy will reach about 12%, the cost will have dwindled to just 3.8% of GDP.
5. Age of disruption
I don't reckon you should make a habit of betting against McKinsey & Co. They may stumble occasionally, or get a few things wrong, but they are much more likely to be more right than you or I ever will be. Their new CEO is out trumpeting the way big data is changing the world. It is a key weapon for the large corporations that can afford it. (But it doesn't only have to be for the big: Westpac has an app service that lets SMEs tap into these resources.)
The key lesson: mine your data for insights.
Rapid advances in technology are also making it easier to realize the impact of analytics. One of the biggest challenges for many companies has been to convert insights from statistical models into real changes in day-to-day operations. Individuals on the front lines have lacked intuitive tools that link insights to action. But advances in data visualization, faster development cycles for applications, and the steady consumerization of technology are changing that, putting customized, easy-to-understand solutions in managers’ hands.
6. Beware emerging markets
The Economist magazine has pointed out that there are just not enough emerging market listed companies to invest in. The US domestic markets are large, as are Japanese, London and Frankfurt, but outside of those, most other country stock markets are quite small. In fact very small. Their chart (below) makes the point.
Our NZX total market cap of NZ$85 bln (US$70 bln) makes it as well. One mid-size US bank - US Bancorp (ever heard of them?) - is larger. In fact, each of the Aussie banks have market caps larger that the whole of the NZX.
7. The future of factory jobs will be different to the past
As most readers of this news service will be aware, American manufacturing is in good heart, with it expanding quite quickly. But Zachary Karabell notes, this will not result in an equivalent surge in 'good middle class manufacturing jobs'. There will be job gains, but they are likely to be only at the high-skilled high-end. Those who lost their factory jobs won't be getting them back.
The return of the factories has been encouraged by a series of major state and Federal initiatives, but it is a long game, says Karabell:
It is instead likely, even with the reinvigoration of American manufacturing, that job creation is almost non-existent. It is likely as well that output as measured by gross domestic product goes up along with the revival — without producing a job renaissance.
Again, this is not an argument against these endeavors. They will indeed generate income and revenue and enhance productivity in the U.S. They will not, however, solve the conundrum of our structural unemployment challenges.
Over time, of course, as more people develop the skills required for this new wave of manufacturing, it is possible that the economic system overall generates a next wave of prosperity. Education and innovations, tethered to products, ideas, services and even entertainment, has no clear limit to growth.
In the interim, however, a generation ill-prepared for that change is likely to continue to struggle mightily.
So we should embrace these endeavors, absolutely. But we should do so with a clear sense of what they can do long-term and what they cannot do in the short term. They cannot bring back lost jobs or industries. They also cannot solve the employment challenges for millions who have been displaced over the past few decades.
Obama’s plan can solve those for the next generation - but not for portions of an older generation now adrift. We should not fool ourselves about what can be done.
A lost generation may require years of support before the next is ready to carry the weight of the future. This is only a negative, however, if we pretend that an easy fix is on the horizon.
8. Jobs that might survive
As we have noted before, robots and computers are changing the employment landscape quickly. 'Skill' in its own may now no longer be enough to save many jobs. Accountants as bookkeepers are facing a bleak future (and Xero is leading the way), according to a recent survey story in the Economist. As are real estate sales agents. And economists!
If you are young person looking for a career, best to start looking at these new trends. (Reading this whole article might be a place to start, although it can be a bit spooky.) Certainly don't look at history, even recent history. Editors look ok to me. ;)
9. When really big is actually quite small
OK, so this is not much to do with New Zealand, our economy, interest rates, or economics of anything. More like physics. But I found it fascinating (mainly because I thought I could follow what these braniacs were explaining ...) It's in the video. (You're as sad as me if you kind of liked this. btw, is there a kiwi accent in there near the end, asking a question ?)
10. Today's quote
"Suckers think that you cure greed with money, addiction with substances, expert problems with experts, banking with bankers, economics with economists, and debt crises with debt spending." - Nassim Nicholas Taleb