Here are my Top 10 links from around the Internet at 10 past 10 am (yes!), brought to you in association with New Zealand Mint for your reading pleasure.
I welcome your additions and comments below, or please send suggestions for tomorrow's Top 10 at 10 via email to bernard.hickey@interest.co.nz.
I'll pop any surplus suggestions I get into the comment stream.
1. The focus on inequality - Phil Goff is onto a winner when he focuses on income and wealth inequality.
It will be the central meme of our age as the realisation sets in that unfettered capitalism drives wealth uphill and the Global Financial Crisis was at least partly caused by this inequality.
New Zealand voters are starting to work out that the tax shuffle last year simply delivered a big tax break to the wealthiest while the poor and middle classes are paying higher food and petrol costs, not to mention higher GST rates.
Tax rates rose through the 1940s and 1950s in the wake of the depression. It was one of the most prosperous times for the developed world.
What's so wrong with high tax rates for the wealthy?
The same move to higher income tax rates for the super wealthy is inevitable around the world as the voting populace work out that the super rich got incredibly rich during the boom and have refused to acknowledge their role in the boom and bust.
The continued huge bonuses for bankers is obscene and is politically unsustainable.
Inequality is even the theme at the big Davos shindig put on by the World Economic Forum where all the masters of the universe chat about how to improve the world.
Here the Forum says in its Global Risks report for 2011 that inequality is the major challenge for the world.
James Ledbetter at Reuters has a nice summary:
This year’s report makes a big deal about “economic disparity,” which it helpfully defines as “wealth and income disparities, both within countries and between countries.” We used to call this “inequality.”
The WEF report rightly points to OECD data indicating real income growth of the top income quintiles in wealthy countries (Finland, Sweden, the United Kingdom, Germany, Italy and the United States) was twice as large as that of the bottom quintiles between the mid-1980s to mid-2000s. The poor may not be getting poorer, but the rich are getting richer at a much faster pace than everyone else.
That situation is not only immoral, but dangerous, as it can lead to open conflict between nations and internal political turmoil. But wait — why is this happening? The WEF report cites “the erosion of employment culture, the decline of organized labor, and failures of education systems to keep pace with the increasing demands of the workplace.”
That all sounds plausible, but the time frame cited marks the heyday of the very global governance institutions the WEF seeks to support. You don’t have to accept a causal relationship — though it certainly suggests itself — but at a minimum, global governance institutions have been demonstrably ineffective in addressing the economic structural issues that the WEF now worries about.
2. Solutions to combat inequality - The Economist has a useful and sobre piece here ahead of Davos on how governments can attack inequality.
Rules and institutions are often rigged in ways that limit competition and favour insiders at the expense both of growth and equality. The rules can be blatantly unfair: witness China’s limits to migration, which keep the poor in the countryside. Or they can involve more subtle distortions: look at the way that powerful teachers’ unions have stopped poorer Americans getting a good education, or the implicit “too big to fail” system that encouraged bankers to be reckless and left the rest with the tab. These are very different problems, but they all lead to wider inequality, fewer rungs in the ladder and lower growth.
Viewed from this perspective, the right way to combat inequality and increase mobility is clear. First, governments need to keep their focus on pushing up the bottom and middle rather than dragging down the top: investing in (and removing barriers to) education, abolishing rules that prevent the able from getting ahead and refocusing government spending on those that need it most.
Oddly, the urgency of these kinds of reform is greatest in rich countries, where prospects for the less-skilled are stagnant or falling. Second, governments should get rid of rigged rules and subsidies that favour specific industries or insiders. Forcing banks to hold more capital and pay for their implicit government safety-net is the best way to slim Wall Street’s chubbier felines. In the emerging world there should be a far more vigorous assault on monopolies and a renewed commitment to reducing global trade barriers—for nothing boosts competition and loosens social barriers better than freer commerce.
Such reforms would not narrow all income disparities: in a freer world skill and intellect would still be rewarded, in some cases magnificently well. But the reforms would strike at the most pernicious, unfair sorts of income disparity and allow more people to move upwards. They would also boost growth and leave the world economy more stable. If the Davos elites are worried about the gap between the rich and the rest, this is the route they should follow.
3. Poor Ralph - New Zealand's highest paid executive, Ralph Norris, may not get paid so much this year because Commonwealth Bank of Australia customer satisfaction slumped after he put up mortgage rates by more than the rise in the Australian cash rate, BusinessDay reports.
With his remuneration package linked to customer satisfaction ratings, it could be an expensive survey for Mr Norris. Roy Morgan Research found that Commonwealth Bank home loan customers' satisfaction rates fell to their lowest in five years in November and December, outstripping the falls of its three major competitors.
4. JP Morgan's 'sack of shit' - It's worth watching the various legal actions around the big US banks mortgage securitisation. There is a risk it blows up in everyone's face again if widespread fraud is proven.
Here's FTAlphaville with the latest installment on whether the big US banks get done for fraud over the slicing and dicing of toxic debt. Ambac and JP Morgan are at loggerheads. Discovery is always a fun process.
Materials produced in discovery have confirmed that EMC’s representations about the Mortgage Loans are false, but have also revealed that EMC and its affiliates, including JP Morgan, knew that those representations were false and knowingly made numerous, material false statements and omitted material information in pre-contractual communications in order to induce Ambac to issue the Policies.
This evidence – obtained for the first time through discovery – demonstrates that at the same time that JP Morgan and EMC were touting to Ambac the quality of the Mortgage Loans and the rigorous procedures for verifying their quality, JP Morgan personnel understood that the loans underlying the transactions were in fact – to use one JP Morgan employee’s unequivocal if impolite words – a “sack of shit.”
5. Full steam ahead - Even though the US economy seems to be showing some signs of life and the initial round of money printing just pushed up (!) long term interest rates, the US Federal Reserve is set to announce its full steam ahead for QE II this week, Bloomberg reports.
Bernanke and his fellow policy makers will probably note improvements in the economy such as higher consumer spending in a statement to be released tomorrow, former Fed governor Lyle Gramley said.
Encouraging signs like firmer bank credit are unlikely to prompt a reduction in stimulus so long as growth remains weak and unemployment persists near 10 percent, he said.
“The Fed is not ready to let up on its accelerator,” said Gramley, senior economic adviser for Potomac Research Group in Washington. “They are going to be impressed with the fact the economy has gained some momentum, but there are still strong headwinds to growth, and bank lending is quite modest.”
6. Food riots to return - The rising prices of commodities and oil is taking its toll on social stability in many countries. The latest riots in Egypt are no doubt partly linked to this pressure.
Bloomberg reports the World Food Programme is warning about the impact of rising food prices.
Risks of global instability are rising as governments cut subsidies that help the poor cope with surging food and fuel costs to ease budget crunches, the head of the United Nations’ World Food Program said.
“We’re in an era where the world and nations ignore the food issue at their peril,” Josette Sheeran said in an interview yesterday at the agency’s Rome headquarters. The global recession has eroded government aid that helped people in poorer countries afford bread, cooking oils and other staples. The trend raises the odds of unrest even though prices have improved in many nations from 2007-2009, Sheeran said.
During that period, more than 60 food riots occurred worldwide, according to the U.S. State Department.
7. And Chocolate prices will rise too - The price of cocoa hit its highest levels since 1979 yesterday, in part due to political unrest in the Cote d'Ivoire, Bloomberg reports.
Cocoa has jumped 9.1 percent this month, the biggest gain after cotton among the 19 commodities tracked by the Thomson/Reuters Jefferies CRB Index. Cargill Inc., the largest closely held U.S. company, said yesterday it temporarily suspended bean purchases in Ivory Coast.
Climbing prices may mean higher costs for Hershey Co., Mars Inc., Barry Callebaut AG, the world’s biggest maker of bulk chocolate.
8. Hidden subsidies to banks - UCLA economics professor Axel Leijonhufvud has written a fascinating piece at VoxEu saying zero interest rate policies in the Northern Hemisphere are effectively delivering a huge subsidy to banks at the expense of the taxpayer. He also attacks the independence of central banks...
The shell game is a roadside con as old as civilisation. This column argues that the same swindle is being performed on a massive scale at the expense of the unsuspecting taxpayer. It says that, with their near zero interest rates, central banks are effectively subsidising the banking sector – with barely a pea passed on to the public.
For the last 20 or 30 years, political independence of central banks has been a popular idea among academic economists and, of course, heartily endorsed by central bankers. Such independence has not been much in evidence in the recent crisis. But central banks would very much like to restore their independence. The independence doctrine, however, is predicated on the distributional neutrality of their policies.
Once it is realised that monetary policy can have all sorts of distributional effects, the independence doctrine becomes impossible to defend in a democratic society.
9. The ageing West needs immigrants - The Economist makes the obvious but still important point in this piece that one of the ways for the ageing west to cope is to import lots of young labour.
As the American population ages, the unpleasant question will have to be answered: what to do with the Baby Boomers as they age and can no longer care for themselves? The typical Baby Boomer can not afford a private nurse or comfortable retirement homes. Without immigration the market does not provide many affordable and dignified long-term care options.
Restricting immigration will probably result in more illegal immigrants providing care. This leaves the migrant and the elderly person they care for vulnerable to abuse and exploitation. More legal immigration also increases the tax base which takes some of the edge off of the burden of entitlement spending on current earners. Increased immigration of workers of all skills levels will help allow retirees to age and die with dignity.
10. Totally relevant video - Economist Martin Jacques speaks here at TED Salon in London about the rise of China. Fascinating. HT Adam via email.
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