Here's my Top 10 links from around the Internet at 7.30 pm in association with NZ Mint.
I welcome your additions in the comments below or via email tobernard.hickey@interest.co.nz.
I'll pop the extras into the comment stream. See all previous Top 10s here.
#1 is a cracker today.
1. This is today's must read - Billionaire venture capitalist Nick Hanauer has a personal luxury jet and has helped create many, many companies and jobs.
Yet even he says that the argument that taxes on the rich stop job creation is a crock.
He rightly points out in this opinion piece on Bloomberg that only spending by the middle classes creates jobs.
Hanauer argues for higher taxes on the rich.
He's right.
Here's his view.
It is unquestionably true that without entrepreneurs and investors, you can’t have a dynamic and growing capitalist economy. But it’s equally true that without consumers, you can’t have entrepreneurs and investors. And the more we have happy customers with lots of disposable income, the better our businesses will do.
That’s why our current policies are so upside down. When the American middle class defends a tax system in which the lion’s share of benefits accrues to the richest, all in the name of job creation, all that happens is that the rich get richer.
And that’s what has been happening in the U.S. for the last 30 years.
Since 1980, the share of the nation’s income for fat cats like me in the top 0.1 percent has increased a shocking 400 percent, while the share for the bottom 50 percent of Americans has declined 33 percent. At the same time, effective tax rates on the superwealthy fell to 16.6 percent in 2007, from 42 percent at the peak of U.S. productivity in the early 1960s, and about 30 percent during the expansion of the 1990s. In my case, that means that this year, I paid an 11 percent rate on an eight-figure income.
One reason this policy is so wrong-headed is that there can never be enough superrich Americans to power a great economy. The annual earnings of people like me are hundreds, if not thousands, of times greater than those of the average American, but we don’t buy hundreds or thousands of times more stuff.
It is mathematically impossible to invest enough in our economy and our country to sustain the middle class (our customers) without taxing the top 1 percent at reasonable levels again. Shifting the burden from the 99 percent to the 1 percent is the surest and best way to get our consumer-based economy rolling again.
Significant tax increases on the about $1.5 trillion in collective income of those of us in the top 1 percent could create hundreds of billions of dollars to invest in our economy, rather than letting it pile up in a few bank accounts like a huge clot in our nation’s economic circulatory system.
2. Here's the plan - Joe Wiesenthal at BusinessInsider summarises the current game plan in Europe very nicely.
Essentially, Germany and France drive through a 'fiscal stability pact' whereby countries agree not to run deficits, and then the European Central Bank intervenes to buy the toxic Southern European debt.
But will there be time?
Here's Wiesenthal:
Now at first blush a new "pact" sounds like a snooze, but those reports also said something very important, which is that if they did this, then the ECB would be expected to take a much bigger role in financing Eurozone governments.
Now Draghi -- offering up the ECB's perspective -- is saying almost the same thing, and that key line is "other elements might follow." Gee, what "other elements" might the head of the ECB be referring to? Probably ECB intervention.
And that line "the sequencing matters" also is revealing, because it gets at a core concern of the ECB. If it is going to get in the business of backstopping governments, it doesn't want to create moral hazard by funding anyone who recklessly spends and borrows like crazy. So the deal is: European leaders agree to hard, unbreakable rules about spending, and then the ECB agrees to serve as some kind of lender of last resort.
3. How bad it might get - UBS Economist Andrew Cates thinks the plan detailed above and the short term intervention this week by central banks won't fix Europe's problems.
He thinks aloud about what a euro breakup might mean. He uses the Depression word a bit. HT Zerohedge.
It is worth underscoring again that a Euro break-up scenario would generate much more macroeconomic pain for Europe and the world. It is a scenario that cannot be readily modelled. But it is now a tail risk that should be afforded a non-negligible probability. Steps toward fiscal union and a more proactive ECB, after all, will still not address the fundamental imbalances and competitiveness issues that bedevil the Euro zone.
Nor will they tackle the inadequacy of structural growth drivers and the deep-seated demographic challenges that the region faces in the period ahead. Monetary initiatives designed to shore up confidence can give politicians more time to enact the necessary policies. But absent those policies and sooner or later intense instability will resume.
4. Ever wondered why US car production is holding up? - Zerohedge points to figures showing inventories of General Motors' cars at record highs.
It calls this 'channel stuffing'
In the past two months, everyone has been scratching their heads just how it is possible that the US manufacturing base continues to chug along at pre-recession levels even as the world all around America burns? Today, GM may have given the answer, courtesy of its monthly disclosure of car sales which at the top line is completely irrelevant as the funding for these purchases comes almost entirely from subprime loans handed out by the government to NINJAs.
What is interesting is the little blurb in every monthly report discussing the amount of dealer inventory, a topic well-known to frequent readers of Zero Hedge which has discussed GM's pervasive channel stuffing in the past, and which subsequently went quite mainstream. So how does November channel stuffing stack up? As the chart below shows, at 623,666 cars, it is an all time absolute record, and represents about 3.5 times the total GM vehicles sold in November!
5. So why are the Germans so afraid of inflation? - The world (or at least a bunch of bankers and bank shareholders/bondholders worried about their banks collapsing) are baying for the ECB to print money and buy bonds, in the process settling down the market and allowing a little bit of inflation to help reduce the real burden of Europe's debts.
Essentially, it is a way to spread the pain of losses away from bank shareholders and bond holders to the broader public at large through the gutting in real terms of term deposits and wages.
The trouble is the Germans don't want to allow the ECB to print because they fear inflation. Fair enough.
Here's the New York Times explaining why the Germans are so worried about inflation. And it's not all about the Weimar Republic.
“For the average American, inflation means the home price is increasing and the value of debt is going down,” said Peter Bofinger, a prominent economist on Mrs. Merkel’s independent council of economic advisers, “whereas the German invested in life insurance and sitting in an apartment he rented is much more vulnerable to inflation.”
Fear of inflation is a deep and broad consensus in Germany, but one that Sebastian Dullien, an economist and senior policy fellow at the European Council on Foreign Relations, said had worsened appreciably in recent years. “It is not about the 1920s,” Mr. Dullien said. “The fear of inflation went up when wages stopped going up.”
In an effort to regain lost competitiveness over the past decade, Germany went through a period of wage restraint and labor-market reforms that made the hiring and firing of workers easier and welfare benefits less generous. While countries on Europe’s southern edge, including Greece and Portugal, were enjoying the cheap money that came with membership in the euro, Germans were developing a newfound sense of economic insecurity, one that paired all too effectively with an old dread.
That has real policy consequences. Kenneth S. Rogoff, a Harvard professor and former chief economist for the International Monetary Fund, has argued that the euro zone needs higher inflation of between 4 percent and 6 percent, well above the European Central Bank’s fixed target of 2 percent. “German leaders have told me they have a lot of leeway in a lot of dimensions, but the hot-button issue they cannot touch is inflation,” Mr. Rogoff said. “Inflation is poison to them.”
6. What a waste of time and money - Stern Business School Finance Professor Thomas Philippon writes in this VoxEu opinion piece that despite all of its fast computers and credit derivatives, the current financial system is no better at transferring funds from savers to borrowers than the financial system of 1910.
The 2nd chart below shows the share of GDP consumed by the finance industry in America.
Philippon wonders whether the inefficiency can be explained by an increase in trading of financial instruments such as shares, bonds and currencies (This chart below shows equity trading relative to GDP)
He then does something clever. He compares the way retailing improved its efficiency through the 1990s and 2000s by investing in information technology with that of the finance sector, which also invested heavily.
Philppon's view:
The contrast is striking. Based on what we see in wholesale and retail trade, IT should have made finance smaller, not larger.
What happened? Why did we get the bloated finance industry of today instead of the lean and efficient Wal-Mart? Finance has obviously benefited from the IT revolution and this has certainly lowered the cost of retail finance. Yet, even accounting for all the financial assets created in the US, the cost of intermediation appears to have increased. So why is the non-financial sector transferring so much income to the financial sector?
One simple answer is that technological improvements in finance have mostly been used to increase secondary market activities, i.e., trading.
7. Cap on rents in Australia? - It seems the Australian Labor government is considering a cap on rents over there.
Landlords are beside themselves, which is sort of fun to watch. HT Houses and Holes at Macrobusiness
REIA president Pamela Bennett said capping rents would be "disastrous" for rental affordability and the property market.
Earlier this week, the Labor government said it would look at monitoring the rent costs in the private rental market and examine mechanisms to maintain affordability such as the introduction of rent capping legislation.
"To cap rents in the private rental market would be counterproductive to the objectives of improving affordability. It would reduce the supply of rental housing which would be detrimental to rental affordability," Ms Bennett said.
"If the proposal was implemented, the impact could be similar to the outcome of the Hawke government's decision in 1985 to deny investors tax deductibility of interest payments. The market response led to an undersupply of rental property and escalating rents, before the decision was reversed in less than two years.
8. Maybe the Germans think of Southern Europe like they thought of East Germany - West Germany absorbed East Germany in the early 1990s with a single currency and there was immense and wrenching pain in East Germany as it had to adjust without the ability to devalue its currency. East Germans had to go through years and years of high unemployment and many simply moved to the West.
Germans think this worked well, even if it was very painful and took a very long time.
We (West Germany) did a deal with East Germany, and the terms of that deal violated a lot of precepts of economic theory. It even included an overvalued currency for the poorer region and a long period of adjustment. Yet we insisted up front that all dealings be done on the terms of the more successful region and culture, with very little compromise. This transition, for all of its short-term flaws, will go down in the history books as a great long-run success.
In part it succeeded because it was all done on the terms of the values of the successful nations of northwestern Europe. (I am surprised that this angle is not discussed more in the press, given Merkel’s own story.)
So what eventually happened in Germany? The answer involved lots of subsidies and wrenching transfers of wealth. West Germans paid about $1.9 trillion over 20 years, partly via a “solidarity surcharge” on their income taxes, to help modernize the East. That’s roughly two-thirds of Germany’s GDP last year. The subsidies helped cover East Germany’s budget shortfalls and poured money into its pension and social security systems. At the same time, nearly 2 million East Germans — a full one-eighth of the population — moved west to seek work.
Now, as former White House economic adviser Austan Goolsbee pointed out this week, neither of those developments is likely to happen with further euro zone unification. It’s not nearly as easy for a Greek or Portuguese worker to pick up and move to more productive countries like Germany or the Netherlands—the language and cultural barriers are quite severe (See this IZA paper for more.) What’s more, none of the plans for fiscal integration in the euro zone envision the same sweeping transfers and subsidies that Germany saw after reunification.
10. Totally Clarke and Dawe - Wayne Swan thinks there will be a budget surplus.
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