Wednesday's Top 10: To Taper or not to Taper, that is the question; Why economic planners should embrace doubt and failure; Mile high skyscrapers?;'Eating baloney and burping caviar'; Shhhhh about Shibor; Dilbert

Here's my Top 10 links from around the Internet at 1 pm today.

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

See all previous Top 10s here.

My must read today is #7 on what's happening inside China's money markets. Shiiii...it's Shibor!

1. To Taper or Not To Taper - That is the question everyone will be asking tomorrow morning when the US Federal Reserve Governor Ben Bernanke releases its latest decision and then holds a news conference.

Ben Bernanke's comments a few weeks ago that the tapering of bond buying would begin within a few meetings really rarked up bond and stock markets.

Everyone asked the question: can bond and stock prices stay at elevated levels when the world's central banks remove the stimulus?

The answer wasn't encouraging.

Bond prices slumped (ie yields rose) and emerging market stock prices slumped too. This has been a driving force in the US dollar strength (and therefore NZ$ weakness) of recent weeks.

Here's Bloomberg's useful guide in how to read whatever the Fed says:

A decision to taper bond purchases could mean any of three things about the economy: The situation is improving, the Fed doesn’t think it can do more to help, or the Fed is abandoning its past promises to keep stimulus going. Let’s walk through the possibilities.

1. Good news. A pullback on bond purchases could project confidence about the strength of the economy. If Bernanke and company are willing to take their foot off the accelerator, we can infer that they must see sunny times ahead. Studies have documented that Fed forecasts are typically more accurate than those of private-sector economists, so even sophisticated economists should become more optimistic when the Fed’s outlook improves. Bernanke’s confidence could have a positive effect on businesses, making them more likely to invest and helping to strengthen the recovery.

2. Mission accomplished. The tapering of stimulus, at a time when job growth remains middling, might tell us more about the Fed than it does about the economy. Maybe the Fed thinks that the unsatisfactory pace of economic recovery is good enough. Consider it the monetary equivalent of a “Mission Accomplished” banner: premature and unconvincing. Such a decision might signal that Fed officials think the labor market can’t improve much faster. Or perhaps they no longer believe that further bond purchases will make a difference. The prospect that the U.S. economy is dependent on a Fed that is willing to put down its weapons and declare victory when the battle isn’t yet won is deeply worrying. Such an announcement would lead businesses to think twice before investing, hurting the recovery.

3. Bait and switch. A shift away from stimulus could mean that Bernanke is reneging on his pledge to stimulate the economy until the labor market improved “substantially.” He promised open-ended quantitative easing, hoping to stimulate investment. Now that those investments have been made, he doesn’t need to actually deliver.

2. The Hiding Hand principle - Malcolm Gladwell has written an excellent piece here at The New Yorker about Albert Hirschmann, a central planner who celebrated failure.

It's a fascinating piece of economic history.

When people from organizations like the World Bank descended on Third World countries, they always tried to remove obstacles to development, to reduce economic anxiety and uncertainty. They wanted to build bridges and roads and airports and dams to insure that businesses and entrepreneurs encountered as few impediments as possible to growth. But, as Hirschman thought about case studies like the Karnaphuli Paper Mills and the Troy-Greenfield folly, he became convinced that his profession had it backward. His profession ought to embrace anxiety, and not seek to remove it.

3. Mile high skyscrapers? - The Economist suggests a new lightweight lift cable could make them possible.

4. Brazil's protests - Ryan McCarthy at Reuters has a bunch of links to explain the strange Brazilian riots of recent days.

The glitz of Brazil’s sports spending hasn’t fixed the country’s more pressing needs. Travis Waldron flags some details: Government watchdogs say that more than 80% of Brasilia’s schools aren’t up to basic standards; in Cuiaba, 70% of the city’s wastewater is left untreated.

One prominent Brazilian sports writer borrowed a local phrase to describe the disconnect between Brazil’s image and its reality: “We’ve been eating baloney and burping caviar.

5. Why do we work so much and enjoy so little leisure? - This is one of the conundrums of modern economics. In theory, we should all be working fewer hours and earning higher wages for each hour so that fewer people will be unemployed.

But it hasn't worked out that way.

Here's Ed Dolan writing about Robert and Edward Skidelsky's musings on this problem:

The Skidelskys review three possible explanations: First, that people take joy in their work. They find that plausible for artists, skilled artisans, and authors but not for most people. Second, that the capitalist system forces people to work because employers, not workers, get to call the tune. They approvingly quote sociological theories supporting that view, but in the end, they do not find it entirely persuasive. Third, that wants are insatiable. Although that sometimes seems to be the case, they think that insatiability is not a fixed feature of human nature, but a flaw of our economic system.

Keynes, they say, “did not understand that capitalism would set up a new dynamic of want creation that would overwhelm traditional restraints of custom and good sense. . . . Capitalism has achieved incomparable progress in the creation of wealth but has left us incapable of putting that wealth to civilized use.” 

6. How caffeine can cramp creativity - I wonder about this a lot. Here's Maria Konnikova (real name) at the New Yorker.

7. "The rise and fall of money manager capitalism: Minsky's half century from WWII to the great recession" - Eric Tymoigne and L Randall Wray have written what looks like an interesting economic history book.

The book starts with changes in monetary policy and income distribution from the 1970s. These changes profoundly modified the foundations of economic growth in the US by destroying the commitment banking model and by decreasing the earning power of households whose consumption has been at the core of the growth process.

The main themes of the book are the changes in the financial structure and income distribution, the collapse of the Ponzi process in 2007, and actual and prospective policy responses. The objective is to show that Minsky’s approach can be used to understand the making and unfolding of the crisis and to draw some policy implications to improve financial stability.

8. Defending the 1% - Economic textbook writer and economist Greg Mankiw has written about 'Defending the 1%'. 

And here's Matt Nolan defending Mankiw's defence.

9. Australia's perfect storm - Alan Kohler writes about Australia's 'perfect economic storm' over at the ABC. He's right about the household debt. Same problem here, although the rest of our economic variables are looking a bit different.

In last week's national accounts, GNE or gross national expenditure (which is GDP minus external trade, so a proxy for the domestic economy) declined for the second consecutive quarter - that is, we're in a "domestic recession".

Is that caused by the long election campaign, as Michael Chaney asserts? I doubt it, although three years of feverish politics certainly haven't helped. Government has been reasonably stable these past three years, with plenty of legislation passed and no threat to supply, but politics has been in a state of constant uproar.

I suspect the main reason domestic demand is declining is the high level of household debt, which is producing a return to higher savings to repair personal balance sheets. That process is likely to continue after the election, especially if a new government imposes new austerity measures to repair its own balance sheet.

10. Totally John Oliver on Iran's new President.

(Updated with cartoons)