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 #6 from Chrystia Freeland on a new type of Capitalism -- the B Corp.
1. The death of high inflation - Paul Krugman does a nice job in this New York Times piece declaring the death of inflation.
He's right, of course.
No amount of gold bugs and hysterical warnings about money printing are going to change the facts.
Inflation all around the world is low and falling.
Huge production capacity in Asia, depressions in Southern Europe, ageing populations, global deleveraging and income-poor consumers in developed countries are combining to deliver the coup-de-grace.
We may have asset bubbles, but it's not filtering through into consumer price inflation.
The structural and global forces are just too strong.
Here's a chart via Krugman showing the number of countries with double digit inflation and his comments:
There are, I think, a couple of morals here. One is that economics textbooks probably talk too much about high inflation; it’s a nice pedagogical set-piece, but not something that’s a real issue in today’s world. Another is that high inflation doesn’t happen just because a country’s rulers are spendthrifts or don’t know about the Emperor Diocletian or something; it is always associated with severe political and social disruption. To stand Milton Friedman on his head, high inflation is never and nowhere a merely monetary phenomenon.
2. Here come the reforms - I've said it before, but it bears repeating. The change of leadership in China this year to Xi Jingping and Li Keqiang was far more important to New Zealand than any election result in Britain, America or Australia combined over the last couple of years. Remember, every 1% fall in China's growth rate will reduce NZ's growth rate by 0.2-0.3%, Treasury research shows.
Here's more detail and quotes via Xinhua from Xi Jingping about his determination to really reform China's economy, which for us means a slowdown in Chinese growth.
"China must break the barriers from entrenched interest groups to further free up social productivity and invigorate creativity," Xi urged, while hailing reform and opening up as the source of China's progress in recent decades. "There is no way out if we stay still or head backward," he said.
The areas Xi pointed to as needing more thorough research include the fostering of a more market-oriented mechanism, enhancing government efficiencies, boosting social harmony and innovation, safeguarding social justice, as well as improving the Communist Party's governance.
Since taking office in March, China's new leaders have repeatedly pledged to upgrade the economy through deeper reforms, including delegating administrative power to lower levels and easing controls in the financial sector.
3. Like I said - This sounds huge. Reuters reports China has just ordered the suspension of building of new official buildings in a move to cut down on corruption and excess by officials... The picture below is of the local government offices in Anhui Province. It's bigger than the Pentagon.
Some structures built in violation of regulations had tainted the image of the Communist Party and stirred vehement public disapproval, the agency said.
"The directive called on all party and government bodies to be frugal and ensure that government spending goes toward developing the economy and boosting people's wellbeing," it added.
The ban also covered "glitzy structures" built as training centers, hotels or government motels, it said.
4. Speaking of which - The Daily Mail reports the Sheraton has opened a new resort near Shanghai. It has all the bells and whistles. Click through for some amazing pictures. Architects all over the world must wish they were in China right now. Money, history and taste are no restraints.
5. Rage against the machine - Robert Shapiro writes here at The Daily Beast about the rise of the robot and how it's slowing what should be a fast jobs rebound.
U.S. businesses now respond to economic growth by creating fewer jobs than they used to. Technological advances, of course, are one of the driving forces at play here. The countless applications of information technologies (IT) across every industry and economic activity have created considerable wealth, but they also displace more jobs than they create. The U.S. manufacturing workforce, which contracted nearly 28 percent over the last two decades, fell from 16,480,000 positions in 1992 to 11,951,000 in 2012.
The latest threat to jobs, according to many technologists, is coming from robotics, the application of information technologies to new forms of kinetic hardware. Today businesses worldwide employ some 1.4 million industrial robots, mainly in automobile and electronics assembly. Those numbers appear to be rising quickly. For example, FOXCONN, the Taiwan-based giant that assembles 40 percent of the world’s consumer electronics—and employs 1.2 million workers around the world—has announced plans to purchase 1 million new robots over the next three years.
6. Time for a 'B-Corp' - Chrystia Freeland from Reuters writes here at NYT about a move by Delaware to create a new type of corporation that doesn't always have to chase short term profits for shareholders.
Marx didn’t just get communism wrong — he was also profoundly mistaken about capitalism, which turns out to be the best prosperity-creating system humanity has come up with so far.
But that doesn’t mean it doesn’t need to evolve. The high-tech, globalized capitalism of the 21st century is very different from the postwar version of capitalism that performed so magnificently for the middle classes of the western world.
That’s why a lot of people, including many hard-driving capitalists, are trying to figure out how to retool the institutions of capitalism for our time. This week, the state of Delaware, which has made corporate governance its regional cuisine, approved a new form of incorporation, the B-corp, or benefit corporation. These are companies explicitly charged with a dual mission: to earn profits for shareholders, the traditional business goal, and also to pursue the social good in other ways, ranging from protecting employees to safeguarding the environment — even if these goals come at the cost of short-term financial gain.
7. 'Why the Right's Supply-Side dogma is wrong' - The Atlantic writes here about a new push by Barack Obama to try to fix America's problems of growing inequality and the hollowing out of the middle class.
Once upon a time, in the middle of the last century, America had a thriving economy in which the middle class was at the center and everyone -- poor and rich alike -- did better. But then, starting in the late 1970s, a group of self-serving rich people began to sell a promise that if we took better care of them, their wealth would trickle down, and that would help everyone else prosper. The country bought that line. And for three decades both parties yielded to it. The results were great for the very rich -- and disastrous for everyone else. Wages stagnated. Inequality became extreme. Mobility slowed.
By 2008, things were so upside down and we had so lost our way that the economy collapsed. Out of that ruin, many began to remember the old ways: the truth that lasting growth and shared prosperity come from the middle out and not the top down. Now we are joined in a battle of ideas to see whether middle-out economics can dethrone trickle-down.
8. The ageing drag - Here's an interesting chart (via Zerohedge) from Citigroup about the headwinds from ageing populations all around the developed word. It's one of a series of 10 'headwind' charts.
Our view is economic activity in the decades ahead is likely to be shaped by ongoing challenges posed by aging demographics. Aging can weigh on growth through a number of channels. First, accelerated aging means rising elderly dependency ratios and likely a declining share of workers relative to the overall population. Second, aging also means that the average worker who remains in the labor force is older than was the case a decade or two before, and older workers have typically chosen to work fewer hours than their younger counterparts. Third, meeting the needs of aging populations is already exerting stresses on government budgets and raising concerns about medium-term debt sustainability.
9. Got some money? - It seems China's banks will need to raise US$100 billion in fresh capital in the next two years to make up for the easy profits that are about to be lost because of the liberalisation of interest rates announced a few days ago, WSJ reports.
Assuming a 10% decline in net interest income—or the difference between what banks charge on loans and pay on deposits—and a 15% increase in assets, Chinese banks would have to raise between $50 billion and $100 billion in the next two years to maintain their current capital-adequacy levels, according to an analysis by ChinaScope Financial, a Shanghai-based research and data firm partly owned by Moody's. Chinese banks have raised about $50 billion in capital through equity sales in the last three years.
The study, to be released Monday, is based on an examination of some 140 Chinese banks. It found that city-level commercial banks would have the biggest need for capital, while the country's big banks would have relatively small needs.
10. Totally the Daily Show's John Oliver on Her Majesty's Secret Cervix.
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