Here's my Top 10 items from around the Internet over the last week or so. 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 look at is the cartoon between #1 and #2 from Tom Scott. It is the cartoon of the campaign so far. The one from Rod Emmerson between #3 and #4 is almost as good.
1. Just buy houses and land - This piece from Tim Fernholz on Quartz is a thoughtful discussion of how the ownership of wealth has changed over the last 100 years and about the conclusions Thomas Piketty reached in his 'Capital in the 21st Century' book.
Some people think the main reason why a greater share of income and wealth has gone to the top 10% (in America at least) is the big increase in house prices.
Some critics of Piketty say he's wrong about his idea that capital returns are always above economic growth because of the role of housing.
Others say Piketty's now famous r (capital returns) > g (economic growth) formula may be wrong because of that, but that the problem of inevitably rising inequality is still there -- again because of this housing issue. Interestingly, the suggestion therefore that freeing up urban land for housing is a good way to reduce inequality.
Fernholz reckons it all boils down to scarcity of land and land usage restrictions in cities.
It's certainly thought provoking. The conclusion is that housing is eating the economy. Here's Fernholz:
When you take housing out of the equation, the increase in capital in recent decades is much smaller—in fact, it is small enough to suggest that capital isn’t an easy substitute for labor, and that diminishing returns on capital mean that R>G isn’t true, and the wealthy won’t just keep getting wealthier. Piketty, in this telling, is tricked by the housing booms in many wealthy economies.
And yet: Rising housing prices have real consequences that people have to live with—just ask the first-time US home-buyers—and returns on real estate investments are meaningful. The explanation for the huge increases in housing prices isn’t embedded in the buildings, but in land.
First, cities have become increasingly important economic hub. The old adage “location, location, location” is still important, and it’s one reason for the UK’s massive property boom, centered on London. Second, regulations on urban land use have prevented the supply of housing from keeping up with demand. That’s one reason San Francisco has wildly high home prices. It’s also why reducing restrictions on land use made our list of ten ways to fight inequality.
But despite the 2008 crash, there’s no sign that home price increases are slowing, and, along with it, growth in capital. Even Rognlie concedes that Piketty could be right about capital taking over even as he is wrong about the specific mechanism. “The story about the increasing role of capital could be right, but it’s this weird, inverse image,” he told Quartz in June. “Scarcity of housing will continue to go up, and land it sits on will start claiming a larger and larger share of our resources.”
In other words, housing will eat the economy—everybody needs it, but it will be worth more and more, and land-owners will be the capitalists in command, unless we do a better job increasing the supply of housing.
2. The problem in Europe - Ambrose Evans Pritchard points via The Telegraph at the slow-rolling train wreck that is Europe's economy. The chart below (particularly for Italy) is sobering, showing real GDP still nearly 9% below its 2007 levels. German 10 year bund yields are now below 1%. Here's Ambrose:
Eurozone strategy is in tatters after economic recovery ground to a halt across the region and France demanded a radical shift in policy, warning that austerity overkill is driving Europe into a depression.
Growth slumped to zero in the second quarter, with Germany contracting by 0.2pc and France once again stuck at zero. Italy is already in a triple-dip recession.
Yields on 10-year German Bunds fell below 1pc for the first time in history, beneath levels seen during the most extreme episodes of deflation in the 19th century. French yields also touch record lows. Much of the eurozone is replicating the pattern seen in Japan as it slid into a deflation trap in the late 1990s.
3. Sacre bleu - It seems the French are getting particularly antsy. Here's Ambrose again:
It is unclear whether tumbling yields are primarily a warning signal of stagnation ahead or a bet by investors that the European Central Bank will soon be forced to launch quantitative easing, buying government bonds across the board.
Michel Sapin, France’s finance minister, sent tremors through European capitals with a defiant warning that his country would no longer try to meet its deficit targets and would not inflict further damage on its economy by tightening into the downturn. “I refuse to raise taxes to close any budget gaps,” he said.
4. Chinese house prices falling - Here's a Wall St Journal piece on how many officials are rushing to sell their luxury homes before the other corruption hunting officials catch up with them. Apartment prices in China have been falling for the last two or three months.
In one case late last year, an Inner Mongolia political leader named Wu Zhizhong was convicted of corruption, accepting bribes and embezzling public funds. Investigators said Mr. Wu owned 33 properties in China and one house in Canada. Xinhua, China's official news agency, said the keys to all of his homes could fill up an entire handbag.
Cai Bin, a former Guangzhou official dubbed "Uncle House" on social media, was also convicted last year for accepting bribes. Investigators said he and his family owned more than 20 homes. Those cases, and others like them, have raised alarm bells among local government leaders.
According to roughly a dozen property agents interviewed by The Wall Street Journal, officials are now afraid to buy luxury pads, and several are trying to offload properties that might raise red flags.
The dumping of properties is the latest iteration of fear that has spread through the Chinese government at all levels as President Xi Jinping's anticorruption campaign rolls on. Already, government officials have toned down lavish banquets, gift-giving and travel.
And it comes at a bad time for China's property market, which is facing a slump that many economists say poses the greatest risk to the country's economy. Housing sales in the first seven months this year fell 10.5%, according to official data issued last week.
According to real-estate agents, government officials make up as much as 20% of owners in the luxury housing market, and the agents say they simply aren't buying much anymore.
5. How it's done - This detail in the WSJ article on the mechanics of officials buying luxury property is fascinating.
Another drag on the real-estate market: Beijing is paving the way for a nationwide system to tax and register property, which would make it much easier to identify modestly paid government officials who buy multiple homes. However, draft rules on a property-registration system issued Friday indicated the public would have only limited access to such a registry.
In a study from the University of Pennsylvania, economists found that Chinese government officials buy larger and more lavish homes than nonbureaucrats, despite earning typically 14% less in monthly income. Some officials also receive a price discount of nearly 4%, according to the study, which said that the size of the discount appears related to the power the official wields among local developers.
Bureaucrats in the study accounted for 7.1% of buyers—a much higher percentage compared with the 0.86% proportion of bureaucrats in China's total population.
Many officials mask their homeownership by using the IDs of their chauffeurs, relatives or surrogate buyers, according to real-estate agents.
6. The Great Chinese exodus - Andrew Browne, who I once worked with in Singapore, reports for WSJ from Beijing about how many wealthy Chinese residents are looking to leave for cleaner air, better schools and more opportunity.
Again, the details are instructive.
A college professor, who insisted on anonymity altogether ("Just call me an intellectual," he says), takes a darker view of China's prospects as he prepares to emigrate to the U.S., joining his two children, who both have postgraduate degrees from U.S. colleges.
Like many Chinese academics, the professor has a business or two on the side, although he hardly looks the part of an executive, unshaven and with crumpled pants riding 6 inches above his open sandals. In China, he pronounces, "Once you get rich, they arrest you."
That is an exaggeration, of course, but there is a propensity for entrepreneurs who appear on lists of the richest Chinese to end up in jail.
His real concern is that to get ahead, he's had to make compromises with his principles (he doesn't say bribes, but that is what he means). "I've been forced to prostitute myself," he says, and now he worries that it could all be snatched away. In China, a weak, corrupt legal system may sometimes work in favor of entrepreneurs while they're clawing their way up, cutting corners along the way, but it is almost always a liability once they've made it.
First-generation businessmen—the ones who powered China's economic rise—now dream of a secure retirement. That means legal safety in places like the U.S. and Canada.
7. Just what we need - The Economist Intelligence Unit has again labelled Auckland as the World's 10th most liveable city, with Melbourne at number 1, Adelaide at number 5 and Sydney at 7.
No wonder the buyers are flooding in from the rest of the world to park their money in Auckland.
The top cities have not changed much over time. The EIU notes that they “tend to be mid-sized cities in wealthier countries with a relatively low population density.” Hence those of us in London, San Francisco and Shanghai must endure the rat-race, and dream of dwelling amid Viennese coffee houses or Vancouver’s sailing and skiing.
8. Why aren't Americans revolting - This piece in the New York Times asks why the struggling poor and middle income earners in America aren't using the electoral system to improve their situation.
It seems ignorance is a reason.
Researchers at the University of Hannover in Germany propose a simpler reason: Voters don’t demand more redistribution because they don’t grasp how deep inequality is.
Using data from the International Social Survey Programme, in which respondents were asked to locate their relative income status on a scale of 1 to 10, Carina Engelhardt and Andreas Wagener built a measure of perceived inequality, defined as the gap between the median income, smack in the middle of the distribution, and the average income of the population.
Evidently, nobody has a clue: In every one of the 26 nations, most of them in the developed world, for which they collected data, people believe that the income gap is smaller than it really is. And using perceived rather than actual inequality, the median voter theory works much better: Where people believe inequality is worse, governments tend to redistribute more.
9. Totally irrelevant article to take you away from it all. This is a piece in The New Yorker about Nina Simone, who I'm a huge fan of. An amazing and damaged woman. Made me think a bit about this Ferguson mess.
The civil-rights songs were nevertheless what she called “the important ones.” And the movement is where she gained her strength. It’s also where her private anger took on public dimensions, in the years when patience gave way entirely and the anger in many black communities could no longer be tamped down. Onstage in Detroit, on August 13, 1967—two weeks after a five-day riot had left forty-three people dead, hundreds injured, and the city in ruins—Simone, singing “Just in Time,” added a message to the crowd: “Detroit, you did it. . . . I love you, Detroit—you did it!” She was met with roars of approval, which one Detroit critic said he presumed had come from “the arsonists, looters and snipers in the audience.” Another critic, however, wrote that her show let white people know what they had to learn, and learn fast. Was she the voice of national tragedy or of the next American revolution?
10. Totally John Oliver on the riots in Ferguson.
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