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 read is #3 on the central bank-approved successor to bitcoin, and please do check more Dilbert over here.
1. The chilling maths of inequality - This Mark Buchanan piece on Bloomberg highlights the potentially chilling effect of inequality on global economic growth by looking at some fancy modelling of 'random exchange economies' by physicists.
What they find is troubling, although not all that surprising -- rising inequality tends to undermine exchange.
The reason is quite simple. As inequality gets more pronounced, a larger fraction of the population faces more stringent budget constraints, and the spectrum of possible economic interactions open to them narrows. Fewer people have the wherewithal to engage in economic activity. This mathematical economy actually demonstrates a sharp transition, akin to the abrupt freezing of a liquid, as the level of inequality exceeds a certain threshold. Worryingly, the wealth distribution in the U.S. over the past few decades has been moving ever closer to this critical edge.
2. Which would support Helicopter Money - Buchanan highlights one way to reverse this effect -- inject money at the bottom. Ready to fire up the helicopters?
This inequality mechanism has nothing to do with ordinary recessions and the usual business cycle. Significant changes in the distribution of wealth take place much more slowly -- an attribute consistent with what many economists have identified as the different and more profound nature of the current global slump. The concept of secular stagnation that Larry Summers has popularized could have a number of contributing causes, including rising inequality.
If so, the inequality diagnosis opens up interesting possibilities for policy solutions. The researchers found another interesting effect -- a “trickle up” flow of wealth quite different from the usual “trickle down” picture of supply-side economics. In an economy with appreciable inequality, capital tends to flow from those with less to those with more, generating a cascade of transactions along the way. Hence, policy interventions aiming to spur economic activity should work better if they inject money into the system at the lower end, rather than from the top.
3. Just imagine a new cypto-currency - Now that bitcoin has burnt itself out, the focus on the area of crypto-currencies is shifting to how more established and credible institutions could use blockchain technology to save everyone money and solve a few monetary and financial stability issues at the same time.
Computer scientists have devised a digital crypto-currency in league with the Bank of England that could pose a devastating threat to large tranches of the financial industry, and profoundly change the management of monetary policy.
The proto-currency known as RSCoin has vastly greater scope than Bitcoin, used for peer-to-peer transactions by libertarians across the world, and beyond the control of any political authority.
The purpose would be turned upside down. RSCoin would be a tool of state control, allowing the central bank to keep a tight grip on the money supply and respond to crises. It would erode the exorbitant privilege of commercial banks of creating money out of thin air under a fractional reserve financial system.
4. The official successor to bitcoin - Pritchard explains why RSCoin would succeed where bitcoin has failed.
The RSCoin is deemed more likely to gain to mass acceptance than Bitcoin since the ledger would remain exclusively in the hands of the central bank, with the 'trust' factor of state authority. It would have the incumbency benefits of an established currency behind it.
"It seems very unlikely that, to any significant extent, we'll ever be paying for things in Bitcoins, rather than pounds, dollars, or euros," said Ben Broadbent, the Bank of England's Deputy Governor. There were an estimated $5bn of Bitcoin transactions in the US last year, a remarkable phenomenon but a trivial sum in the greater scheme of things.
Mr Broadbent said the attraction is the settlement mechanism used by Bitcoin, the so-called 'distributed ledger'. "The function goes right to the heart of what central banks do," he said in a speech earlier this month.
5. The problem for millenials - This Guardian Op-Ed piece on the plight of millenials vs the ever-growing incomes and wealth of the elderly is eye-opening, at least for the developed countries of the Northern Hemisphere. The chart below tells the story, as does this summary:
A combination of debt, joblessness, globalisation, demographics and rising house prices is depressing the incomes and prospects of millions of young people across the developed world, resulting in unprecedented inequality between generations.
A Guardian investigation into the prospects of millennials – those born between 1980 and the mid-90s, and often otherwise known as Generation Y – has found they are increasingly being cut out of the wealth generated in western societies.
Where 30 years ago young adults used to earn more than national averages, now in many countries they have slumped to earning as much as 20% below their average compatriot. Pensioners by comparison have seen income soar.
6. Social cohesion to family formation - The Guardian describes the possible implications for the Northern Hemisphere countries, although does it really matter when they won't vote?. Here's the Guardian's full series.
In seven major economies in North America and Europe, the growth in income of the average young couple and families in their 20s has lagged dramatically behind national averages over the past 30 years.
In two of these countries – the US and Italy – disposable incomes for millennials are scarcely higher in real terms than they were 30 years ago, while the rest of the population has experienced handsome gains.
It is likely to be the first time in industrialised history, save for periods of war or natural disaster, that the incomes of young adults have fallen so far when compared with the rest of society.
Experts are warning that this unfair settlement will have grave implications for everything from social cohesion to family formation.
7. 'But it's different here' - In response, Eric Crampton from the NZ Initiative crunched the numbers on the New Zealand income data to point out it's a different picture in New Zealand, although he rightly points out the specific issue of housing costs does make life more difficult for the millenials. The chart also shows the gap betwen the old and young did actually widen a bit between 2006 and 2013.
New Zealand isn't doing too badly compared to the international experience. But the international experience isn't good. And New Zealand has a bad habit of just assuming that whatever's reported in the Guardian about the US or UK is also true here. Youths locked out of housing by the Auckland gerontocracy could be excused for not noticing their very real growth in real incomes as compared to the 1990s; it's all being eaten up by housing costs.
My worry is that imported narratives of stagnant wages (again, note the substantial increases 2013-2015 in NZ Income Survey data, contrary to the international experience) fuel demand for bad policy. The narratives are appealing here because it is easy to think back to the houses your parents could afford, and conclude you're worse off. But adults in their early thirties have real median incomes more than $16,000 higher than they had in 1991.
It's a problem with housing.
8. China's Tobin Tax - Capitalism with Chinese characteristics cannot be ignored, so China's decision to at least draft a Tobin Tax on currency transactions is a fascinating and big thing.
Here's Bloomberg on the topic:
Obscured in the conversation is how the move shows again that the world’s No. 2 economy isn’t content with acceding to a global financial system crafted by No. 1.
No major economy has implemented a Tobin tax, a move that backers say would curb currency speculation that distorts exchange-rate values. The rules still need central government approval and it’s not clear how quickly they can be implemented, according to people familiar with the matter. The initial levy would be kept at zero to allow authorities time to refine the rules, and it wouldn’t be designed to disrupt hedging and other foreign-exchange transactions undertaken by companies, they said.
One hope: a Tobin tax could help curb an outflow of funds from China that last year reached a record $1 trillion. The idea follows China’s use of its leadership of the Group of 20 to examine proposals that would reduce the dollar’s dominance. Other evidence of China’s desire to revamp global financial architecture has been seen in its launch of development banks to rival established lenders such as the World Bank.
"There’s a growing sense that China is leading the thinking in terms of questioning the value of unsettled capital flows," said Tim Condon, head of Asian research at ING Groep NV in Singapore. "Some kinds of flows probably need to be restricted. I don’t think China will be the only one."
9. Totally John Oliver on the issue of encryption - Topical in the wake of proposals for a big security shake-up planned for New Zealand.
10. Totally Clarke and Dawe on an Australian election in July. - 'If you wait long enough everything will go away.'
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