September 1, 2015 archive

It’s worse than that. He’s dead Jim!

As TPP Grinds To A Halt, Asian Countries Start Focusing On Rival Trade Agreement RCE

by Glyn Moody, Tech Dirt

Tue, Sep 1st 2015 3:28am

Techdirt has written dozens of stories about the Trans-Pacific Partnership agreement (TPP). That’s largely because it seemed to be coming to a conclusion, after many years of negotiations, and so it was important to capture the last-minute twists and turns — and the dirty deals — as they happened. But as we reported a few weeks ago, that final breakthrough and completion never happened. Instead, we had the “Maui meltdown”, when a whole bunch of old and new problems raised their heads, with the result that TPP may have missed a key deadline that means it won’t be happening soon, if ever. That may have seemed an extravagant claim, but it is a sentiment that is gradually beginning to spread among commentators in Asia.

Techdirt introduced the Regional Comprehensive Economic Partnership (RCEP) back in June, pointing out that it could end up even worse than TPP. But while TPP is at a standstill, RCEP seems to be moving forwards

The biggest difference between TPP and RCEP is that China is part of the latter, but not of the former, while for the US, it’s the other way around. China therefore has a big incentive to make RCEP happen quickly, and seems to be grasping the opportunity opened up by TPP’s latest problems.

RCEP has a big advantage in that it is not trying to define an ambitious set of new trading rules, as TPP is, but instead is merely attempting to harmonize existing trade agreements among RCEP’s 16 nations, which also include another major economy absent from TPP — India.


You are responsible for this material.  It will be on the test.

Told you.

The new SATs everyone’s kids will be preparing for next spring

Rachel Nuwer, Scientific American

Tuesday, Sep 1, 2015 04:30 AM EST

“Fortune favors the prepared mind,” as Louis Pasteur once said. So as school revs up this month, so do SAT prep classes. Students might be surprised, however, at the amount of time dedicated to visual literacy skills. The increased focus on graphics is designed to prepare an estimated 1.6 million college-bound pupils for the first redesign of the standardized college admissions test in more than a decade. Along with other updates, test takers of the March 2016 exam will encounter graphics not only in the math section as in past years but also in the reading and writing and language portions. Students will be asked to interpret information presented in tables, charts and graphs and to correct text so it accurately describes data found in accompanying figures.

Mounting evidence indicates that such literacy is a key skill for success in college, careers and daily life in general. In an increasingly data-rich world, graphics now pop up routinely in formats ranging from political campaign literature to household bills. “Being a literate consumer of that information is valuable regardless of your career,” says Jim Patterson, an executive director at the College Board, the nonprofit corporation that owns and publishes the SAT.

Education experts agree that students in many developed nations, including the U.S., lack experience with visual data. “Apart from basic x- and y- axis graphs, educators [around the world] don’t sufficiently teach students how to represent information graphically,” says Emmanuel Manalo, a professor of education psychology at Kyoto University in Japan. The SAT’s new focus most likely will nudge educators to shift their lesson plans accordingly. Students, in other words, won’t be the only ones with bubble charts or scatter plots on the mind this fall-teachers will, too.

The intellectual work required to interpret a graph taxes our brain more than the effort involved in reading the same information presented as text, according to a new study by Manalo and two researchers at the University of Twente in the Netherlands.

So why do we do info-graphics again?  Oh, that’s right.  It makes it easier to lie and obfuscate.

The Case for Higher Inflation

First of all, “money” is not a store of value.  Your baked mud Ur cow tokens are in fact less useful than Confederate dollars because those at least can be used to start fires or as wallpaper, cat box liners, and fish wrap.  Ur is no more, the cows are dead, and the market has been closed for thousands of years.

What does have value are income producing properties and enterprises.  These throw off a net positive revenue stream in whatever the current medium of exchange is from Yap stones to electrons.  By ‘medium of exchange’ we mean anything that can be used to arbitrarily facilitate the transfer of assets from one person to another and then reused to obtain goods or services from another party that was not initially involved.

Most people think of ‘money’ in terms of a pile of commodities or potential pile that can be measured against other piles.  If your pile is bigger, you win!  The problem with actual piles is that their economic utility can change.

Say for instance that you controlled 98% of the world’s supply of oil.  Surely that must be worth something.  Well, it depends.  Before the advent of the Industrial Revolution (and a good time after that) the economic utility of oil was primarily as a lubricant.  Handy if you had a lot of ox cart axels to grease, a smelly puddle of goo otherwise.

Nor does scarcity dictate value.  Your Orange Toaster that belonged to one of the developers of Exec (complete with manuals and beta code) may well be unique, but it should be in a museum next to the cow tokens because you’d probably have to pay to have it hauled away.

In fact cow tokens look better and better because in addition to the milk and meat and little cows, there’s also the fertilizer.  People pay you to haul it away.

Forty-six years ago, I started lending money in Larry Bingham’s back room. My first customer was a drover named Penny. He wanted two dollars on a Brindle cow at six percent interest. He said she gave six quarts of milk a day. You know what I made him do? I made him move that cow into my back yard for a whole week. And I watched him milk her every day. Sure enough, she gave an average of six and a half quarts a day, so I gave him the money at six and half percent interest. Not only that, I kept the 60 pounds of manure she left behind. When you show me collateral, madam, you better make sure it’s good collateral. For forty-six years, I’ve been lending money on good, old-fashioned principles. I stand here now to tell you one and all that I’ve never been offered a better piece of collateral that I hold in my hand now!

The big scary negative about inflation is that it takes your ‘money’ which is not invested in income producing properties and enterprises (like cows) and erodes its ‘store of value’ relative to its ability to be exchanged for assets.

This is actually a good thing because it encourages money to be put to productive use instead of being hoarded in the expectation that assets will become cheaper over time.  You can buy a heck of a computer today for what that Poly-88 cost in 1977 but you would have been without one for 40 years.

When is inflation not good?  Why, when prices are rising faster than wages and productivity,  This creates an incentive to consume instead of saving and accumulating capital.

So the important factor is net inflation.  If GDP (to the extent that it’s a valid measure of total economic activity which is questionable at best) is rising at 10% annually you can sustain annual inflation of 10% indefinitely with no problem at all except for the math challenged people who have a hard time dealing with zeros.  The same is true for any other point of equilibrium be it 2 or 200%.

When you hear about a Weimar or a Zimbabwe you are looking at exceptional cases that prove the rule.  Because of foolish adherence to the Gold Standard in which their War Reparations were denominated, Weimar was not a sovereign currency that could seek relative international trading value through devaluation, except domestically- thus hyperinflation.  In Zimbabwe 90% of the nation’s wealth was held by corrupt plutocrats who promptly converted it at a fixed rate into foreign currencies so there was domestic devaluation and- hyperinflation.

In a post-Bretton Woods system global devaluation of sovereign currencies results in national competitive advantages that increase trade and promote GDP growth until inflation reaches an equilibrium state.

What makes this relevant is that the Federal Reserve is looking to raise interest rates, making it more attractive to hoard money as opposed to investing it in productive enterprise despite the fact that there is virtually no inflation at all and the economy has not yet recovered from the productivity lost during the Lesser Depression.

The Federal Reserve is about to make a terrible mistake

by David Dayen, Salon

Tuesday, Sep 1, 2015 05:58 AM EST

(T)he Fed is experiencing a fallacy of schedule momentum. They want like to raise rates in September, by God, and a little stumble won’t stand in their way. Aside from stocks, however, the bigger problem is that the Fed’s rush to tighten is absent any conditions necessitating it – and is mostly being done out of concern with being “serious,” which has created nothing but pain this millennium.

The stubbornness was on display last weekend at Jackson Hole, Wyo., site of the Fed’s annual policy conference. Fed vice chair Stan Fischer made the case that inflation will soon move upwards, a key indicator that the central bank will soon raise interest rates. The idea is that falling unemployment will create tightening in the labor market, leading to increased wages and eventually rising prices. To stop prices from running out of control, the Fed needs to slow the economy by increasing interest rates.

There are a few problems with this reasoning. First of all, who exactly thinks the economy is running too hot right now? While unemployment has dropped, wages have been stagnant for the vast majority of workers for 35 years. Somewhat faster wage growth may be on the way, but it’s not here yet, and the idea that the moment when workers get a bit more in their paychecks, the Fed has to take away the punch bowl and make their lives worse doesn’t make much sense.

Because wages have been so low for so long, it would take up to 14 years of above-trend wage growth to rebalance the economy so that workers get their proper share. Rebalancing would transfer money to those who would spend it and have a significant economic impact.

Translation: We shouldn’t fear faster wage growth, we should embrace it.

This brings us to higher inflation, which Fischer and several other major central bankers assure us is just around the corner. In reality, the economy has been running below the Fed’s 2 percent inflation target for over three years. And it’s been missing by wider margins as the year has progressed. That’s partially due to low oil prices, which have a powerful effect on inflation because they lower the cost of shipping goods. And we should expect oil to either stay at the current level or drop even more over the next year.

In fact, Since the economic recovery hasn’t surged under the current policy framework, there’s a case for a higher inflation target. But for too long, 2 percent has not been a target but a ceiling; even if we’ve run below it for three years, the thinking goes, we must never go above it.

It’s even worse than that, actually. As Kevin Drum noticed, Fischer said this over the weekend: “Because monetary policy influences real activity with a substantial lag, we should not wait until inflation is back to 2 percent to begin tightening.” So just the threat of getting to 2 percent is a ceiling. This attitude ensures inflation will remain well below target forever.

All this adds up to the fact that there’s no urgency to raise rates. The Fed is reaching for a reason to do so, and it’s puzzling to understand why. Some have charged that a pervasive low-rate environment could trigger a “reach for yield” by investors, and create financial bubbles. That’s a concern, but harming the economy isn’t the Fed’s only tool to ameliorate that; they could actually monitor financial institutions to ensure stability.

Others have claimed that the Fed must hike rates because what if they get caught with near-zero rates during a recession, and have no tools to spur a recovery? This is a funny idea, that the Fed must raise rates now so they can lower them later. If we had a functioning Congress willing to use fiscal policy to counteract recessions, this wouldn’t even be a question. But even still, the Fed has additional steps they could take in a downturn, and should probably confine themselves to addressing the policy of today, not hypotheticals some years down the road.

The real reason for increasing rates appears to be coming from outside groups, whether members of Congress or international colleagues, who just want the Fed to “get on with it.” There’s too much drama in thinking about the proper policy, and the central bankers should just rip off the Band-Aid and “return to normalcy.” According to this take, we’re in an “abnormal” rate environment, and central bankers are responsible, sober, normal people. Rates should be higher because rates should be higher. Current economic conditions have nothing to do with it.

These important questions shouldn’t be driven by some elite sense of what is “normal.” If the data were allowed to dictate decision-making, there’s no way we’d be talking about a rate hike. The Fed’s biases, only talking to other very serious people and not those affected by its policies, really show here. Workers need the Fed’s help, and central bankers should listen to them.


The Breakfast Club (Rhythm)

Welcome to The Breakfast Club! We’re a disorganized group of rebel lefties who hang out and chat if and when we’re not too hungover  we’ve been bailed out we’re not too exhausted from last night’s (CENSORED) the caffeine kicks in. Join us every weekday morning at 9am (ET) and weekend morning at 10:30am (ET) to talk about current news and our boring lives and to make fun of LaEscapee! If we are ever running late, it’s PhilJD’s fault.

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This Day in History

Nazi Germany invades Poland, start of World War II; Beslan hostage crisis begins in Russia; Bobby Fischer beats Boris Spassky for world chess crown; Boxer Rocky Marciano and singer Gloria Estefan born.

Breakfast Tunes

Something to Think about over Coffee Prozac

It is not fair to ask of others what you are not willing to do yourself.

Eleanor Roosevelt

On This Day In History September 1

This is your morning Open Thread. Pour a cup of your favorite morning beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

September 1 is the 244th day of the year (245th in leap years) in the Gregorian calendar. There are 121 days remaining until the end of the year.

On this day in 1897, the Boston subways opens, becoming the first underground rapid transit system in North America. It was the inspiration for this song by the Kingston Trio.