Economist 5/10/16

1. Data released today show a 2.3% year-on-year rise in consumer prices in April, in China keeping pace with March. Investors worry this might force China to rein in its stimulus. But officials will desist for now because they see inflation as a porcine, not a monetary, phenomenon. Pork prices, up by nearly 30% in the past year, have accounted for a quarter of inflation. China’s hog farms have not kept up with soaring demand. The government last week dipped into its strategic pork reserves to satiate its people. It has also given subsidies to farmers, though many now produce more profitable cash crops.
2. CHARLES Goodhart best known for his law that economic measures tend to misbehave once targeted, was tackling the issue of why repeated monetary stimulus by central banks had failed to stimulate credit creation.Sure enough, central banks have expanded their balance sheets massively since 2008. But the effect on inflation has been non-existent (and the effect on economic growth is still in dispute). The problem is that base money (currency plus commercial bank reserves) at the central bank has lost its relationship with broad money (credit in the wider economy). The banks were not lending out the newly-created money.In part this was because, in the wake of the 2008 crisis, regulators demanded that banks improve their capital ratios. This had made banks much more cautious about extending new loans to risky borrowers; they have tended to focus on large corporations and on their home markets, the latter approach tacitly approved by central banks.
3. Meanwhile, holding reserves at the central bank has become more appealing.But the use of quantitative easing (QE) by central banks has brought down long-term yields. Bond yields are at historic lows and the risk of holding government debt, should economies return to normal, seem high. In effect, commercial banks are in a liquidity trap.Mr Goodhart thinks that QE is a “busted flush” – it worked in 2009 when it reduced the risk premium but has had little effect since.And the problem is that commercial banks cannot pass on negative rates to their retail customers, but negative rates do ripple through the markets in the form of lower bond yields and loan rates. The interest income of banks is thus squeezed.In short, the aim of monetary policy has been to expand credit expansion via the commercial banks but the pipeline is blocked.Negative rates might work, Mr Goodhart says, if governments announced outright that their aim was to reduce the nominal value of retail savings; this would give commercial banks the cover to introduce negative rates on deposits. But such a policy would be electoral suicide, alienating millions of bank customers and sparking talk of confiscation.
4. The poverty threshold for an individual in 2016 is $11,880; for a family of four it is $24,300. Despite many calls for an increase, and Barack Obama’s proposal to raise the minimum hourly rate to $10.10, the wage floor in America has been stuck at $7.25 since 2009.Thirty states already promise their workers more than $7.25 an hour. West Virginians make at least $8.75 and Oregonians get $9.25, while employers in California and Massachusetts must pay their workers a minimum of $10 an hour. Aside from a few localities, the highest minimum wage in America today, $10.50, is found in the District of Columbia. In recent years, several American cities have introduced their own minimum-wage increases. In three big ones on the west coast—Los Angeles, San Francisco and Seattle—the minimum wage is set to rise to $15 over the next few years, and Chicago will be phasing in a floor of $13 by 2019.These reforms have not been universally embraced. Opponents say that however well-intentioned they may be, artificial wage increases distort the labour market and give employers an incentive to make do with fewer workers.The International Franchise Association (representing McDonald’s and Subway shops) sued Seattle for imposing the new wage rules on them four years earlier than they are set to take effect for small businesses. But last week, in an unsigned, one-sentence order, the Supreme Court refused to hear the business leaders’ appeal.
5. Twice since Mr Scalia’s death the US Supreme Court has performed the judicial equivalent of throwing up its hands.A tie in the high court means that the ruling in the court below stands. But a tie-induced affirmance does not bind other lower courts, and the judgment has no value as a precedent. A tie, in short, leaves everything as it was and as it would have been had the justices never agreed to hear the case in the first place.The Obama administration continues to push Senate Republicans to change their minds and hold confirmation hearings for Merrick Garland, chief judge of the District of Columbia circuit court.But the Republican leadership isn’t budging.Some legal scholars argue that an eight-justice bench isn’t so bad after all and might actually be preferable. Eric Segall, a professor of law at Georgia State University, thinksthe 4-4 ideological divide is pushing justices to moderate their claims in an effort to win votes from their colleagues on the other side.

Economist 4/1/16

1. Last year technology companies spent $8.5 billion on deals and investments in artificial intelligence, four times more than in 2010.AI is already starting to generate big financial gains for companies, which helps explain firms’ growing investment in developing AI capabilities. Machine-learning, in which computers become smarter by processing large data-sets, currently has many profitable consumer-facing applications.The biggest concern, however, is that one firm corners the majority of the talent in artificial intelligence, creating an intellectual monopoly of sorts. Google looks best positioned to do this: between its Google Brain project and its acquisition of DeepMind, it has some of the brightest human brains working on AI. Because superior AI systems are able to learn and improve more quickly, the firms that develop an early edge in artificial intelligence may reap the greatest rewards and erect barriers to entry that smaller firms will find hard to overcome.
2. China’s latest medical scandal has erupted. The country, it turns out, has been using millions of doses of outdated or improperly stored vaccines for the diseases not covered by the mandatory program.The vaccine scandal first came to light a year ago when police in Shandong, an eastern province, arrested a pharmacist and her daughter. Allegedly, they had been buying vaccines that were out of date or about to expire and selling them to hospitals and clinics across the country.At first, the government’s reaction was sluggish to non-existent.In all, roughly 2m faulty vaccines are thought to have been sold, for a total of 570m yuan ($90m). The scandal has implicated 29 pharmaceutical firms and 16 health departments. The police are pursuing 69 criminal cases. On March 28th the government finally launched its own investigation under the China Food and Drug Administration.
3. China has a two-tier vaccination system. Mandatory vaccines, such as those against hepatitis-B, are provided free by provincial disease-control authorities, which are responsible for production and distribution. Non-mandatory vaccines, such as for chickenpox, have to be paid for.Provincial health bureaus are poorly financed; cash-strapped disease-control departments have turned the vaccination system into a revenue stream. The outdated vaccines do not seem to be dangerous in themselves; no deaths have been reported as a result of receiving them. The World Health Organisation describes the health risks as “very low”.But the scandal may still have damaging consequences because anxious parents are now reluctant to have their children vaccinated.
4. As with wine, the processing of coffee beans and cacao, used to make chocolate, also requires some fermentation. But new research shows that coffee and cacao yeasts are far more genetically diverse than wine strains. This opens up the intriguing possibility of imparting entirely new tastes to the terroir of coffee and chocolate.As they report in Current Biology, although all vineyard-yeast strains are extremely similar genetically, there is tremendous diversity among the yeast strains associated with cacao and coffee. More specifically, they discovered that these differences correlated with geography.The differences were so great that the researchers were able to use DNA sequences of the yeast strains alone to determine which country a sample of cacao or coffee came from.Why cacao and coffee yeasts vary so much is unclear, although human behaviour is likely to play a role.Winemakers also have a long history of using starter cultures of yeast from places that have traditionally produced wines.
5. THE idea of a higher minimum wage (along with a citizen’s income) is getting more momentum, as governments grapple with the rise in inequality over recent decades.Economists have been grappling for decades with whether (and by how much) a higher minimum wage affects employment. A paper by David Neumark of the University of California (on the very useful IZA World of Labor’s website) summarizes the literature. Most studies show there is an impact with a 10% rise in the minimum wage causing around a 2% drop in employment for affected workers (normally the young and low-skilled).  This is not the same as saying that overall employment will fall by the same amount. The paper also shows that a higher minimum wage may not be as effective in tackling poverty as many hope. Low-wage workers don’t all belong to low-income families.Still there are other potential impacts of higher minimum wages; one is higher productivity. Some British companies that voluntarily shifted to a higher living wage found that staff absenteeism and turnover rates reduced, and productivity improved.

Economist 7/29/15

1. Yemen is only the latest of many theatres in which Saudi Arabia and Iran have sparred over the three and a half decades since an Islamic revolution ended Iran’s own monarchy. The Saudis and their Gulf allies funded Saddam Hussein when he invaded Iran in 1980, while Iran’s proxy in Lebanon, Hizbullah, battled Saudi-backed militias during the 1975-90 Lebanese civil war. In 2011 Saudi Arabia and its allies poured troops into the neighbouring kingdom of Bahrain to help quell a popular revolt. The demands for democracy in a country that is 60% Shia were seen as an Iranian plot to gain power.. The Saudi coalition’s foothold in Aden may presage a redivision of Yemen, a country only united in 1990, into southern and northern halves, an arrangement Saudi Arabia prefers.Rather than seeing the reduction of an Iranian nuclear threat as an advantage, the Saudi government frets instead that its oldest ally, America, is poised to abandon the kingdom and appoint Iran as its new regional policeman.
2. IN THE three decades since the restoration of democracy in Brazil, the centrist Party of the Brazilian Democratic Movement (PMDB) has rarely been out of power. The two presidents with no PMDB ministers in their cabinets had cause to regret it.The PMDB is an indispensable part of the coalition led by Dilma Rousseff, who belongs to the left-wing Workers’ Party (PT). Her vice-president, Michel Temer, is the PMDB’s chairman; the presidents of both houses of Congress are members.If numbers were all that mattered, the PMDB would be the most powerful party by far. Besides having more seats in Congress than any other, it outguns its main rivals, the PT and the centre-right opposition Party of Brazilian Social Democracy (PSDB), in state and local governments.. To maintain its broad appeal, it kept its ideology flexible. Asked what the PMDB stands for, grandees start with freedom of speech—then clam up. Its programme brims with platitudes: its only firm position is against the death penalty. It is more pro-business than pro-market, often lobbying for local and industry-specific benefits.
3. London is a popular destination for money launderers, especially those from Africa, the Middle East and Eastern Europe. (Latin Americans still prefer Miami.)Mr Cameron will call for the Land Registry to publish data on which foreign companies own which land and property titles in England and Wales. The government will also consult on whether any foreign company bidding on a government contract should be made to reveal its “beneficial” (ie real as opposed to legally registered) owners.Transparency International, found last year that one in ten properties in Westminster, a central London borough, is owned by an offshore firm, the most popular domicile being the British Virgin Islands.Britain is working to create the world’s first nationwide public register of company owners and is urging others to follow suit. The prime minister stresses the need for co-ordinated global action, and links progress to reform of Britain’s offshore dependencies in the Caribbean and Channel Islands.
4. WHEN a monopoly on casinos in Macau ended in 2002, American gambling firms rushed into the former Portuguese colony, eager to set up in the only part of China where casino gambling was legal. The bet paid off, and the world’s gambling centre of gravity shifted to Asia. By 2006 Macau’s gambling revenue had exceeded that of Las Vegas. Today eight of the world’s ten highest-grossing casinos are in Macau, with the other two in Singapore. No casinos in America even crack the top 15. A crackdown on corruption by China’s leader, Xi Jinping, has stemmed the flow of mainland Chinese gamblers into the tiny enclave. Worldwide, gamblers have also held back.
5. When Britain set a new minimum wage in 1998 doom-mongers forecast that jobs would vanish. Employment proved resilient. Minimum wages help offset firms’ bargaining power over employees reluctant to risk moving elsewhere.Encouraged by this evidence, many are clamouring to make minimum wages far more generous. In America campaigners want the federal minimum wage more than doubled from today’s stingy $7.25 an hour to $15 an hour.By moving towards sharply higher minimum wages, policymakers are accelerating into a fog. Little is known about the long-run effects of modest minimum wages (see page 66). And nobody knows what big rises will do, at any time horizon.One danger is that a high minimum wage will push some workers out of the labour force for good.This is the worst time to be raising the cost of workers. Technological advances are enabling firms to replace more and more people with computers and robots, imperilling jobs.The Congressional Budget Office reckons that only one-fifth of the income benefits go to those beneath the poverty line.Tax credits (income top-ups for low earners) are a much more efficient way for governments to help the poor—about three-quarters of the benefit ends up with employees. To the extent that firms benefit, they are encouraged to employ low-skilled workers rather than automate jobs.

Economist 5/3/14

1. “Tracker”, or “passive”, funds do not try to beat the market. They just replicate the components of an asset class, and their fees amount to only a few “basis points”.This distinguishes them from “active” funds where a manager tries to select assets that will do better than average. Such funds have higher costs and, unless they outperform markets over the long term (which the average fund does not), those costs eat into returns.Three factors are driving this commoditisation of fund management. The first is the rise of exchange-traded funds (ETFs)—portfolios of assets that track indices and trade on exchanges. Around $2.45 trillion is now invested in ETFs, up from just $425 billion in 2005, according to ETFGI, a consultancy (see chart 2). That makes this sector almost as big as the hedge-fund industry. The average fees on ETFs are just over 0.25%, but that proportion is inflated by specialist funds. State Street’s huge Spider fund, which tracks the S&P 500 index, charges only 0.09%.The ETF sector is still small relative to the rival mutual-fund industry, which manages $27 trillion in assets, but it is beginning to close the gap.One reason for the rise of ETFs is the changing behaviour of financial advisers. The best way to insure advisers’ independence is for them to be paid by the client, not the fund. But few clients wanted to pay an upfront fee when the cost of commission-based advice appeared to be free (because it was subsumed within the cost of the product).The third trend behind commoditisation is the steady rise of defined-contribution (DC) corporate pensions. For most of the 20th century employers offered defined-benefit (DB) pensions, which are linked to the final salaries of employees. If the pension scheme had insufficient funds, the employer was required to top it up. This gave employers an incentive to look for high investment returns—and to employ active managers who charged high fees.In Britain DC pensions are virtually universal for new private-sector employees, and the total size of DC schemes is slowly overtaking the old DB funds .
2. The problem is global and affects common infections and many antibiotics. In China standard drugs are now ineffective over a third of the time against a bacterium that can cause severe lung infections. In America a standard antibiotic for treating infected wounds fails to work over half of the time in hospitals. A commonly-used treatment for UTIs is now often ineffective in Cuba.At least 2m Americans are thought to suffer antibiotic-resistant infections each year, leading to some 23,000 deaths directly and many more from complications to other illnesses.A fast rate of reproduction, and the ability to pass genes among themselves, mean bacteria evolve quickly. Misuse of antibiotics is speeding things up further. A recent move to cut farmers’ use of antibiotics in America, where as much as four-fifths of all antibiotics (by weight) are fed to animals, should help—though exempting use for veterinary purposes leaves a loophole. And member states are expected to ask the WHO to develop a global plan to tackle antibiotic resistance at its annual meeting in May.No new class of antibiotics has been discovered since 1987. This is partly because research has failed to make breakthroughs.
3. METRES from the ornate facades and posh cafés of Retiro, one of the wealthiest districts in the city of Buenos Aires, lies Villa 31, a sea of ramshackle brick hovels with aluminium roofs. According to TECHOS, a non-profit organisation, there are 56 informal settlements in the city.Despite strong economic growth, the population in such settlements rose by 50% between 2001 and 2010. Everyone, from city authorities to NGOs, agrees that thevillas must be “urbanised”, or incorporated into the formal fabric of the city. In 2011 the mayor of Buenos Aires, Mauricio Macri, created a body called the Secretariat of Habitat and Inclusion (SECHI) to co-ordinate such efforts.But many villa residents chafe at the pace of change. Since April 21st a small group of them have been staging a hunger strike in central Buenos Aires to protest that the city has not done enough to improve their districts, many of which lack access to sewerage, electricity, running water and public transport.
4. Raising the minimum wage in USA is broadly popular: a Pew poll conducted last month found over 70% in favour of a rise to $10.10, as Democrats propose; a more recent Washington Post/ABC poll found that half of American adults support the idea, 30% are indifferent and the remaining 20% are hostile. If the politics of the minimum wage are less than clear, the opposite is true of the economics. In theory minimum wages are job killers: The Economist opposed the introduction of the minimum wage in Britain in 1999 on these grounds. In practice the picture is not so clear.Britain’s minimum wage works like this: it is set by a panel of technocrats called the Low Pay Commission that doesn’t need to get each increase past Parliament. 
5. In the past few months, at least 14 of India’s biggest industrial houses have taken advantage of a new law to set up electoral trusts.The legal framework for these trusts in India was introduced in January 2013, ostensibly with the idea of bringing transparency to the way campaigns are funded. For the first time, in this election private firms can donate money to political parties without any restriction—in exchange for disclosing what they have donated.An estimate by the Centre for Media Studies in Delhi puts the total cost of this season’s campaigns for seats in India’s parliament and state assemblies at $4.9 billion. That would make it the second-most expensive in world history, trailing just behind America’s of 2012, which cost $6 billion. The cap set by the EC has been revised upwards but never beyond a pitiful fraction of what it takes to be competitive. This year the limit is 70 lakh (7m) rupees ($115,000) per campaign for a parliamentary seat. In fact a candidate might spend 50 to 100 times more money than that, if he hopes to win. Even the Chief Election Commissioner knows it. The most visible expenditures are the least of it: transport, billboards, seats and refreshments for rallies—this is what catches the EC’s watchful eye. But discreet wads of cash and chits for liquor are the mainstays of this shadow economy.