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from Breakingviews:

Review: An unreliable guide to inequality

By Edward Hadas

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Thomas Piketty is set to become a star. “Capital in the Twenty-First Century” – the new book from the founder of the Paris School of Economics – has received gushing praise from the New York Times and the Economist, even before the official publication of the English translation next month. The massive production, 577 pages of text plus voluminous supporting material, posits that economic inequality is a major social problem which is likely to get worse. Piketty’s arguments, however, fail to persuade.

The theoretical centrepiece is a simple claim. Whenever return on capital is greater than a nation’s GDP growth rate, the existing owners of capital end up with an increasing proportion of the capital stock. Piketty argues that returns are usually around 4 percent to 5 percent, while growth in demographically mature and economically advanced societies is unlikely to be much above 1.5 percent. Since capital ownership is highly concentrated, the result is an ever higher concentration of wealth.

The problem with this argument is that the mathematical claim is faulty. Higher returns only lead to an increased concentration of wealth if capital owners invest enough of their income. If they spend it all, as for example landed aristocrats have often done, they gain no ground. Piketty does acknowledge this on a few occasions, but provides no evidence that the combination of the reinvestment rate and returns is currently high enough to widen the gap between rich and poor.

from Breakingviews:

Review: The puzzle of Fred Goodwin’s rise and fall

By Peter Thal Larsen

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Early in 2009, the British government was preparing to bail out Royal Bank of Scotland for the second time in four months. An emergency injection of capital in October 2008 had failed to shore up confidence. Now taxpayers were being asked to cover potential losses on almost 300 billion pounds of toxic RBS assets. Yet as the details of the rescue were finalised, British public opinion was in uproar over a much, much smaller sum: the 700,000 pound a year pension being paid to Fred Goodwin, the bank’s former chief executive.

from Breakingviews:

Review: A McKinsey-like assessment of McKinsey

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By Jeffrey Goldfarb
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Understanding McKinsey is no easy feat. The doyen of management consulting firms is at once ubiquitous and mysterious. Its advice is coveted yet often misguided. Dysfunction, typical of any organization, belies McKinsey’s well-cultivated prestige. “The Firm,” a new book by journalist Duff McDonald, goes a long way to unraveling some of these complexities in a highly readable history of the consigliere to the world.

Just how McKinsey managed over 80 years to gain access to so many executive suites and other corridors of power around the world is an impressive tale that starts, remarkably enough, in the corporate underbelly of accounting. James McKinsey transformed bookkeeping into budgeting and budgeting into strategy, laying the foundation for a new sort of practice that eventually would reshape industrial and government leadership.

from Breakingviews:

Review: How economics became the hijacked science

By Olaf Storbeck

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

There’s no lack of books on the shortcomings of mainstream economics. “Economists and the Powerful”, by Norbert Haering, a German financial journalist, and Niall Douglas, an Irish IT consultant, stands out from the crowd.

from Breakingviews:

Review: Haiti’s unreconstructed disaster story

It is three years since a massive earthquake devastated Haiti. A new book by Jonathan Katz suggests that the ensuing international aid effort gave the stricken the Caribbean country all possible assistance, short of actual help. He suggests, indeed, that the outsiders did more harm than good.

Haiti’s crisis plucked at the world’s heart strings. Bill Clinton, Sean Penn and Angelina Jolie were among the famous names who stepped up as advocates for the dispossessed. Katz reports that $16.3 billion, much from the United States, was donated. But the effort fell woefully short. “The world came to save Haiti and left behind a disaster”, he writes.

from Breakingviews:

Review: Embracing the psychopath within

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By Martin Langfield
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

If you’ve ever thought your boss is a psychopath, you may be right, according to psychologist Kevin Dutton. And if you’re a top-flight markets trader, captain of industry, surgeon or soldier, you may well be one yourself. But that’s OK, says Dutton. It may even be optimal.

from Breakingviews:

Review: Lessons for the poor from English history

By Martin Hutchinson
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

It took England centuries to develop a successful industrial economy. Poor countries today want to recapitulate the process in a few decades. In “The Political Economy of Nation Building” development consultant Mack Ott draws some lessons from the English experience.

from Breakingviews:

Review: Fictional financiers remain elusive

By Peter Thal Larsen
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Banking is fiction’s hidden profession. Despite decades of financial expansion, novelists and playwrights have struggled to imagine a contemporary Shylock or Augustus Melmotte, the shadowy star of Anthony Trollope’s “The Way We Live Now”. A quarter of a century has passed since Tom Wolfe dreamt up Sherman McCoy, the bond trader who personified the arrogance and greed of an earlier boom in “The Bonfire of the Vanities”. With the crisis wreckage still smouldering, the characters in most contemporary novels are more likely to be found robbing a bank than working for one.

from Breakingviews:

Review: Putting a face on the Kremlin’s autocrat

By Pierre Briançon
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Twelve years after Vladimir Vladimirovich Putin first became president of Russia, we know as little about him as when Boris Yeltsin pulled him from bureaucratic anonymity to make him his last prime minister and successor. And Russians themselves still don’t know: witness both the bizarre popular support he enjoys in parts of the country, and the contemptuous hostility in which he is held by the swelling ranks of his opponents. Is he a Soviet throwback or a Russian moderniser? A statesman or a crook? A closet reformist or a ruthless despot?

from Breakingviews:

Review: Flawed defence of the good of finance

By Edward Hadas
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Financial repression is the theme of the moment, and that’s a slap in the face for Robert J. Shiller, who thinks investors should be protected, not exploited. The possible UK government 100-year fixed coupon bond, which would be issued at an artificially low rate, is almost the antithesis of everything Shiller believes in.

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