At the Upshot over the weekend, Tyler Cowen writes that Americans’ view of income inequality is too narrowly nationalistic. Instead, he says, we should “preface all discussions of inequality with a reminder that global inequality has been falling and that, in this regard, the world is headed in a fundamentally better direction.” Basically, rising incomes in growing economies like China and India should outweigh the inequality concerns of countries (like the U.S.) where increasing exports are causing incomes at the top to rise. “While Chinese growth has added to income inequality in the United States, it has also increased prosperity and income equality globally,” he says.
A global reduction in income inequality is great, says Ryan Avent, but Cowen’s piece misrepresents the heart of the American argument against income inequality. It isn’t about globalization; instead, it’s about lax financial regulation, subsidies to big banks, low tax rates for the rich, and the appearance that political persuasion can be bought. Further, he says, even if American inequality is benefiting the poor in other parts of the world, “few voters are content to have their economies run as charities.”
The US has a child immigrant crisis. The number of unaccompanied minors sneaking across the border has soared in the last year. From Reuters:
More than 52,000 unaccompanied minors from Guatemala, El Salvador and Honduras have been caught trying to sneak over the U.S.-Mexico border since October, double the number from the same period the year before. Thousands more have been apprehended with parents or other adults.
The U.S. is poised to lose a cigarette company. One of America’s largest tobacco companies, Reynolds American, struck a deal to buy rival Lorillard this week. The deal is for $25 billion excluding debt (which adds about $2 billion more) — although the WSJreports it’s so complex it is unlikely to be finalized before next year. If the deal clears antitrust hurdles, Reynolds-Lorillard together would control somewhere between 35 and 40 percent of the American tobacco market.
Americans on average still smoke 1,300 cigarettes per year, says Roberto Ferdman, but tobacco consumption has been on the decline since the 1960s. “Acquiring Lorillard, the U.S. industry’s third-largest competitor, would help Reynolds cope with the slowdown and give it the Newport menthol line, which is popular in urban areas,” writesBloomberg. Susan Cameron, the CEO of Reynolds, told Dealbook after the merger was announced: “This is about Newport and new synergies.”
Today, Janet Yellen appeared before the Senate Banking Committee to give her semi-annual monetary policy report to Congress. Her basic message, laid out in a prepared statement, hasn’t changed: the economy is slowly improving, but certain measures of the labor market still worry her. Since her last report to Congress in February,“important progress has been made in restoring the economy to health and in strengthening the financial system. Yet too many Americans remain unemployed, inflation remains below our longer-run objective, and not all of the necessary financial reform initiatives have been completed.”
“Yellen’s testimony is likely to reinforce a sense of complacency among investors who regard the Fed as convinced of its forecast and committed to its policy course,” writesBinyamin Appelbaum. He continues that, with regard to the future of monetary policy, “uncertainty about the future is actually contributing to the sense of stability, by making the Fed more cautious about retreating.” Ylan Mui summarizes Yellen’s comments generally: “Move too fast or too abruptly, and the fragile recovery could falter.”
Abenomics grinds on. Bloomberg has just put out a new report on the state of Japanese prime minister Shinzo Abe’s project to revive his country’s economy and concludes that “the record is mixed.” “Inflation is up, though import prices rather than wages account for the bulk of the increase. A skeptical public remains unconvinced that long-term prospects are brighter.” Japan is a little over 18 months into Abenomics, and two of the three “arrows” — fiscal stimulus and monetary easing — have been deployed. Barry Ritholz thinks they’ve already been pretty successful so far: “deflation is being replaced by inflation; profits and investments are both increasing for Japanese companies; and the Nikkei 225 is up considerably.”
However, there’s plenty to be worried about. Back in April, Japan raised the consumption tax to 8% from 5% — the first hike since 1997 (which threw the economy into a tailspin). It was supposed to be “the fatal flaw in Abenomics,” according to theEconomist, but “the early signs are that a preternaturally lucky Mr Abe has got away with it.” However, the Japan Times writes today that the economy has taken a significant hit after the tax hike: average household consumption is down, wage growth is below inflation, corporate capital investment hasn’t made up for the fall in household consumption, and export growth is sluggish.
Citigroup reported earnings today — coincidentally the same day the Justice Department announced a $7 billion settlement with the bank over crisis-era mortgage securities. Its quarterly earnings fell 96 percent to $181 million and its return on equity was a mere 0.2 percent — mostly due to the aforementioned fines. However, the numbers are nonetheless stronger than expected, largely because of a strong quarter in its fixed income business.
Reuters has an interactive graphic showing Citi’s performance versus other big banks. Below is a still — the interactive is here.
When you say the word start-up, many people think of the wild proliferation of tech companies in Silicon Valley: Stanford grads sitting in a basement with their friends being offered obscene amounts of money for a mobile app that simply sends a one-word message to a user’s contacts. But economically speaking, a startup is any business that’s less than five years old and has fewer than 20 employees. And, tech bubble or not, start-ups in general have not done so well in the wake of the Great Recession.
A new research note out from the San Francisco Fed concludes that “low growth among start-ups at the beginning of the current recovery may have contributed to slow employment growth overall.”
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“Insider Trading 2.0,” New York attorney general Eric Schneiderman’s war on high-frequency trading abuses, wages on. At the end of June, Schneiderman filed a complaint against Barclays over the activity of the firm’s dark pool, Barclays LX, which is the second-most active alternative trading system in the United States. Schneiderman is accusing Barclays of fraud, suggesting that instead of protecting investors in the dark pool from high-frequency traders (as advertised), the firm did the opposite, and actually “operated its dark pool to favor high frequency traders.”
A dark pool is a non-public place to trade, which is advantageous for big institutional clients because they can buy and sell in large blocks without the transparency of public exchanges. Big investors see this as a good thing, because they can trade without the interference of high-speed trading firms that have the ability to affect the price of the trade between the time a trade order is announced and when it is executed. (Here’s a longer explanation). According to Schneiderman, Barclays sold this narrative to institutional investors to get them to trade on Barclays LX. It then also invited HFT firms into the dark pool, and, to add insult to injury, charged the HFT firms lower fees than their other clients.
Non-farm payrolls for June were released Thursday, and by most accounts this was a great month for job growth. The economy added 288,000 jobs, way more than the 215,000 that were expected. Reuters has a full live blog of the commentary that came out after the report. Here are some of the best charts from the blog:
Almost every industry expanded this month, and many were at the high end of the range of monthly changes over the last four years.
Today at the IMF, Janet Yellen gave a speech on financial stability. More specifically, she talked about monetary policy’s shortcomings as a tool for financial stability. Neil Irwin calls it “the most significant speech yet in her still-young Federal Reserve chairmanship.”
Monetary policy’s “effects on financial vulnerabilities, such as excessive leverage and maturity transformation, are not well understood and are less direct than a regulatory or supervisory approach,” she said. She clarified that she’s not against raising interest rates to stem financial bubbles, but, she said, oversight and regulation should play the primary role (things like the Fed’s stress tests). Tighter monetary policy, she said, would not have been sufficient to stop the 2008 crisis.