Finance and Econ From the Web: Super-rich Don’t Stay Rich, Robots Take Jobs, Tech Cold war

Some insightful articles on the super-rich, notably  they get killed in China and  they have to work in the US. I’ve found some good articles on China, particularly on various inefficiencies in innovation subsidies and coal production. I also highlight the growing tech war between the US and China. Then there are some good articles on currency factors, market volatility and common-share holdings. On the economics front, there’s a study that shows that happiness is linked to the provision of public goods, how sovereign debt levels may not be as much of a constraint as many think and how changing social security can get older people back into the workforce.

Inequality and Tax

72 super rich dead before their time [in China] since 2003  That means around 5 billionaires prematurely die a year. Currently, there are 476 billionaires, which could means there’s an extremely high fatality rate of 1%.  Not only that but the way they died is gruesome: “15 were murdered, 17 committed suicide, seven died from accidents, 14 were executed according to the law and 19 died from diseases.” (h/t to Tyler Cowen for the article)

Capitalists in the Twenty-First Century Using tax data linking 11 million firms to their owners, the paper finds that entrepreneurs who actively manage their firms are key for top income inequality. Most top income is non-wage income, a primary source of which is private business profit. These profits accrue to working-age owners of closely-held, mid-market firms in skill-intensive industries. Private business profit falls by three-quarters after owner retirement or premature death. Classifying three-quarters of private business profit as human capital income, we find that most top earners are working rich: they derive most of their income from human capital, not physical or financial capital.

How did they get so rich ? Kinda tongue-in-cheek take on what made Bezos, Gates, Zuckerberg, Buffet so rich.

Property Tax Present Value How to think about the time value of property tax

China Economics

Do Innovation Subsidies Make Chinese Firms More Innovative? Evidence from the China Employer Employee Survey The paper examines the allocation and impacts of innovation subsidies, using the data from the China Employer Employee Survey (CEES). They find that the innovation subsidies are preferentially allocated to state owned firms and politically connected firms. Of these two (state ownership and political connection), political connection is more important in determining the allocation. The firms that receive innovation subsidies do not have higher productivity, more profits, or larger market shares.

Agent Orange: Trump, Soft Power, and Exports The authors use data from 2006 through 2017, and an annual Gallup survey of 157 countries asking whether they approve of the job performance of the leadership of China, Germany, Russia, the United Kingdom and the United States. They find that a country’s exports are higher if its leadership is approved by the importer; ‘soft power’ promotes exports. The soft power effect is statistically and economically significant; a one percent increase in leadership approval raises exports by around two-thirds of a percent. They estimate that the 20 percentage point decline in foreign approval of American leadership between 2016 (the final year of Obama’s presidency) and 2017 (Trump’s first year) lowered American exports by at least $3 billion.

Why Has China Overinvested in Coal Power? Since 2005, the Chinese government has engaged in an ambitious effort to move China’s energy system away from coal and towards more environmentally friendly sources of energy. However, China’s investment in coal power has accelerated sharply in recent years, raising concerns of massive overcapacity and undermining the central policy goal of promoting cleaner energy. They find that when coal-power project approval authority was decentralized from the central government to local governments at the end of 2014, the gate was lifted and approval time considerably shortened, allowing investment to flood into the market.

China investment in US slides to 7-year low in 2018 amid trade war Beijing’s tighter grip on outbound investment and Washington’s stepped-up scrutiny of Chinese purchases also take their toll, research group says. See also The Chinese investment boom in America is over

Why Haven’t U.S. Exports of Manufactures Kept Pace with China’s Growth? China is a big country, and, at least until recently, it was growing relatively fast. So it stands to reason that it should have been among the most rapidly growing markets for U.S. exports.Author finds that a combination of import substitution by the Chinese, lack of openness and possible weak US export firms have contributed to this.

Business Cycle and Employment

From Immigrants to Robots: The Changing Locus of Substitutes for Workers The authors estimate that an additional robot reduces employment and wages in an industry by roughly as much as an additional 2 to 3 workers and by 3 to 4 workers in particular groups, which far exceed estimated effects of an additional immigrant on employment and wages. While the growth of robots in the 1996-2016 period of our data was too modest to be a major determinant of wages and employment, faster growth in the future could have an impact.

Social security reforms and elderly employment in Japan Social security reforms in advanced economies may give people incentives to work past retirement age. The column estimates the financial incentives to work or retire at each age for elderly men and women in Japan. There is a correlation between series of social security reforms to reduce generosity and the recent recovery of employment rates for men aged 60-69 and for women aged 55-64.

Time for China, Germany, the Netherlands, and Korea to Step Up The world’s surplus countries have the ability to do more to support global growth.

The ECB’s performance during the crisis: Lessons learned The ECB’s actions in the wake of the Global Crisis have been described as hesitant, relative to other central banks. Based on analysis of financial markets’ response to the ECB’s interventions during the euro crisis, this column argues that central bank interventions are effective if they clearly signal a commitment to reinvigorating the economy and if they address the source rather than the symptom of financial stress. The ECB did not follow these principles, limiting its ability to improve financial market sentiment.

Why deficits are sustainable and inflation has a life of its own  New study finds “As long as the primary deficit or the primary surplus is not too large, the fiscal authority can conduct policies that are unresponsive to endogenous changes in the level of its outstanding debt. Monetary and fiscal policy can both be active at the same time.” But “It also matter, a lot, who holds the debt…Foreign held debt is much less benign than domestic debt.”


Calls for Huawei boycott get mixed response in Europe Security concerns have resulted in restrictions of Huawei products in the US, but the 5G tech is offsetting some those concerns in Europe. Portugal is going ahead with purchases, Germany is dithering, but France, Norway, Czech Republic and Poland are holding back. However, German and French telcos are using Huawei products in their other European markets (Spain, Poland)

A New Cold War Has Begun The United States and China will be locked in a contest for decades. But Washington can win if it stays more patient than Beijing.

Is Xi Jinping’s Taiwan reunification push hastening a US-China clash?Fragile power balance in Taiwan Strait exposed with superpowers locked in a trade war. Taipei using the US as a hedge against mainland’s pressure campaign

Financials Markets

Currency Factors The authors find two clusters of currencies dollar currencies and  European currencies. They find the correlations between currency baskets underlying the factor structure are inversely related to the physical distances between countries. The factor structure is also related to cross-country retail sales growth data.

Volatility and Informativeness A technical piece looking at the connection between price volatility and price informativeness. They identify two different channels (noise reduction and equilibrium learning) through which changes in price informativeness are associated with changes in price volatility. They use data on U.S. stocks between 1963 and 2017 and find that most stocks lie in the space in which informativeness and volatility comove negatively, that is more information is associated with lower vol (and vice versa).

The Greatest Anticompetitive Threat of Our Time: Fixing the Horizontal Shareholding Problem “large competing firms often comprise the same set of institutional investors…a series of empirical studies have confirmed that horizontal shareholding has anticompetitive effects in concentrated markets…What can antitrust law do about horizontal shareholding? Quite a lot, in fact”

The Intangible Valuation Renaissance: Five Methods Article describes the common methodologies for intangibles valuation that build on historical and prospective financial information within the framework of current accounting standards. And how can they be integrated with non-GAAP KPIs to assess a firm’s competitive position

Are Market Moves Happening Faster? It does feel like that, but historical numbers don’t necessarily agree with this hypothesis. For instance, the average bear market from peak to trough from 1950-1995 took 339 days (median 240 days) from top to bottom. After 1995, the average is 349 days (median 157 days).

Economic Thinking

Happiness in America Correlates With One Specific Thing About Where You Live New study finds: “ Americans were happier in states where governments spent more of their relative budget on public goods – infrastructure like parks, libraries, and roads, as well as natural resources, and public services like policing.”

Klassic Klingisms Pithy one-liners on business and economics from Economist Arnold Kling.

Taleb the Philosopher Overview of the way Nassim Taleb thinks about the world

The European Guilds: An Economic Analysis Review of new economic history book. Extract:  “But overall, the actions guilds took mainly had the effect of protecting and enriching their members at the expense of consumers and non-members; reducing threats from innovators, competitors, and audacious upstarts; and generating sufficient rents to pay off the political elites that enforced guilds’ privileges and might otherwise have interfered with them.”