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The Ledger 06/13/14

The Ledger 06/13/14

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A weekly snapshot of news, views, and economic cues from AEI's Economic Policy team
A weekly snapshot of news, views, and economic cues from AEI's Economic Policy team

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Published by: American Enterprise Institute on Jun 13, 2014
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07/28/2014

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World Cup: Brazil favored by how much? And is soccer socialist?
 
Betting the World Cup.
: “Who will the lucky winner be?
Economics has a surprisingly large amount to say on the subject. Forget Thomas Piketty: By far the most important academic study out
this year is Goldman Sachs’s massive 'The World Cup and Economics 2014' . . . The authors developed
the best possible econometric model drawing on those data, and used it to generate a prediction that
Brazil has a 48.5 percent chance of being the World Cup champion.”
 
Ignore those World Cup productivity studies
. 
: “Every four years around the soccer World
Cup, the same pernicious pattern of lamentable link-baiting takes hold. Some sales data firm or a bunch
of employment lawyers will come up with an ‘analysis’ of product
ivity losses incurred as a consequence of the attention people choose to pay to the tournament, and they will always find reporters happy to
summarize their ‘findings’ and propagate the idea that bad things are happening. . . . These reports are
useless an
d misguided. They are also dangerous.”
 
PRO/CON: Is soccer a socialist sport?
 
PRO
 
: “Capitalist sports are exciting —
 people often hit each other, sometimes even score. Soccer fans are excited by an egalitarian 0-0 tie. When soccer powerhouses Brazil and Portugal met recently at the World Cup, they played for 90 minutes
 and combined got just eight shots on net
(and zero goals).”
CON
: “Unlike the major American professional sports, failure is not rewarded and
incentivized in soccer. There is barely any revenue-sharing between teams; teams invest in young play
ers, often from as early as age 10 on; there are no salary caps for players; you don’t get to draft
better players if you perform poorly; and you can definitely go out of business, so to say, by getting
relegated.”
 
Jobs and Seattle's minimum wage hike
 
Seattle do-gooders just shot themselves in the foot. 
: “The [Seattle City] council is
correct to worry about the economic condition of the working class. American workers have been
suffering for many years now, and the perception that ‘the top 1 percent’ is doing great is widespread and
correct. It is natural and commendable for policymakers to want to take steps to help workers. But even a modest increase in the minimum wage
isn’t the answer. And a city
-specific $15 per hour minimum wage
is simply reckless.”
 
On the jobs report:
 
Pethokoukis: 
Strain: 
Pethokoukis: 
Another worrisome sign that the beating heart of the US economy is failing.
“There seems to be a secular decline in new busi
ness formation. Not only does this mean fewer fast-
growing, highly innovative new firms, but also less competition for incumbents.”
Student loan crisis
 
Democrats are pushing a stimulus package for the college educated. 
: “Are we here to
 
help students who are qualified to attend college but are unable to afford it because of their family background? Or should we spend billions to ensure that those who have already gone to college can
afford to buy a house? Many will likely say ‘both.’ Unfortunately, though, spending so much time and
money on the latter will make it harder to achieve
the former.”
 
ALSO WATCH
Yet another problem with Piketty 
 
Middle-class income is higher than Piketty claims. 
: “Piketty's new book is a valuable and
impressive study insofar as it has provoked a careful re-examination of what we know about the important issue of income distribution. The most widely cited measures are misleading. That said, the middle class is still hurting, due to the disproportionate wealth destruction it suffered in the aftermath of the 2008
financial crisis.”
 
The VA scandal, Obamacare, and Medicaid
Changing leadership will not cure the VA. 
: “ 
The temptation is to fire more VA administrators and tighten administrative controls. That ignores the fact that the falsified wait lists and poor service are a direct response to the administrative controls already in place. Letting veterans have a voice in the care they receive
 and giving them the chance to take their business elsewhere
 is the key to meeting the
nation's obligation to our veterans.”
 
TESTIMONY
 The ACA does not equal health care access. 
: “Americans who sign up
for insurance under the Affordable Care Act are finding many of these plans offer very narrow options when it comes to their choice of doctors and drugs. Some observers argue the insurance business tactics res
ulting in these narrow benefits are not unique to the ACA plans. But this isn’t entirely true.”
 
MORE FROM GOTTLIEB
Two sides of the Medicaid expansion coin. 
: “ 
The HIP 2.0 Medicaid expansion does mean a substantial expansion of the ACA coverage entitlement to a broader slic
e of the ‘able
-
bodied’ lower
income population. Will it provide a new pathway both to better health and heightened cost consciousness? Or just the lure of an HSA-like wrapper to sell an additional layer of dependency on politically mediated
 
benefits?”
 
Eurocrisis 2.0?
Europe in denial. 
: “The political elite’s state of denial about the strong winds of
political change blowing through Europe is to be regretted. Without a move toward more expansionary policies by countries like Germany and the Netherlands, there is every prospect that European unemployment will remain at close to its present levels, which are near a postwar recor 
d.”
 
ALSO READ
Learning nothing at the European Central Bank.
: “The ECB’s faulty diagnosis of
the European disinflation process has led to an overly passive policy response to that process. It has
taken the ECB some nine months to respond to Europe’s disinflation process in the mistaken belief 
 that
the deflation process would somehow reverse itself on its own accord.”
 
VIDEO
Tech, cyber, and the FCC 
 
Thwarting patent trolls is not as easy as it sounds. 
: 
“Work presses o
n in the Senate to hammer out a legislative compromise. Sens. Cornyn and Chuck Schumer (D-NY), both Judiciary
 
Committee members, have been working on language that may well form the backbone of the ‘manager’s amendment’ Sen. Leahy has long promised. Fortun
ately, the Cornyn-Schumer language, which a Senate source noted is still a work in progress, marks a significant improvement to existing proposals, including
Cornyn’s own.”
 
Claims that wireless service is too expensive just don’t hold up.
: “American and
Canadian operators invest in wireless networks at the twice the rate of Europe's. Wireless prices in the U.S. and Canada reflect the value of world-class networks, as well as real costs such as spectrum licenses and deploying hundreds of thousands of towers and thousands of miles of backhaul fiber optics. In that way, it should not be expected that prices be cheap, but only that they reflect the value of what
they offer.”
 
CALL FOR PAPERS
 
AEI EVENT VIDEO
Finance
 
BOOK REVIEW
 
Rescuing subprime borrowers won’t fix the economy.
: “The key to
accelerating the recovery is not to generate unsustainable consumption, as Mian and Sufi propose. Rather, we must find sustainable uses for risk-averse savings
 to fund productivity-enhancing infrastructure, for example, i
f that were possible in more than just theory.”
Shadow banks: The G-7 demands action this year. 
 
“ 
Given the fact that the G-7 leaders, including President Obama, signed on to this language, we can expect that the Financial Stability
Board will shortly be completing the work it earlier described as bringing ‘shadow banks’ within its ‘SIFI Framework,’ and the FSOC will then follow suit with designations.”
 
Paper money has its advantages. 
: “Whether or not one shares my personal preference for
banknotes, one has to admit that with governmen
ts’ obvious propensity to spy on the citizens, it would
take a very bold faith, indeed extreme credulity, to believe that any government would make or keep an
electronic currency anonymous.”
 
ALSO READ
?
 
It's 5:00 somewhere: ICYMI 
 
Starting a craft brewery is as tough as starting a small business in China or Venezuela.
 
“ 
This study really illustrates all the ways, big and small, that government stands in the way of an entrepreneur turning ideas and effort into a job-creating, wealth producing business. That is just not
going to cut it in an America where wage income will be harder and harder to come by.”
 
ALSO READ
 
WATCH
Mark your calendar 
 6.16 Industrial production numbers 6.17 Consumer Price Index 6.17 Housing starts 6.18
AEI EVENT: 
Outsourcing the vote? 6.18 FOMC meeting announcement 6.18 FOMC forecasts 6.18 Yellen press conference

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