1
Opinion
'Pandora's Promise' Director and Robert F. Kennedy, Jr., Debate Nuclear Options
Robert F. Kennedy, Jr., calls a film promoting nuclear power “an elaborate hoax.”
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N.Y. / Region
City Adds 600,000 People to Storm Evacuation Zones
A revised system, based on hurricane storm-surge data, includes more zones and covers 37 percent of all New York City residences.
3
Opinion
A Second Chance for Ex-Offenders
In another step in the right direction, the E.E.O.C. filed discrimination lawsuits against two companies for denying jobs to people based on criminal records.
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Booming
Gardening Advice for Aging Bodies, Part 1
Patty Cassidy, a horticultural therapist, answers readers’ questions about container gardens, tools for those with arthritis and more.
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Business Day
Stocks Slide on Fears of Cuts to Fed’s Bond-Buying Program
The steep market declines on Wednesday underscored the fears circulating through trading desks that the economy is not strong enough to do without the Fed’s support.
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Business Day
Ending Poverty by Giving the Poor Money
A conversation with Christopher Blattman, co-author of a study of using cash transfers, rather than earmarked donations, to help poor workers improve their lot.
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Technology
Gauging the Natural, and Digital, Rhythms of Life
Data logging.
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Business Day
How Reliance on Trees Can Help Forests
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Health
Choice of Health Plans to Vary Sharply From State to State
Some states have attracted an array of insurers for their exchanges, while options in other states may be limited.
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Business Day
Treasury Auctions Set for This Week
The following tax-exempt fixed-income issues are scheduled for pricing this week.
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Business Day
Regulators Are Divided Regarding Consultants
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N.Y. / Region
After Sexual Abuse Case, a Hasidic Accuser Is Shunned, Then Indicted
A Hasidic cantor was convicted of sexually abusing a 16-year-old. The man who brought the case to light has now been charged with trying to extort the cantor.
1
Opinion
'Pandora's Promise' Director and Robert F. Kennedy, Jr., Debate Nuclear Options
Robert F. Kennedy, Jr., calls a film promoting nuclear power “an elaborate hoax.”
2
Opinion
Marijuana and Minorities
3
Business Day
U.S. Approves a Label for Meat From Animals Fed a Diet Free of Gene-Modified Products
The Agriculture Department approved a label to show that meat certified by the Non-GMO Project came from animals that never ate feed containing genetically engineered ingredients.
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U.S.
The Problem With Too Many Millionaires
Winner-take-all forces are driving an extreme concentration of wealth at the top, with the ranks of the ultrarich, people with investable assets of at least $30 million, surging 11 percent over the past year.Rents and Returns: A Sketch of a Model (Very Wonkish)
I started out in professional life as a maker of shrubberies
an economic modeler, specializing — like my mentor Rudi Dornbusch — in
cute little models that one hoped yielded surprising insights. And
although these days I’m an ink-stained wretch, writing large amounts for
a broader public, I still don’t feel comfortable pontificating on an
issue unless I have a little model tucked away in my back pocket.
So there’s a model — or, actually, a sketch of a model, because I haven’t ground through all the algebra — lurking behind today’s column. That sketch may be found after the jump. Warning: while this will look trivial to anyone who’s been through grad school, it may read like gibberish to anyone else.
OK, imagine an economy in which two factors of production, labor and capital, are combined via a Cobb-Douglas production function to produce a general input that, in turn, can be used to produce a large variety of differentiated products. We let a be the labor share in that production function.
The differentiated products, in turn, enter into utility symmetrically with a constant elasticity of substitution function, a la Dixit-Stiglitz (pdf); however, I assume that there are constant returns, with no set-up cost. Let e be the elasticity of substitution; it’s a familiar result that in that case, and once again assuming that the number of differentiated products is large, e is the elasticity of demand for any individual product.
Now consider two possible market structures. In one, there is perfect competition. In the other, each differentiated product is produced by a single monopolist. It’s possible, but annoying, to consider intermediate cases in which some but not all of the differentiated products are monopolized; I haven’t done the algebra, but it’s obvious that as the fraction of monopolized products rises, the overall result will move away from the first case and toward the second.
So, with perfect competition, labor receives a share a of income, capital a share 1-a, end of story.
If products are monopolized, however, each monopolist will charge a price that is a markup on marginal cost that depends on the elasticity of demand. A bit of crunching, and you’ll find that the labor share falls to a(1-1/e).
But who gains the income diverted from labor? Not capital — not really. Instead, it’s monopoly rents. In fact, the rental rate on capital — the amount someone who is trying to lease the use of capital to one of those monopolists receives — actually falls, by the same proportion as the real wage rate.
In national income accounts, of course, we don’t get to see pure capital rentals; we see profits, which combine capital rents and monopoly rents. So what we would see is rising profits and falling wages. However, the rental rate on capital, and presumably the rate of return on investment, would actually fall.
What you have to imagine, then, is that some factor or combination of factors — a change in the intellectual property regime, the rise of too-big-to-fail financial institutions, a general shift toward winner-take-all markets in which network externalities give first movers a big advantage, etc. — has moved us from something like version I to version II, raising the profit share while actually reducing returns to both capital and labor.
Am I sure that this is the right story? No, of course not. But something is clearly going on, and I don’t think simple capital bias in technology is enough."
So there’s a model — or, actually, a sketch of a model, because I haven’t ground through all the algebra — lurking behind today’s column. That sketch may be found after the jump. Warning: while this will look trivial to anyone who’s been through grad school, it may read like gibberish to anyone else.
OK, imagine an economy in which two factors of production, labor and capital, are combined via a Cobb-Douglas production function to produce a general input that, in turn, can be used to produce a large variety of differentiated products. We let a be the labor share in that production function.
The differentiated products, in turn, enter into utility symmetrically with a constant elasticity of substitution function, a la Dixit-Stiglitz (pdf); however, I assume that there are constant returns, with no set-up cost. Let e be the elasticity of substitution; it’s a familiar result that in that case, and once again assuming that the number of differentiated products is large, e is the elasticity of demand for any individual product.
Now consider two possible market structures. In one, there is perfect competition. In the other, each differentiated product is produced by a single monopolist. It’s possible, but annoying, to consider intermediate cases in which some but not all of the differentiated products are monopolized; I haven’t done the algebra, but it’s obvious that as the fraction of monopolized products rises, the overall result will move away from the first case and toward the second.
So, with perfect competition, labor receives a share a of income, capital a share 1-a, end of story.
If products are monopolized, however, each monopolist will charge a price that is a markup on marginal cost that depends on the elasticity of demand. A bit of crunching, and you’ll find that the labor share falls to a(1-1/e).
But who gains the income diverted from labor? Not capital — not really. Instead, it’s monopoly rents. In fact, the rental rate on capital — the amount someone who is trying to lease the use of capital to one of those monopolists receives — actually falls, by the same proportion as the real wage rate.
In national income accounts, of course, we don’t get to see pure capital rentals; we see profits, which combine capital rents and monopoly rents. So what we would see is rising profits and falling wages. However, the rental rate on capital, and presumably the rate of return on investment, would actually fall.
What you have to imagine, then, is that some factor or combination of factors — a change in the intellectual property regime, the rise of too-big-to-fail financial institutions, a general shift toward winner-take-all markets in which network externalities give first movers a big advantage, etc. — has moved us from something like version I to version II, raising the profit share while actually reducing returns to both capital and labor.
Am I sure that this is the right story? No, of course not. But something is clearly going on, and I don’t think simple capital bias in technology is enough."
http://www.nytimes.com/2013/06/21/opinion/krugman-profits-without-production.html?partner=rssnyt&emc=rss
"One lesson from recent economic troubles has been the usefulness of
history. Just as the crisis was unfolding, the Harvard economists Carmen
Reinhart and Kenneth Rogoff — who unfortunately became famous for their
worst work — published a brilliant book with the sarcastic title “This
Time Is Different.” Their point, of course, was that there is a strong
family resemblance among crises. Indeed, historical parallels — not just
to the 1930s, but to Japan in the 1990s, Britain in the 1920s, and more
— have been vital guides to the present. Yet economies do change over time, and sometimes in fundamental ways. So
what’s really different about America in the 21st century?
The most significant answer, I’d suggest, is the growing importance of
monopoly rents: profits that don’t represent returns on investment, but
instead reflect the value of market dominance. Sometimes that dominance
seems deserved, sometimes not; but, either way, the growing importance
of rents is producing a new disconnect between profits and production
and may be a factor prolonging the slump.
To see what I’m talking about, consider the differences between the
iconic companies of two different eras: General Motors in the 1950s and
1960s, and Apple today.
Obviously, G.M. in its heyday had a lot of market power. Nonetheless,
the company’s value came largely from its productive capacity: it owned
hundreds of factories and employed around 1 percent of the total nonfarm work force.
Apple, by contrast, seems barely tethered to the material world.
Depending on the vagaries of its stock price, it’s either the
highest-valued or the second-highest-valued company in America, but it
employs less than 0.05 percent of our workers. To some extent, that’s
because it has outsourced almost all its production overseas.
But the truth is that the Chinese aren’t making that much money from
Apple sales either. To a large extent, the price you pay for an
iWhatever is disconnected from the cost of producing the gadget. Apple
simply charges what the traffic will bear, and given the strength of its
market position, the traffic will bear a lot.
Again, I’m not making a moral judgment here. You can argue that Apple
earned its special position — although I’m not sure how many would make a
similar claim for Microsoft, which made huge profits for many years,
let alone for the financial industry, which is also marked by a lot of
what look like monopoly rents, and these days accounts for roughly 30
percent of total corporate profits. Anyway, whether corporations deserve
their privileged status or not, the economy is affected, and not in a
good way, when profits increasingly reflect market power rather than
production.
Here’s an example. As many economists have lately been pointing out,
these days the old story about rising inequality, in which it was driven
by a growing premium on skill, has lost whatever relevance it may have
had. Since around 2000, the big story has, instead, been one of a sharp
shift in the distribution of income away from wages in general, and
toward profits. But here’s the puzzle: Since profits are high while
borrowing costs are low, why aren’t we seeing a boom in business
investment? And, no, investment isn’t depressed because President Obama
has hurt the feelings of business leaders or because they’re terrified
by the prospect of universal health insurance.
Well, there’s no puzzle here if rising profits reflect rents, not
returns on investment. A monopolist can, after all, be highly profitable
yet see no good reason to expand its productive capacity. And Apple
again provides a case in point: It is hugely profitable, yet it’s sitting on a giant pile of cash, which it evidently sees no need to reinvest in its business.
Or to put it differently, rising monopoly rents can and arguably have
had the effect of simultaneously depressing both wages and the perceived
return on investment.
You might suspect that this can’t be good for the broader economy, and
you’d be right. If household income and hence household spending is held
down because labor gets an ever-smaller share of national income, while
corporations, despite soaring profits, have little incentive to invest,
you have a recipe for persistently depressed demand. I don’t think this
is the only reason our recovery has been so weak — weak recoveries are
normal after financial crises — but it’s probably a contributory factor.
Just to be clear, nothing I’ve said here makes the lessons of history
irrelevant. In particular, the widening disconnect between profits and
production does nothing to weaken the case for expansionary monetary and
fiscal policy as long as the economy stays depressed. But the economy
is changing, and in future columns I’ll try to say something about what
that means for policy."
5
Opinion
My Abortion, at 23 Weeks
Second-trimester abortions must remain legal because critical information about fetal health is often not available before then.
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U.S.
Statue Unveiled, Douglass Is Hailed for Equality Fight
A great-great-granddaughter of the abolitionist leader Frederick Douglass said that her ancestor believed in freedom and equality for “all of us, regardless of our race, gender, religion or sexual orientation.”
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N.Y. / Region
HUD to Hold Competition to Help Sandy-Ravaged Communities
Rebuild by Design will seek the talents of engineers, architects and designers to create plans for dealing with future disasters.
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N.Y. / Region
De Blasio Offers Ideas in Policy Book for Election
To make the case that he should be elected mayor of New York City, in the 69-page document, Bill de Blasio details proposals in 12 areas while summarizing his record as public advocate.
10
U.S.
House Defeats a Farm Bill With Big Food Stamp Cuts
Opposition by Democrats to the cuts helped lead to the bill’s defeat, which raised questions about financing for the nation’s farm and nutrition programs this year.
11
Business Day
Ending Poverty by Giving the Poor Money
A conversation with Christopher Blattman, co-author of a study of using cash transfers, rather than earmarked donations, to help poor workers improve their lot.
12
U.S.
Audie Murphy, a Texas Hero Still Missing One Medal
Audie Murphy, one of the most decorated soldiers of World War II, has never received the Texas Legislative Medal of Honor from his home state.
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N.Y. / Region
A Deal Spares a Brooklyn Library, for Now
Plans to sell and raze the Pacific branch were canceled as part of City Council approval for a developer to build a tower nearby with a library inside.
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N.Y. / Region
As Archdiocese’s Schools Retrench, Worries Grow for a Building Block for Minority Students
Many blacks and Latinos say they can trace the success they have achieved in their careers to the guidance they received in Catholic schools.
15
U.S.
2 National Parks Fight a Virus Outbreak
Park officials said that 150 employees and 50 guests at Yellowstone and Grand Teton National Parks have contracted norovirus, the highly contagious gastrointestinal illness.
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Business Day
Two Economies in Turmoil, for Different Reasons
Fed officials are convinced they have done enough stimulus, but some critics see evidence in the persistence of high unemployment and low inflation that the Fed should do even more.
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N.Y. / Region
After Sexual Abuse Case, a Hasidic Accuser Is Shunned, Then Indicted
A Hasidic cantor was convicted of sexually abusing a 16-year-old. The man who brought the case to light has now been charged with trying to extort the cantor.
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N.Y. / Region
More Than Just 'Endangered,' a J.F.K. Terminal Is to Be Demolished
The flying saucer-like Pan Am Worldport was named this week to the National Trust for Historic Preservation’s roster of America’s 11 Most Endangered Places, but work has already begun on its destruction.
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Business Day
Global Sell-off Shows Fed Reach Beyond the U.S.
The selling picked up on markets around the world on Thursday, a day after the Fed chairman’s latest comments on the Fed’s plan to wind down the stimulus.International Trade and World Market; Government Bonds; United States Economy; Foreign
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Opinion
Marijuana and Minorities
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5
Business Day
Deal on Bank Secrecy Stalls in Swiss Parliament
Lawmakers said they were open to alternatives, but for now rejected a plan that would allow Swiss banks to share account data with American tax officials.
9
Business Day
Executive at Monsanto Wins Global Food Honor
Robert Fraley of Monsanto shares the prize with two other scientists prominent in the field of genetically modified crops.
10
World
Japanese Nuclear Regulator Announces an Overhaul of Safety Guidelines
The announcement by the country’s nuclear regulator starts a process that could allow some idled reactors to come back online early next year.
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N.Y. / Region
De Blasio Offers Ideas in Policy Book for Election
14
Business Day
Dispute Ends as Chrysler Agrees to Fix Older Jeeps
The automaker and National Highway Traffic Safety Administration resolved their differences, and Chrysler will inspect the cars for possible defects.
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U.S.
Spoils of the Sea Elude Many in an Alaska Antipoverty Plan
A government-backed fishery program meant to help impoverished Alaskans has made some villages haves and others have-nots.
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U.S.
Highway Expansion Encourages More Than Just Driving
An upgrade for U.S. 36, between Denver and Boulder, will pull together a range of options to encourage people to drive less.
1
Opinion
Marijuana and Minorities
Former Representative Patrick J. Kennedy and Kevin A. Sabet argue against legalization of marijuana.
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Business Day
Executive at Monsanto Wins Global Food Honor
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N.Y. / Region
De Blasio Offers Ideas in Policy Book for Election
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