Eq: Total Market
In order to meet the ambitious new emissions targets put forward by President Obama last week, a number of states, including Washington state and Pennsylvania, are considering adding their own carbon trading schemes. States each have to meet their own emissions targets, which is an impetus to develop their own specific schemes. Scientists consider CO2 emissions to be a principal contributor to global warming, but pricing the gas at the national level has proved difficult and divisive politically. So far, programs have been designed in a “cap and trade” fashion, where companies receive emissions permits from governments and can then buy and sell them according to their needs. State governments can save over a $1 bn in compliance if they band together to implement new schemes, though the political will to do so remains questionable. The Obama administration believes that a market-based solution remains the best way for states to meet their individual emissions targets.
FINSUM: The impact of Obama’s bold move on emissions is now being felt across the country as states scurry to meet the proposed standards. A state-by-state market system seems like it will prove costly and inefficient in the long-run.
The FT’s senior columnist Martin Wolf has published a thorough and engaging study of the Mexican economy and relates it challenges and opportunities. He explains that Mexico has suffered from a “productivity puzzle” where large business’ productivity has grown considerably while smaller firms’ productivity has dropped at the same time as their share of the economy has grown. Basing his arguments on a McKinsey study, Wolf also believes part of the issue is that Mexico has an “extraordinarily small” corporate credit market, with SME’s suffering from an estimated $60 bn credit shortfall. Wolf also believes the country’s formal sector needs to be opened to more competition and less regulation at the same time as the informal sector needs more regulation and monitoring. This difficult policy need is left to reformist President Pena-Nieto, who is in the midst of a strong push to overhaul Mexico’s economy through the denationalisation of the oil industry and reforms of the tax, education, and labour systems.
FINSUM: This is a great article for understanding the past, present, and future of Mexico. The country has a real opportunity to grow given the soaring wages in China, and now it need to navigate that opportunity correctly.
In what is quickly growing into a humanitarian crisis, the United States has seen rates of child immigrants surge this year to upwards of 47,000. Child immigrants, in this case primarily from Central America, are immigrants who cross the national border unaccompanied. The US government has taken these children in and is caring for them during investigations of their cases in a number of centres across the southwest, but the situation is growing much worse, as cases have doubled over the last year. All told, the program for caring for the children will cost the government upwards of $2 bn. Worse yet, the condition of the care centres is said to be deplorable, with children sleeping in plastic containers and not bathing for ten days at a time. Children from Mexico are usually sent directly back to their home country, but when they are from Guatemala, Honduras, or El Salvador, as most of this year’s immigrant children are, they become wards of the state, and the responsibility of the Department of Health and Human Services. The White House has said the rise in immigration might be due to a false rumour that immigrant children have special rights which would allow them to stay.
FINSUM: This is a deplorable situation all around, especially for the vulnerable children, and it puts added pressure for the US to reform its immigration system.
A major new trend is underway in the online market—rising costs of basic internet access are likely to cause a strong drop in consumer spending on digital content, like music, movies, and TV. The conclusion is from an important new report, published by PwC, which highlights how this trend has partly inspired the recent deal-making wave in the telecom sector, and will cause disturbance to digital content providers. Digital content providers will find it ever harder to charge for content, and in order to survive, they are likely to have to adopt different models, such as a revenue-from-advertising model, or more B2B sales. Companies will also have to negotiate their fee structures, as some consumers prefer fixed monthly payments while others like to buy products and services piecemeal. The report also shows how digital advertising is set to grow strongly, with up to a third of all ad revenue occurring digitally by 2018, versus 13% in 2009, and 25% in 2013.
FINSUM: This is quite an important report for anyone interested in the telecom and digital media sectors. It seems as though the industry is going to be reshaped by rising access costs, which is likely to further lower the cost of content.
After months of dominating the political scene in Seattle, the city has formally approved the gradual introduction of the US’ highest minimum wage at $15 per hour. The wage will be the highest in the country by almost 50%, and will be introduced over the next three to seven years, depending on firm size. Smaller firms will have the most time to integrate the new wage. While many are happy about the increased pay, especially those in the service sector, many are extremely upset about its implications for local business. Local employers, such as restaurants, have said they are likely to have to shed staff and cut back service hours, as the steep rise in pay will crimp their budgets. Other groups, like the International Franchise Association, a group of united franchise owners, are playing to sue in order to stop the introduction of the wage. The city hopes the new wage will set a precedent across the country and help narrow the gap between rich and poor.
FINSUM: While this is certainly a bold measure to narrow wage inequality, it might prove counterproductive in light of 21st century globalism. The reality of the modern age is that if businesses do not like labour conditions, they will simply move elsewhere and the city will be the worse for it. Nations, states, and cities no longer have the bargaining power they once did because of free trade policies and open borders.
The Financial Times has run an analysis piece that discusses the paradoxical flow of the US’ economic recovery and makes sense of it in terms of socio-economic stratification. The article argues that signals from the stock and bond markets are both correct—corporate profits will continue to do well despite the low inflation environment indicated by bonds—but that the economy as a whole is being dragged down by shrinking real incomes in the middle. Corporate profits at the top and bottom of the economic ladder have both done well, such as high-end retailers and discount stores, but those aiming to service the middle, like Sears and Walmart, have performed terribly. Likewise, in the housing market, the top 1% of properties have seen sales rise 21% this year (and 35% last year), while bottom 99% homes have seen sales drop 7.6%. The central thesis of the argument is that when a larger portion of profits end up in a lower number of hands then less, in aggregate, will be spent back in the economy. Median middle class incomes, at $53,000, are 7.6% lower in real terms than they were in 2008.
FINSUM: This is a great piece to help one conceptualise what has become a complex and confusing economic picture emerging out of the US. The country seems to be experiencing lopsided growth.