Industrial Insight

CAT slow….

April 22, 2013
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Caterpillar Earnings, Revenue Fall Short; Slashes 2013 Outlook

"Our story right now is mining and it’s really soft around the world. I’m hoping we’re at a floor in mining," Doug Oberhelman, Caterpillar chairman and CEO, said in an interview with CNBC’s "Squawk Box."

"Ore prices are still relatively high. Copper is still relatively high relative to reinvestment. It hasn’t dropped through the floor," he added. "[Gold at] $1,400 an ounce is still a pretty good price in the scheme of things long term, and that allows miners to reinvest. They’re just slowing down big new investments and big new mine openings."

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Fed instability…

April 22, 2013
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Is the Fed’s Medicine Really Poison?

By Caroline Baum Apr 22, 2013 9:12 AM CT

Just think about that for a minute: What the Fed needs to do in order to achieve its macroeconomic objectives will create instability in financial markets. There’s more:

"On the one hand, raising the real interest rate will definitely lead to lower employment and prices. On the other hand, raising the real interest rate may reduce the risk of a financial crisis —- a crisis which could give rise to a much larger fall in employment and prices. Thus, the Committee has to weigh the certainty of a costly deviation from its dual mandate objectives against the benefit of reducing the probability of an even larger deviation from those objectives."

Damned if we do, damned if we don’t. Other Fed officials have warned about froth in asset markets, but none to my knowledge has been as forthright in describing the Fed’s life-saving medicine as systemic poison.

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Schooling doesn’t make us richer, we get more school when we are rich…

April 12, 2013
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Income and schooling

Markus Brückner, Mark Gradstein, 4 April 2013

Countries’ average income per capita is strongly correlated with more schooling. This can be seen both by looking at the relationship between them across countries (Figure 1), and by considering their evolution over time in particular countries. For example, the percentage of the population in the US with at least a college degree rose from around 10% in the early 1960s to almost 30% in the early 2000s, while annual real GDP per capita in the same period grew from under $20,000 to over $40,0001.

These observations suggest several possible interpretations:

  • One, favoured in earlier works, is that human capital generated through schooling spurs economic growth and creates prosperity (see Barro 1991, Barro and Sala-i-Martin 1995, Benhabib and Spiegel 1994, De la Fuente and Domenech 2006, Hanushek and Kimko 2000);
  • An alternative interpretation, suggested by Bils and Klenow (2000), maintains that increased schooling is mainly caused by growth in per capita income.

Our results suggest that a large part of the correlation between national incomes and schooling attainment should be attributed to the causal effect of economic prosperity on the formation of human capital via schooling. While not entirely refuting a reverse causal link, they indicate that it is secondary to the effect of incomes on schooling.

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manufacturing improved productivity is the main cause of job loss …

April 1, 2013
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America’s Trade Muddle

By Robert Samuelson – April 1, 2013

From 1973 to 2010, manufacturing’s proportion of employment fell from 22 percent to 10 percent in Canada; from 37 percent to 21 percent in Germany; from 23 percent to 9 percent in Australia; from 28 percent to 17 percent in Japan; and from 29 percent to 13 percent in France. A report from the Congressional Research Service reaches the same conclusion and adds South Korea and Taiwan to the list of countries with declining factory jobs.

Manufacturing’s story parallels agriculture’s. Improved seeds, mechanization, planting and harvesting techniques enable fewer people to produce more food. Greater productivity lowers relative prices. But for food and manufactured goods, lower prices do not stimulate a corresponding rise in demand. How many refrigerators, after all, do consumers want? (Again, in economics lingo, demand for manufactured goods is "price inelastic," say the two economists. A 10 percent fall in prices does not increase demand 10 percent.) Lower prices for manufactured products frees up money to spend on services — health care, education, travel, apps.

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I'm the executive vice president for a steel casting trade association, the Steel Founders' Society of America. I've got a crazy wife, five crazy children, three crazy people that married into the family, and two crazy fun little grandsons.