2.What is the relative importance of within-country inequality and between-country inequality in explaining total world income inequality? Compared with within-country inequality, between-country inequality plays an important role in the income inequality among the world. According to the graph showing inequality from 1820 to 1990, it is evident that inequality between countries is a major source of income inequality. What's more, inequality between countries is increasing while inequality within acountry is constant and slightly decreasing. Many factors can be taken into consideration to account for the phenomenon. Between-country inequality is caused by institutions、technology、capitalaccumulation、educational leveland cultures. According to Solow‘s Growth Model, developing countries have a catch-up effect to decrease the inequality with developed countries. However, different institutions between developed countries and developing contries hinder the convergence of economics, andthe great difference of technology result in a great advantage of developed countries over developing countries, which leads to higher marginal productivity of developed countries over developing countries and increases the inequality. As for within-country inequality, the same institution、technology and culture make the growth pattern within a country more likely to correspond to Solow's Growth Model, causing the catch-up effect to achieve and decrease the inequality. For example, the gap between West Germany and East Germanyis becoming smallsincetheir unification.
March Spending Driven By Surge In Services The latest personal income and expenditure report for March was of particularly interesting reading. However, as opposed to the mainstream headlines that immediately reported that despite higher payroll taxes consumers were still spending, and therefore a sign of a strong economy, it was where they were spending that was most telling. As I searched the various headlines, and read several of the economic releases, I came across only one analysis that questioned the headline report. Tyler Durden at Zero Hedge: "Despite expectations that following several months of subpar income growth offset by rampaging spending and thus a plunging savings rate, March incomes would rise by 0.4%, while spending would be flat, this did not happen, and instead both spending and incomes rose by the same amount, or 0.2% in the past month. Worse, when adjusting for inflation, real disposable income rose just 1.1% compared to last March, and just barely above the 0% breakeven. On the other side, real spending was up 2.2% Y/Y just barely above the 2% recessionary threshold. And even that number is misleading as spending on Total Goods (including durable, already known as being quite abysmal, and non-durable), dropped by $32.8 billion in nominal dollars. What was the offset? Why a massive surge in consumption expenditures on services, which rose by $53.8 billion, which absent the spending aberration for September 11, 2001, which was reversed in the following month, was the biggest monthly increase on record! What drove this record services spending spree is anyone's guess." Tyler is correct and the chart of the monthly dollar change in services spending shows it to be the largest single monthly increase since January 2002. However, we don't have to "guess" at where the dollars were spent - all we have to do is dig down into the report. In the month of March, as noted above, the increase in services related spending offset the decline in both durable and non-durable goods spending. The chart below shows PCE, and its major subcomponents, on a net dollar and net percentage change from February to March. Of course, as Tyler correctly questioned, where were the dollars on "services" actually spent. For clarification the category of "services" comprises any item that is immediately consumed. This category covers everything from housing to financial services to food to transportation. The next chart below shows the major sub-categories of the "services" component of overall PCE. As you can see consumers spent almost 50% of their money on housing and utilities in March. The stuff that we produce, which has the largest multiplier in the economy, declined which speaks to the weakness seen in all of the recent manufacturing reports. However, if we dig down into the services sector, we can quickly find the reason that consumers are spending less on manufactured goods as their utility costs jumped sharply in March as several cold fronts ran accross the nation. The chart below shows the total increase in services consumption in March, the total spent on household utilities and the total of household utilities spent on electricity and gas. However, as we analyze the services sector spending in more detail, there are some other very interesting data points as it relates to the consumer. The chart below shows the various subcomponents of the services category that had the biggest net percentage change in March. What immediately jumps out is the decrease in bank and securities related fees. With the market surging to all-time highs, and the media chastising individuals for not chasing the markets, you would expect to see these figures rising. Alas, that is not the case and more of individuals disposable income is being diverted into not only utilities, but also public transportation, clothing repair, internet access, personal care labor union dues and employment agencies. The ongoing theme seems to be job hunting. With incomes not rising fast enough to offset real inflation, and more individuals having ever tougher times making ends meet, it appears that they are beginning to clean themselves up and go looking for additional work. Of course, when you aren't looking for work, and need to fill some time, it appears that the onset of spring, is drawing individuals into movie theaters and sporting arenas - including casinos. As a side note - it is mildly amusing is the casino gambling is up while commissions for the largest casino on the planet, the stock market, are down. Maybe individuals are catching on that they have a better chance of winning in Vegas. However, the bottom line is that if you want to know where individuals are spending the bulk of their money in the most recent month - 73% of the money spent on "services" fell into four major categories. The personal income and spending report does little to brighten the economic picture. As we have been discussing over the past couple of weeks, see here and here , the economy clearly peaked in 2011 and has been slowing since. Despite the Fed's inflation of asset prices - there is little translation into the real economy. As we discussed i n this past weekend's newsletter the disconnect between the economy, and the markets, continues to widen due to liquidity driven interventions, the suppression of interest rates and the Central Bank's direct purchases of equities. The reality is that we now live in a world where "freely traded markets" are an anachronism and fundamental rules simply no longer apply. However, the problem is that such actions continually lead to asset bubbles, and eventual busts, that not only impact economic stability but destroy the financial stability of families. The risk is not lost on the Federal Reserve as Minneapolis Fed President Kocherlakota recently stated: "Unusually low real interest rates should be expected to be linked with inflated asset prices, high asset return volatility and heightened merger activity. All of these financial market outcomes are often interpreted as signifying financial market instability... may only be able to achieve its macroeconomic objectives in association with signs of instability in financial markets. These financial market phenomena could pose macroeconomic risks." In other words the only way for the Fed to achieve its goals of inflating the economy is to create an asset bubble. Of course, the insanity is that once the goals are achieved the asset bubble busts and then the process must be started all over again. Of course, through the long course of the Federal Reserve's ongoing interventions into the economy they have never witnessed an asset bubble before it burst and they are unlikely to do so this time either. The consumer is clearly delivering a message about the state of the real economy. Eventually, the disconnect between the economy and the markets will merge. Unfortunately, there is no historical evidence of such reversions being a positive event. Average: 4.142855 Your rating: None Average: 4.1 ( 7 votes)
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