1 Wealth gap seen to slow US economic growth (San Francisco Chronicle) Economists have long argued that a rising wealth gap has complicated the US rebound from the recession. Now, an analysis by the rating agency Standard & Poor’s lends its weight to the argument: The widening gap between the wealthiest Americans and everyone else has made the economy more prone to boom-bust cycles and slowed the 5-year-old recovery from the recession.
Economic disparities appear to be reaching extremes that “need to be watched because they’re damaging to growth,” said Beth Ann Bovino, chief US economist at S&P. The rising concentration of income among the top 1 percent of earners has contributed to S&P’s cutting its growth estimates. In part because of the disparity, it estimates that the economy will grow at a 2.5 percent annual pace in the next decade, down from a forecast five years ago of 2.8 percent.
The S&P report advises against using the tax code to try to narrow the gap. Instead, it suggests that greater access to education would help ease wealth disparities. S&P estimates that the US economy would grow annually by an additional half a percentage point over the next five years, if the average the American worker had completed just one more year of school.
Yet not all economists agree on how much, or even whether, the wealth gap slows growth. Harvard University economist Greg Mankiw wrote in a 2013 paper that “the evidence is that most of the very wealthy get that way by making substantial economic contributions, not by gaming the system.”
2 Britain’s banking sector outlook rated negative (Jill Treanor in The Guardian) Britain’s big banks are exposed to multimillion pound fines and lawsuits that could dent their profits, the rating agency Moody’s has warned, as it downgraded its outlook for the sector because of new rules intended to prevent another taxpayer bailout.
The agency reduced its outlook from stable to negative, because of the uncertainty faced by lenders to banks as a result of new rules on ringfencing high street arms from “casino” investment banking businesses. The new rules will mean taxpayers are less likely to bail out banks in the future.
The ring fences, born out of the independent commission on banking chaired by Sir John Vickers in 2011, need to be in place by 2019, but the HSBC chairman, Douglas Flint, has called on the government to give banks more time to make the changes, which the bank has argued will cost hundreds of millions of pounds a year. Flint said that there was a “growing fatigue” in some of the bank’s operations, where staff were having to work at weekends to implement systems changes, in part caused by the ringfencing rules.
3 Sony gives up on e-readers (BBC) Sony has given up selling its line of Reader devices for e-books after failing to find a big enough market. “We do not have plans to develop a successor Reader model at this time,” the Japanese firm said. The PRS-T3 was the last version made and will exist as long as supplies remain in Europe.
Earlier this year, Sony pulled out of selling e-books and directed its users in the US and Europe to the e-bookstore of rival Kobo. The dominance of Amazon’s range of Kindles and the growing smartphone, tablet and so-called phablet market have made it hard for Sony’s suite of e-readers and rivals like Nook to carve out a niche for themselves. According to The Bookseller, Amazon has around 90% of the dedicated e-reader market in the UK.
Canadian firm Kobo was bought by Japanese e-commerce company Rakuten, which is looking to grow its business globally in a bid to challenge Amazon. The global market in dedicated e-readers peaked in 2011 with 23 million devices sold, but is expected to fall to 10 million by 2017 as phones and tablets eat into the overall market, according to the research consultancy Gartner. Still, the sale of printed books will be outstripped by e-books by 2018, a report by Pricewaterhouse Coopers suggested.
4 India versus the world (Sadanand Dhume in The Wall Street Journal) If a country is known by the company it keeps, then India could scarcely have chosen worse during its showdown last week with the World Trade Organization in Geneva. The new Narendra Modi government’s attempt to reopen negotiations on a global deal to simplify customs procedures agreed to by its predecessor last year found backing only from an axis of economic laggards: Cuba, Bolivia and Venezuela. Most others blamed New Delhi for failing to live up to its commitment to honor an agreement crafted largely at its behest to begin with.
At issue is a so-called trade facilitation agreement concurred to by the WTO’s then 159 members in Bali last December. Under its terms, countries agreed to streamline and standardize customs procedures and improve infrastructure, which some economists say could add $1 trillion to the global economy and create 21 million jobs.
By refusing to sign the deal by the agreed-upon deadline of July 31, India may well have scuppered it for good, and raised questions over the future of the WTO itself. If Narendra Modi deliberately set out to destroy global goodwill for his government among trade negotiators and free-trade supporters, he could scarcely have been more effective.
In the run-up to Bali, India led the charge to link trade facilitation with its concerns about preserving an extensive system of food grain stockpiling. In the end, it settled for a so-called “peace clause,” which kicked the can on an agricultural deal to 2017 while allowing progress on trade facilitation, which had support from rich and poor countries alike. This meant that India and other developing countries would face no challenges for their food stockpiling and farmer subsidies while they negotiated a more permanent solution over four years.