Fareed Zakaria GPS – CNN 08-04-13

Salient to Investors:

Author Mark Leibovich writes:

  • Washington works extremely well for its most important citizens, the lobbyists.  Money has trumped power as the ultimate currency.
  • Atlantic magazine reported in 1974 that only 3 percent of retiring members of Congress became lobbyists. Today, that number is 42 percent for members of the House and 50 percent for senators.
  •  Lobbyists hold the keys to what everyone in government is secretly searching for; a post- government source of income.

Lawrence Lessig at Harvard says Congressmen spend 3 of every 5 workdays raising money and vote with extreme attention to their donors’ interests, whose returns on their “investment” would make a venture capital firm proud.

Historian Ramsay MacMullen said the greatest empire in the history of the world, the Roman, collapsed in the fifth century due to political corruption.

Fareed Zakaria said:

  • Bills today are huge documents filled with thousands of giveaways. The act that created the Fed in 1913 was only 31 pages long, the 1933 Glass-Steagall legislation was only 37 pages long. Contrast the 2010 Dodd-Frank bill of 849 pages plus thousands of additional pages of rules, the Affordable Care Act with more than 2,000 pages.
  • American mobility has declined. A person born in Detroit in the bottom fifth of the income levels has a 5 percent chance of making to the top 5th versus twice that if born in San Diego.
  • It is easier to move up in the UK than it is in the US. Northern Europe does amazingly well, particularly Scandinavia where they have a very large middle class, where there is less inequality. The big difference between the US and northern Europe is if you are a poor kid in America, by the time you are 6 or 7, you have had a very tough time with nutritional issues, daycare and early childhood education, and the brain is almost permanently disadvantaged.
  • Britain’s very class-ridden society is less so.  Canada does better than the US and it too is diverse and has lots of immigrants and big cities.
  • The one study on Head Start was a flawed study.

Raj Chetty at Harvard said:

  • There is a great deal of variation within the US in rates of upward income mobility. Places like Pittsburgh or San Diego or San Francisco have high odds of moving from the bottom of the income distribution to the top. Other places like Atlanta or Charlotte or Indianapolis have much lower odds.
  • Differences in school quality or degree of income inequality or segregation in a city or things like the number of 2-parent families in an area are all correlated with upward mobility. E.g. Atlanta, where the odds of moving up are low. It comes back to early childhood education or school quality more generally, things related to segregation or the degree of inequality.
  • The amount of income accruing to the top 1 percent of the income distribution is not highly correlated with levels of upward mobility in an area. But the gap in incomes between the 25th and 75th percentile – the middle class – is very highly correlated with rates of upward mobility.
  • There are places within the US that have mobility rates comparable to Denmark and Canada,

Jeffrey Sachs at Columbia’s Earth Institute said:

  • The crisis at the bottom and soaring wealth at the top is a real problem for America in places with very low social and income mobility. The labor market has just disappeared in Detroit and its school system is in deep crisis.
  • Northern Europe has social democracy and pays almost half of their national income in taxes – versus 30 percent in the US – and which they use to support families under the pressures of poverty, to support early childhood development, daycare for poor families.
  • Where there are high concentrations of African-Americans, white populations don’t vote for school funding. They don’t vote for public goods.
  • The very obvious and direct reason for the variation of upward income mobility is an absolutely poor environment for public services, for early childhood development, and quality of schools.

Journalist Megan McArdle said:

  • Places with good public education, good public transport are correlated with doing well.
  • It is not fair to say blue America is doing better at this than red America, as David Leonhardt of the New York Times contends. Salt Lake City with its high Mormon population and Mormon Church is extremely good: they have their own private welfare system, are extremely good at investing in people.
  • A lot of cultural capital that used to be more widely distributed is getting segregated, as men cannot make enough to support a family and so are detached from their families.

Scott Winship at Brookings said:

  • There is no relationship between the amount of mobility that the people in the local area have and how much income is received by the top 1 percent. Areas with high levels of income equality do not necessarily have low levels of income mobility – the poor have chances to move ahead.
  • Countries with more inequality do not tend to have lower mobility. We don’t really know why countries differ in terms of their mobility rates. Miles Corak at the University of Ottawa found that Canada has more family leave, more generous policies for parents when kids are born, than the US. But Canada has very different demographics than the US. The US has a lot more teen childbearing, entrenched poverty, segregation of our poor population.

Fareed Zakaria said in Saudi Arabia, 1 out of 3 people is a foreigner, 2 out of 3 people with jobs are foreigners, and in the private sector, 9 out of 10 people who hold jobs are non-Saudi.

Author Karen Elliott House said:

  • Saudi Arabia is as equally stagnant as the old Soviet Union in its dying decade.
  • Saudis are finding a voice, and understand the myth – like the communist myth – that they are better off than everyone else is not true.
  • Saudi Arabia is not absolutely done for, but three things are very different from the past. First, Saudis know what’s going on in the world in a way they never did and so the divisions in society are greater. Second, information is greater. Third, the royal family is running out and will have to make a generational change. Many worry that some of the hundreds of the grandsons will wind up fighting with each other.
  • Many young Saudis have nothing to do and unhappy because they feel they should have a better life. They believe the oil wealth belongs to the country, not the royal family. They don’t really want to work any harder, but they want more.

Author Thomas Lippman said Saudi Arabia’s economic history is built upside down. They got rich overnight but have not grasped the fact that in the private sector employers want to hire as few people as possible.

The UN’s FAO says raising animals for food takes up 30 percent of the planet’s land mass and more than 8 percent of global human water. Global demand for meat is expected to double in the next 40 years.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1308/04/fzgps.01.html

U.S. Stocks Advance Amid Better-Than-Estimated Reports – Bloomberg 02-26-13

Salient to Investors:

Brad Sorensen at Charles Schwab said the economic numbers are holding up really well, and housing rebounding will continue, feeding into consumer confidence.

74 percent of S&P 500 companies so far reporting quarterly results have beat estimates. The index is at 14.8 times reported earnings versus the average since 1954 of 16.4.

Jonathan Golub at UBS said retail sales are rising fast enough to dismiss the effects of tax-law changes and gas price increases on consumer spending. Golub says the general trend is healthy despite the end of a payroll-tax break, a delay in income-tax refunds and higher gas prices, and recommends makers of food, beverages and other staples, and companies most dependent on consumers’ discretionary spending.

David Bianco at Deutsche Bank reaffirmed underweight ratings on staples companies and retailers due to the continuing struggle of low to middle-income households to make ends meet.

Read the full article at http://www.bloomberg.com/news/2013-02-26/u-s-stock-futures-advance-before-house-sales-report.html

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