The reason is not hard to fathom. Hobbled by severe damage to private and public-sector balance sheets, and with policy interest rates at or near zero, post-bubble economies have been mired in a classic “liquidity trap.” They are more focused on paying down massive debt overhangs built up before the crisis than on assuming new debt and boosting aggregate demand.
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Do Your Students Understand the Material, or Just Memorize and Forget? | Faculty Focus - 0 views
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Shinzo Abe's Monetary-Policy Delusions by Stephen S. Roach - Project Syndicate - 0 views
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The sad case of the American consumer is a classic example of how this plays out. In the years leading up to the crisis, two bubbles – property and credit – fueled a record-high personal-consumption binge. When the bubbles burst, households understandably became fixated on balance-sheet repair – namely, paying down debt and rebuilding personal savings, rather than resuming excessive spending habits.CommentsView/Create comment on this paragraph
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US consumers have pulled back as never before.
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Central banks that buy sovereign debt issued by fiscal authorities offset market-imposed discipline on borrowing costs, effectively subsidizing public-sector profligacy.
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Zombie-like companies were kept on artificial life-support in the false hope that time alone would revive them. It was not until late in the decade, when the banking sector was reorganized and corporate restructuring was encouraged,
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Like Japan, America’s post-bubble healing has been limited – even in the face of the Fed’s outsize liquidity injections. Household debt stood at 112% of income in the third quarter of 2012 – down from record highs in 2006, but still nearly 40 percentage points above the 75% norm of the last three decades of the twentieth century. Similarly, the personal-saving rate, at just 3.5% in the four months ending in November 2012, was less than half the 7.9% average of 1970-99.
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Crisis-torn peripheral European economies still suffer from unsustainable debt loads and serious productivity and competitiveness problems. And a fragmented European banking system remains one of the weakest links in the regional daisy chain.
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That leaves a huge sum of excess liquidity sloshing around in global asset markets. Where it goes, the next crisis is inevitably doomed to follow.
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The Eurozone's Delayed Reckoning by Nouriel Roubini - Project Syndicate - 0 views
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For starters, the European Central Bank’s “outright monetary transactions” program has been incredibly effective: interest-rate spreads for Spain and Italy have fallen by about 250 basis points, even before a single euro has been spent to purchase government bonds.
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The introduction of the European Stability Mechanism (ESM), which provides another €500 billion ($650 billion) to be used to backstop banks and sovereigns, has also helped, as has European leaders’ recognition that a monetary union alone is unstable and incomplete, requiring deeper banking, fiscal, economic, and political integration.
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But, perhaps most important, Germany’s attitude toward the eurozone in general, and Greece in particular, has changed. German officials now understand that, given extensive trade and financial links, a disorderly eurozone hurts not just the periphery but the core.
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GDP continues to shrink,
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Moreover, balkanization of economic activity, banking systems, and public-debt markets continues, as foreign investors flee the eurozone periphery and seek safety in the core.
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Likewise, competitiveness losses have been partly reversed as wages have lagged productivity growth, thus reducing unit labor costs, and some structural reforms are ongoing.
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but countries like Germany, which were over-saving and running external surpluses, have not been forced to adjust by increasing domestic demand, so their trade surpluses have remained large.
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either the eurozone moves toward fuller integration (capped by political union to provide democratic legitimacy to the loss of national sovereignty on banking, fiscal, and economic affairs), or it will undergo disunion, dis-integration, fragmentation, and eventual breakup.
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German leaders fear that the risk-sharing elements of deeper integration
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imply a politically unacceptable transfer union whereby Germany and the core unilaterally and permanently subsidize the periphery.
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Of course, Germany fails to recognize that successful monetary unions like the United States have a full banking union with significant risk-sharing elements, and a fiscal union whereby idiosyncratic shocks to specific states’ output are absorbed by the federal budget. The US is also a large transfer union, in which richer states permanently subsidize the poorer ones.
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These are key features, built into the over-representation of the poorer, smaller, more agricultural, states; as well as in the central institutions.
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But the fundamental crisis of the eurozone has not been resolved, and another year of muddling through could revive these risks in a more virulent form in 2014 and beyond. Unfortunately, the eurozone crisis is likely to remain with us for years to come, sustaining the likelihood of coercive debt restructurings and eurozone exits.
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"The Euro's Latest Reprieve" by Joseph E. Stiglitz | Project Syndicate - 0 views
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Like an inmate on death row, the euro has received another last-minute stay of execution. It will survive a little longer. The markets are celebrating, as they have after each of the four previous “euro crisis” summits – until they come to understand that the fundamental problems have yet to be addressed.
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Europe’s leaders did not recognize this rising danger, which could easily be averted by a common guarantee, which would simultaneously correct the market distortion arising from the differential implicit subsidy.
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Likewise, they now recognize that bailout loans that give the new lender seniority over other creditors worsen the position of private investors, who will simply demand even higher interest rates.CommentsView/Create comment on this paragraph
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It is deeply troubling that it took Europe’s leaders so long to see something so obvious
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What is now proposed is recapitalization of the European Investment Bank, part of a growth package of some $150 billion. But politicians are good at repackaging, and, by some accounts, the new money is a small fraction of that amount, and even that will not get into the system immediately. In short: the remedies – far too little and too late – are based on a misdiagnosis of the problem and flawed economics.
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Eurobonds and a solidarity fund could promote growth and stabilize the interest rates faced by governments in crisis. Lower interest rates, for example, would free up money so that even countries with tight budget constraints could spend more on growth-enhancing investments.
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Even well-managed banking systems would face problems in an economic downturn of Greek and Spanish magnitude; with the collapse of Spain’s real-estate bubble, its banks are even more at risk.
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Europe’s leaders have finally understood that the bootstrap operation by which Europe lends money to the banks to save the sovereigns, and to the sovereigns to save the banks, will not work.
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The euro was flawed from the outset, but it was clear that the consequences would become apparent only in a crisis.
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Workers may leave Ireland or Greece not because their productivity there is lower, but because, by leaving, they can escape the debt burden incurred by their parents.
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Germany worries that, without strict supervision of banks and budgets, it will be left holding the bag for its more profligate neighbors. But that misses the key point: Spain, Ireland, and many other distressed countries ran budget surpluses before the crisis. The down
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turn caused the deficits, not the other way around.CommentsView/Create comment on this paragraph
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If these countries made a mistake, it was only that, like Germany today, they were overly credulous of markets, so they (like the United States and so many others) allowed an asset bubble to grow unchecked.
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Moreover, Germany is on the hook in either case: if the euro or the economies on the periphery collapse, the costs to Germany will be high.
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While structural problems have weakened competitiveness and GDP growth in particular countries, they did not bring about the crisis, and addressing them will not resolve it.CommentsView/Create comment on this paragraph
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One more summit: The crisis rolls on | vox - 0 views
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Reading the official documents from the June 28 summit requires linguistic and divination skills.
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The clearest result is that EFSF/ESM funds can be used directly to support banks.
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The summit attendees seem to have successfully drawn the conclusion that this was necessary from the disastrous impact of their mid-June decision on new lending to Spanish authorities to shore up their banks. Within hours, the main conclusion drawn by the markets was that the Spanish public debt had grown by €100 billion, bringing Spain closer to the fate of Ireland (bad bank debt dragging down a government with an otherwise healthy fiscal position).
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The new agreement suggests that in the future, banks will be bailed out by the collective effort of Eurozone countries.
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First, this arrangement is to be finalised by the end of the year. This means that, in the end, the Spanish debt will rise by €100 billion (the market participants who enthusiastically celebrated the decision by raising the price of Spanish bonds will eventually understand that). Ditto in the not unlikely case that some Italian or French banks wobble before December.
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Second, conditions will be attached to such a rescue. These recommendations could be clever if they require “Swedish-style” bank restructuring whereby shareholders and other major stakeholders are made to absorb first the losses, and if a new clearly untainted management replaces the previous one. Such interventions limit the costs to taxpayers; they can even turn a profit. Of course, the conditions could also be silly, raising the costs to taxpayers to huge levels.
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Third, the arrangement is linked to the establishment of a “single supervisory mechanism involving the ECB”. This could be a single Eurozone supervisor built inside the ECB, which would go a long way to plugging one the worst mistakes in the Maastricht Treaty (lack of a joint regulation and resolution regime for banks).
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But this is not what the official text says, which makes one suspect that policymakers have not agreed to something simple and clean. Most likely, they will keep negotiating and come with the usual 17-headed monster that exhausted diplomats are wont to invent.
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This is important because a contagious banking crisis that hits several large banks would require much more money than is available in the EFSF-EMS facilities.
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Light conditionality, as they requested, is bound to collapse at the foot of the Bundestag, which must approve every single loan.
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There was no knock-out winner in this summit, but on points I’d have to say that the winner is the crisis.
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There was nothing on collapsing Greece, nothing on unsustainable public debts in several countries, and no end in sight to recession in an increasing number of countries.
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Charles Wyplosz
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Economic Statistics Miss the Benefits of Technology - NYTimes.com - 0 views
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“Pretty much every human on earth can access all human knowledge,” said Hal Varian, Google’s chief economist.
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o how to measure the Internet’s contribution to our lives? A few years ago, Austan Goolsbee of the University of Chicago and Peter J. Klenow of Stanford gave it a shot. They estimated that the value consumers gained from the Internet amounted to about 2 percent of their income — an order of magnitude larger than what they spent to go online. Their trick was to measure not only how much money users spent on access but also how much of their leisure time they spent online.
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Earlier this year, Yan Chen, Grace YoungJoo Jeon and Yong-Mi Kim of the University of Michigan published the result of an experiment that found that people who had access to a search engine took 15 minutes less to answer a question than those without online access.
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the consumer surplus from free online services — the value derived by consumers from the experience above what they paid for it — has been growing by $34 billion a year, on average, since 2002. If it were tacked on as “economic output,” it would add about 0.26 of a percentage point to annual G.D.P. growth.
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The consumer surplus from television is about five times as large as that delivered by free stuff online, according to Mr. Brynjolfsson’s calculations.
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As the economist Paul Samuelson once pointed out, if a man married his maid, G.D.P. would decline.
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“We know less about the sources of value in the economy than we did 25 years ago,” wrote Mr. Brynjolfsson and Adam Saunders of the University of British Columbia. If we really want to understand the impact of information technology on our future well-being, we first need to find a consistent way to measure it.
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General Electric Adds to Its 'Industrial Internet' - NYTimes.com - 0 views
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“The rise of industrial big data is moving at twice the speed of other big data. That’s a great opportunity.” said William Ruh, the head of global software at G.E. “There’s all kinds of experiences that we’re going to create.”
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The other is a kind of application software to help power companies figure out how to best build out and operate their turbines. By October, G.E. hopes to have similar applications out for railway, mining, and oil and gas companies.
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Effectively, G.E. is taking the data-driven tools and strategies used by Google and Facebook to the much larger global economy.
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G.E. already manages more than 100 million data-gathering “tags” on its products, and foresees putting out far more than that while also collecting sensor data around the surrounding environment.
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By 2020, GE figures, total spending on the Industrial Internet will be $23 billion. Better management of processes and understanding of systems will yield $1.279 trillion in value, the company said.
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What G.E. does not yet have nailed is just how its new products will be used.
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Cisco Systems is in the middle of an “Internet of Everyhing” strategy that involves selling software and services for a world rich in sensors. This is aimed more at things like traffic and water systems than manufacturing, however.
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Phillips is also offering data-gathering connectivity in both its health care and lighting products, hoping to boost the efficiency of things like a patient’s medication adherence, or tuning lights
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compliment
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“Everybody knows they’ll need this technology, but they don’t know exactly what they’ll do with it yet,”
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Robert J. Shiller attributes Japan's incipient recovery - and weak growth elsewhere - t... - 0 views
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The Global Economy’s Tale Risks
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Fluctuations in the world’s economies are largely due to the stories we hear and tell about them. These popular, emotionally relevant narratives sometimes inspire us to go out and spend, start businesses, build new factories and office buildings, and hire employees; at other times, they put fear in our hearts and impel us to sit tight, save our resources, curtail spending, and reduce risk. They either stimulate our “animal spirits” or muffle them.
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The output gap for the world’s major advanced economies, as calculated by the IMF, remains disappointing, at -3.2% in 2013, which is less than half-way back to normal from 2009, the worst year of the global financial crisis, when the gap was -5.3%.
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Think of the story of the real-estate boom in the United States and other countries in the first half of the 2000’s. This was a story not of a “bubble”; rather, the boom was a triumph of capitalist enterprise in a new millennium.
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These stories were so powerful because a huge number of people were psychologically – and financially – invested in them
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With the abrupt end of the boom in 2006, that ego-boosting story also ended.
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To understand why economic recovery (if not that of the stock market) has remained so weak since 2009, we need to identify which stories have been affecting popular psychology.
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Gaps in Graduates' Skills Confound Morocco - NYTimes.com - 0 views
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“It’s sad to note that the state of education is worse now than it was 20 years ago,
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“How is it that a segment of our youth cannot realize their legitimate aspirations at professional, physical and social levels?”
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They say that their education has left them ill-equipped for the workplace.
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but she is worried that the education she is getting, in a public system that she faults on quality, will not be enough to win her a place in a job market that she says is often skewed by bribery and favoritism.
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“Students do not have an equal chance to succeed,” she said, adding that many parents had gone into debt trying to ensure that their children have some chance for a future by paying for them to study in private schools. “The quality of education all depends on the parents’ income.”
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about one-third of the country’s civil servants work in the sector.
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In his speech he called for mandatory foreign language training in university degree courses and a new emphasis on vocational and technical training.
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In the 1980s, a political decision to reclaim the Moroccan identity resulted in a change in the language of instruction, with elementary and high school classes shifting to Arabic. Most higher education programs, however, remained in French.
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Many critics attribute high dropout rates to this language switch. University students, they say, are struggling to learn in a language they barely understand.
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Mr. Mrabet said other problems included an excessive focus in graduate training on quantity over quality; a failure to adapt courses to workplace opportunities; overcrowded lecture halls; student strikes; and school financing issues.
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Instead of hiring graduates of the Moroccan public education system, recruiters tend to look for graduates educated abroad or the products of Moroccan private schools,
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“Call centers are the biggest employers in Morocco with about 50,000 jobs that generally require good skills in French,” he said. “In some fields, like I.T., it is difficult to find people with the adequate training.”
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How Jean Tirole's Work Helps Explain the Internet Economy - NYTimes.com - 0 views
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How Jean Tirole’s Work Helps Explain the Internet Economy
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He also said that industries should be regulated differently depending on their distinct characteristics.
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Many Internet companies, for instance, give their products away free, which means that antitrust law built on pricing is irrelevant. But a result is they grow so fast that they can quickly become monopolies.
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“He’s helping us think about what is one of the greatest challenges of our time, how to deal with what feel like friendly monopolists,” said Tim Wu, a Columbia Law School professor who studies Internet policy and antitrust. “Amazon, Google and the others give us all this stuff for free or lower prices, so we love them, but are they dangerous in ways we don’t always see?”
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In the 2002 paper with Jean-Charles Rochet, Mr. Tirole defined two-sided markets, or markets that “get both sides on board” by charging more to one set of customers in order to increase demand by others.
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In the tech industry, it explains why Google, Facebook and Twitter offer their services free – the more people who use them, the more advertisers they can attract. Likewise, Amazon lowered the price of its new phone to 99 cents in part because smartphones succeed when they have a lot of apps – and developers won’t want to build apps for Amazon’s phone unless a lot of people are using it.
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For regulators, tech companies have been a riddle in part because they do not follow the behavior of typical monopolies: Many do not charge for their products, and companies that offer entirely different products are nonetheless competitors. For instance, Google’s chairman, Eric Schmidt, argued in a speech on Monday that Google’s biggest competitor in search is Amazon and in mobile is Facebook — even though neither one is a search engine.
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“Inspired by him and others like him, our effort was to try to move beyond the traditional understanding of something like an aluminum cartel who just raised their prices on aluminum and everything got more expensive,” said Mr. Wu, who was a senior adviser to the Federal Trade Commission on antitrust matters.
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For consumers, the costs include absorbing advertisers’ ad spending by paying more for their products, being tracked and shown personalized ads, and giving up privacy.
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our end-users do not internalize the impact of their purchase on the other side of the market.”
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Why Do Americans Stink at Math? - NYTimes.com - 0 views
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Why Do Americans Stink at Math?
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The Americans might have invented the world’s best methods for teaching math to children, but it was difficult to find anyone actually using them.
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In fact, efforts to introduce a better way of teaching math stretch back to the 1800s. The story is the same every time: a big, excited push, followed by mass confusion and then a return to conventional practices.
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Carefully taught, the assignments can help make math more concrete. Students don’t just memorize their times tables and addition facts but also understand how arithmetic works and how to apply it to real-life situations. But in practice, most teachers are unprepared and children are baffled, leaving parents furious.
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On national tests, nearly two-thirds of fourth graders and eighth graders are not proficient in math. More than half of fourth graders taking the 2013 National Assessment of Educational Progress could not accurately read the temperature on a neatly drawn thermometer.
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On the same multiple-choice test, three-quarters of fourth graders could not translate a simple word problem about a girl who sold 15 cups of lemonade on Saturday and twice as many on Sunday into the expression “15 + (2×15).” Even in Massachusetts, one of the country’s highest-performing states, math students are more than two years behind their counterparts in Shanghai.
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A 2012 study comparing 16-to-65-year-olds in 20 countries found that Americans rank in the bottom five in numeracy.
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On a scale of 1 to 5, 29 percent of them scored at Level 1 or below, meaning they could do basic arithmetic but not computations requiring two or more steps.
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One study that examined medical prescriptions gone awry found that 17 percent of errors were caused by math mistakes on the part of doctors or pharmacists.
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“I’m just not a math person,” Lampert says her education students would say with an apologetic shrug.
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In the 1970s and the 1980s, cognitive scientists studied a population known as the unschooled, people with little or no formal education.
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For instance, many of the workers charged with loading quarts and gallons of milk into crates had no more than a sixth-grade education. But they were able to do math, in order to assemble their loads efficiently, that was “equivalent to shifting between different base systems of numbers.”
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Studies of children in Brazil, who helped support their families by roaming the streets selling roasted peanuts and coconuts, showed that the children routinely solved complex problems in their heads to calculate a bill or make change.
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The cognitive-science research suggested a startling cause of Americans’ innumeracy: school.
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The answer-getting strategies may serve them well for a class period of practice problems, but after a week, they forget. And students often can’t figure out how to apply the strategy for a particular problem to new problems.
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In the process, she gave them an opportunity to realize, on their own, why their answers were wrong.
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At most education schools, the professors with the research budgets and deanships have little interest in the science of teaching
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Only when the company held customer focus groups did it become clear why. The Third Pounder presented the American public with a test in fractions. And we failed. Misunderstanding the value of one-third, customers believed they were being overcharged. Why, they asked the researchers, should they pay the same amount for a third of a pound of meat as they did for a quarter-pound of meat at McDonald’s. The “4” in “¼,” larger than the “3” in “⅓,” led them astray.
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Some of the failure could be explained by active resistance.
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A year after he got to Chicago, he went to a one-day conference of teachers and mathematicians and was perplexed by the fact that the gathering occurred only twice a year.
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More distressing to Takahashi was that American teachers had almost no opportunities to watch one another teach.
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In Japan, teachers had always depended on jugyokenkyu, which translates literally as “lesson study,” a set of practices that Japanese teachers use to hone their craft. A teacher first plans lessons, then teaches in front of an audience of students and other teachers along with at least one university observer. Then the observers talk with the teacher about what has just taken place. Each public lesson poses a hypothesis, a new idea about how to help children learn.
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The research showed that Japanese students initiated the method for solving a problem in 40 percent of the lessons; Americans initiated 9 percent of the time.
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Similarly, 96 percent of American students’ work fell into the category of “practice,” while Japanese students spent only 41 percent of their time practicing.
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Finland, meanwhile, made the shift by carving out time for teachers to spend learning. There, as in Japan, teachers teach for 600 or fewer hours each school year, leaving them ample time to prepare, revise and learn. By contrast, American teachers spend nearly 1,100 hours with little feedback.
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“Sit on a stone for three years to accomplish anything.”
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In one experiment in which more than 200 American teachers took part in lesson study, student achievement rose, as did teachers’ math knowledge — two rare accomplishments.
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Examining nearly 3,000 teachers in six school districts, the Bill & Melinda Gates Foundation recently found that nearly two-thirds scored less than “proficient” in the areas of “intellectual challenge” and “classroom discourse.”
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The third great wave | The Economist - 0 views
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The third great wave
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A third great wave of invention and economic disruption, set off by advances in computing and information and communication technology (ICT) in the late 20th century, promises to deliver a similar mixture of social stress and economic transformation
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Powerful, ubiquitous computing was made possible by the development of the integrated circuit in the 1950s
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Evidence of this is all around. Until recently machines have found it difficult to “understand” written or spoken language, or to deal with complex visual images, but now they seem to be getting to grips with such things.
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concluded that 47% of employment in America is at high risk of being automated away over the next decade or two.
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Now technology is empowering talented individuals as never before and opening up yawning gaps between the earnings of the skilled and the unskilled, capital-owners and labour.
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The effect of technological change on trade is also changing the basis of tried-and-true methods of economic development in poorer economies.
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The Insourcing Boom - Charles Fishman - The Atlantic - 0 views
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The magic is in that head: GE has put a small heat pump up there, and the GeoSpring pulls ambient heat from the air to help heat water. As a result, the GeoSpring uses some 60 percent less electricity than a typical water heater. (You can also control it using your iPhone.)
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The GeoSpring is an innovative product in a mature category
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We really had zero communications into the assembly line there.”
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The team eliminated 1 out of every 5 parts. It cut the cost of the materials by 25 percent.
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the team cut the work hours necessary to assemble the water heater from 10 hours in China to two hours in Louisville.
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Time-to-market has also improved, greatly.
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four weeks on the boat from China and one week dockside to clear customs.
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Total time from factory to warehouse: 30 minutes.
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there is an inherent understanding that moves out when you move the manufacturing out. And you never get it back.”
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At the end of the day, they say, ‘If we were doing this for the U.S. market, we should never have gone to China in the first place.’ ”
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But the logic of onshoring today goes even further—and is driven, in part, by the newfound impatience of the product cycle itself.
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Just a few years ago, the design of a new range or refrigerator was assumed to last seven years. Now, says Lou Lenzi, GE’s managers figure no model will be good for more than two or three years.
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Products that once seemed mature—from stoves to greeting cards—are being reinvigorated with cheap computing technology.
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The Economist explains: How countries calculate their GDP | The Economist - 0 views
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How countries calculate their GDP
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Simon Kuznets, a Russian emigrant to America, is credited with creating the first true GDP estimate, for delivery to America’s Congress in 1934
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Output can be measured in three (theoretically equivalent) ways: by adding up all the money spent each year, by adding up all the money earned each year, or by adding up all the value added each year. Some economies, including Britain, combine all three methods into a single GDP figure, whereas others, like America, produce different statistics for each.
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merica’s Bureau of Economic Analysis draws data from surveys of manufacturers, builders and retailers, as well as from trade and financial flows, among other sources. These data are used to estimate the components of GDP, such as total investment and net exports
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Real, or inflation-adjusted, GDP is needed to compare figures across time periods, while GDP per person is best for understanding how individual incomes are evolving.
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Blueprints for Taming the Climate Crisis - NYTimes.com - 0 views
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Blueprints for Taming the Climate Crisis
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Within about 15 years every new car sold in the United States will be electric. In fact, by midcentury more than half of the American economy will run on electricity. Up to 60 percent of power might come from nuclear sources. And coal’s footprint will shrink drastically, perhaps even disappear from the power supply.
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“This will require a heroic cooperative effort,” said Jeffrey D. Sachs, the Columbia University economist who directs the Sustainable Development Solutions Network at the United Nations,
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The teams, one in each of the 15 countries, looked at what would be necessary to keep the atmosphere from warming more than 2 degrees Celsius, 3.6 degrees Fahrenheit, above the preindustrial average of the late 19th century, a target that most of the world committed to at the climate summit meeting in Copenhagen five years ago.
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To do so, CO2 emissions from industry and energy use would have to fall to at most 1.6 tons a year for every person on the planet by midcentury.
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That is less than a tenth of annual American emissions per person today and less than a third of the world average
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Lacking any understanding of the feasibility of the exercise, governments postured and jockeyed over which country should be responsible for what
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This is not achievable by going after low-hanging fruit, such as replacing coal with natural gas in power plants.
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The decarbonization paths rely on aggressive assumptions about our ability to deploy new technologies on a commercial scale economically.
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Russia, for instance, hit the target. But Oleg Lugovoy of the Environmental Defense Fund, who worked on the Russian plan, observed that “if we don’t have carbon capture and storage we would have to reconsider.”
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it does not do away with the main hitch that has stumped progress for decades: How much will this all cost and who will pay for it?
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Dani Rodrik on the promise and peril of social-science models. - Project Syndicate - 0 views
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We have neither the mental capacity nor the understanding to decipher the full web of cause-and-effect relations in our social existence. So our daily behavior and reactions must be based on incomplete, and occasionally misleading, mental models.
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Social scientists – and economists in particular – analyze the world using simple conceptual frameworks that they call “models.”
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Useful social-science models are invariably simplifications. They leave out many details to focus on the most relevant aspect of a specific context.
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But, as inevitable as simplification is for explanation, it is also a trap
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Unfortunately, economists and other social scientists get virtually no training in how to choose among alternative models. Neither is such an aptitude professionally rewarded. Developing new theories and empirical tests is regarded as science, while the exercise of good judgment is clearly a craft.
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The philosopher Isaiah Berlin famously distinguished between two styles of thinking, which he identified with the hedgehog and the fox. The hedgehog is captivated by a single big idea, which he applies unremittingly. The fox, by contrast, lacks a grand vision and holds many different views about the world – some of them even contradictory.