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Equity markets in Europe and the U.S. are likely to see some of the 62 trillion yen, or $630 billion, which the Bank of Japan plans to add to holdings of banks and households in two years 2013-2014. A senior advisor to Deutsche Bank, Thomas Mayer, says equities of Germany, France and Britain are likey to see interest from Japanese investors, as are bonds and equities of the U.S. Japanese companies such as Toyota and consumer product companies such as Sony and Panasonic will now be able to better compete on price against their S. Korean, American and European competitors.

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Jerry Muller, professor of history at the Catholic University of America, offers some useful insights into the nature of inequality in advanced capitalist societies and other parts of the world, and a clear eyed way to tackle the problem of inequality. Tackling the problem should be done in a way that preserves the economic protections for the middle class and the poor which are needed for capitalism to work- unemployment insurance, Medicare, Medicaid, Social Security, Earned Income Credit, and the Affordable Care Act. Much of this system is already in place in advanced capitalist societies. Incremental gains in this area will be much smaller and it is important to recognize the need for strengthening the economic engine that supports these benefits, says Muller. Economic dynamism has to be preserved and nurtured with human capital deployed in the best possible way, and competitiveness of countries increased. Each country and society has to find its own way of achieving this. The family matters, and matters a lot in taking advantage of educational opportunity, says Muller. The culture of different ethnic, immigrant groups, also matter. These differences were present in earlier periods in the nineteenth and twentieth century and are likely to remain. Strengthening the pool of human capital and deploying it is essential to progress. In an earlier book "Adam Smith In His Time and Ours- Designing a Decent Society," Muller emphasized the importance Smith placed on the civic duty of citizens to promote the welfare of the whole society, and the importance of education, family and moral character, with no substitute for the "general prevalence of wisdom and virtue." ...

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The WSJ's Kimberley Strassel says a Republican winning the White House in 2016 depends on how well the party appeals to white working class voters and the struggling middle class living from paycheck to paycheck. She says Speaker Paul Ryan is taking the right step in coming up with the idea of the Kemp Forum on Expanding Opportunity event in January 2016. Presidential candidates attending the forum are Jeb Bush, Marco Rubio, Chris Christie, John Kasich. Not attending are Ted Cruz and Donald Trump who are getting support from voters who are discouraged by establishment policies. Strassel says upward mobility for the midddle and working class is emerging as the No. 1 issue in the election, especially with Hillary Clinton leading the Democrats.

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France's central bank chief Christian Noyer, says public spending to create jobs has the drawback of creating yesterday's jobs, but lasting job creation has to look at today and the future for effective job creation. Once government spending crosses a certain level, about 55% of GDP, a level France has crossed, further spending becomes counterproductive, reducing public confidence in the economy, as higher future taxes are anticipated canceling any benefits.

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Krugman points out that the federal tax rate for the top 1% is 34% in 2013, according to the Congressional Budget Office, because president Obama let the high end Bush tax cuts to expire. It is the number to remember says Krugman- 34. In 2008 the figure was 28.2. Under Hillary Clinton the average tax rate for the top 1% would go up by 3.4 percentage points, according to the Tax Policy Center. Some of this would help pay for the tution plan to provide access to the middle class to public universities. Under populist Trump, Krugman points to the elimination of the inheritance tax and tax rates going down substantially, and no such programs to promote the upward mobility that everyone is talking about, and no way to pay for a big infrastructure building effort for growth and jobs- upward mobility that is the focus of every candidate's election campaign including Sanders, Trump in appealing to older white working class families, Clinton, Ryan, Bush, and others in both parties.   ...

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The caretaker government of prime minister Mark Rutte in the Netherlands will commit to following austerity plans in its Stability Program report to the European Union. Elections are now set for September 12, 2012. The government was able to get the support of two smaller left-leaning parties to austerity plans. Opposition parties have questioned the policies and said they will reverse them if elected. Rutte's Liberal party and Jaeger's Christian Democrats, with the help of the Christenunie, D66, and Groenlinks, now hold a slim 2 seat majority in the 150 seat Dutch parliament. The Freedom party that had previously supported Rutte withdrew support for austerity policies that it said would hurt pensioners. The moves help avert a credit ratings drop by the credit ratings agencies leading to a loss of the Dutch triple A credit rating. The measures will increase the sales tax from 19% to 21%, make health care spending cuts and impose a pay freeze on civil servants. Savings achieved will be 11 billion euros. Rutte described his actions as: "the government's respose to the acute crisis in confidence in the financial markets." Earlier in the week Fitch Ratings had threatened to lower the Netherlands credit rating. The measures will reduce the Dutch deficit to 3% in 2013 from 4.5% in 2012 to meet EU fiscal compact rules. The changes to the health system are part of changes advocated by the OECD and the IMF because of surging health care costs for an aging Dutch population. There is concern about the sales tax increase because of its effect on consumer spending, and recent comments by S&P managing directors and others in financial markets emphasize the need for economic growth, as austerity measures by itself are inadequate solutions....

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Shiller says policy is captured and communicated by metaphors, the most effective being belt tightening for a family. However what works for a family does not work for a country in the same way, especially if not accompanied by other measures and implemented in a strict manner without looking at the real situation. Better suggests Shiller, and more real is the metaphor of "winter on the family farm," where people work to do other chores than planting and harvesting, because a lot of other things need to be done and this is a good time to do it. This would include cleaning up the place, fixing the farm and the barn, fixing machinery, building fences. The farm's members pay a tax in terms of donated labor which goes to do all the work needed and helps the farm's productiveness as the weather changes. Similiarly the Salant-Paul Samuelson balanced budget theorem from the FDR days shows an increase in national output by the amount of a tax, such as the one proposed in France by president Hollande; that would then be invested in hiring more teachers (the labor) and investing in education infrastructure....

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According to the General Accountability Office inquiry, 28 drug products had price increases over 100% in 2000, in 2008 71 drug products had such large increases. Medicines like Adderall for attention deficit disorder, Inderal for chest pain, Sumycin for infections were in the list of 416 brand name drug products where makers or distributors raised prices at least once by 100% or more for period 2000-2008. As large pharmaceutical companies sold their marginally profitable drug products or small selling products to smaller companies, these smaller companies would immediately increase prices to recover the money they paid to the large pharmaceutical companies. 26 of the brand name products saw prices raised 10 fold. A third of the drugs with large price increases treat depression and disorders of the central nervous system.

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Are high prices for pharmaceutical products and healthcare services putting a severe burden on U.S. finances and defunding education, infrastructure, R&D in new technologies, which provide the underpinnings for future U.S. competitiveness? Yes say experts. In 2009 Americans per person cost of healthcare was $7,960. By comparison Canada was $4,808, Germany $4,218, and France $3,978. And without necessary efforts for educating people about caring for health and preventive care, the health conditions of Americans are no better than these countries, and poorer in some dimensions. Klein says deficits would not be a problem for the U.S. if prices for pharmaceutical products and healthcare services in the U.S. were similiar to that of the largest developing countries. Experts say the Obama healthcare law simply postponed the addressing of this problem.

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Elizabeth Rosenthal looks at Obamacare's contribution to cost containment in 2013-2014. Rosenthal says its is a kind of delicate maneuvring at the edges, because serious work needs to be done. The fee-for-service and many of the drivers for increases in medical costs, the old system of pricing, are still in place. In 20 years at the current rate and after Obamacare health care will still take 25% of the U.S. budget if nothing is done. Healthcare costs are about half that of the U.S. in some of the advanced European countries. She calls Obamacare a trickle down theory of cost containment becaue it leaves most of the drivers for cost increase in place and works at the margins. Princeton economist Uwe Reinhardt calls it an ugly patch on a somewhat ugly system. Rosenthal cites the armies of consultants anticipating every move to reduce prices, and working on "strategic billing'' to increase revenues for hospitals and doctors. For those who say the prices are now up more slowly than in the past, Michael Chernew of the Harvard Medical School, has this to say- its like a diet, reminding us that that we haven't even lost weight, just gaining weight slower than before. ...

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J.P. Morgan Chase announces $2 billion in trading losses in May 2012. The Chief Investment Office unit made a bet with a trading strategy that CEO Jamie Dimon said had grown very complex. These losses could grow or shrink during the rest of the year.

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The IMF's managing director, Christine Lagarde, pointed to the urgent need to recapitalize European banks in September 2011. European banks face potential losses of 120 billion euros for Belgium, Spain and Italy, 60 billion euros for Greece, 20 billion euros for Ireland and Portugal, and 100 billion euros for other banking exposure, for a total of 300 billion euros, according to the International Monetary Fund. In the absence of recapitalization there could be further damage to EU economies from restricted lending by banks. IMF estimates show that deteriorating credit conditions could damage growth in the eurozone countries by 3.5 percentage points, and in the U.S. by 2.2 percentage points, creating another recession.

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Samuelson points to the risks to the American economic growth from excessive health care costs. This is hurting take home pay and shows up in consumer spending. It is hurting government spending in other areas such as needed infrastructure spending and efforts to reduce the deficit. This hurts private capital investment to create jobs because of lower demand from constricted consumer spending. The U.S. budget has as its largest single expense 27% on health care compared to 20% on defense the next largest expense, with growth in health care spending taking this to one third of the budget in coming years. Without addressing health care, says Samuelson, the Supercommitte in Congress even if successful at deficit reduction will basically have failed to do its job, and it did not have the time, resources or conviction to do this. According to a new study from the Organization for Economic Cooperation and Development (OECD), U.S. healthcare spending per person is $7,960 per person in 2009. This compares with Norway $5,352, Britain $3,487, France $3, 978, an OECD average of $3,233. Life expectancy in the U.S. is 78.2 years, compared to Japan 83 years, OECD average of 79.5 years. Chile and the Czech Republic have life expectancy equal to the U.S. Except for cancer care where the five year survival rate is 89.3% in the U.S. and the OECD average is 83.5%, the U.S. lags far behind in much needed critical areas such as diabetes and asthma. Rates of emergency hospitalization for asthma are 3 times that in France and 6 times that in Germany and Italy. The U.S. has fewer doctors per thousand population and higher cost per medical procedure- with more frequent use of the costliest procedures- creating a supply shortage that induces higher prices, and less preventive and early action care through physician visits. The number of practicing U.S. doctors is 2.4 per thousand population in the U.S. compared to 3.1 per thousand for the OECD average; and number of annual doctor consultations 3.9 per capita in the U.S. versus 6.5 for the OECD average. Appendectomy cost $7,962 in the U.S., $5,004 in Canada and $2,943 in Germany. Coronary angioplasty cost $14,378 in the U.S., compared to $9,296 in Sweden, and $7,027 in France. Knee replacement cost $14,946 in the U.S., $12,424 in France, and $9,910 in Canada. Knee replacements, angioplasties and MRI exams are twice as common in the U.S. compared to the OECD countries. ...

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A report released by the Organization for Economic Cooperation and Development (OECD) shows growing income inequality in 34 OECD countries. OECD Secretary General, Angel Gurria says: "The social contract is starting to unravel in many countries. This study dispels the assumptions that the benefits of economic growth will automatically trickle down to the disadvantaged and that the greater inequality fosters greater social mobility. Without a comprehensive strategy for inclusive growth, income inequality will continue to rise." Countries with the largest ratios between incomes at the top and the bottom, are the United States, Turkey and Israel, roughly 14 to 1. Germany, Denmark and Sweden have ratios of 6 to 1, with their ratios up from the 1980's. Gaps in Chile and Mexico are at 25 to 1. The study covers the period from 1980 to 2008. Overall inequality went up by 25% in the U.S. from 1980. In 2008 the top ten percent in the U.S. earned $114,000, 15 times than incomes for the bottom 10%. The top 1% of Americans saw incomes go up from 1980 to 2008, increasing from 8 percent to 18 percent. The richest 1% having $1.3 million in after tax income, and the lowest 20% making $17,700. The trends have accentuated an increase at the highest end- the top 1% and top 10% of the people- and a sharp decrease for the bottom 20%, which can be grasped from the $17,700 and the $1.3 million, both at extreme ends. The study attributes the rise in inequality to a growing gap in wages for highly skilled workers as technology advances, a surge in foreign direct investment and a looser regulatory regime that reduces employee protections leading to wage premiums for financial jobs and smaller incomes for workers at the bottom. Income groups and professions and sectors that had the greatest influence in government were able during this period to get the greatest protection for incomes, and able also to maximize their incomes. Incomes in the financial sector increased dramatically in the last decade, as a result of deregulation leading to higher risk and speculative activities in the financial sector, leading to the financial crisis of 2008-2009. Financial crises further depress incomes at the lower end. Similiar income inequality trends can be seen for India and China. China has a Ginni coefficient of 0.5 according to researchers at Beijing Normal University, up from 0.3 three decades ago- a Ginni Coefficient above 0.4 is considered destabilizing. Another factor that played a part in these countries is corruption and lobbying by special interests for favored treatment of sectors or groups. Austerity measures taken in Europe and in the U.S. are likely to widen income gaps by depressing the lower end income groups, creating social unrest, especially in the absence of efforts to stimulate growth....

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This Journal editorial on Oct 5, 2012, says that by not offering leadership in the Syrian conflict beause it would lead to a wider conflict the U.S. and the European Union face a wider conflict. The current crossborder shelling between Syria and Turkey is the latest evidence of this. Turkey and the Saudis cannot handle this on their own. Without U.S. leadership the costs of this conflict will be even greater, and even poses risks for the Turkish economy if handled badly.

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Five rules the editors of the WSJ say should be followed when working on cleaning up the banking system. A clear no, as Krugman and other experts point out is for the government to make the rather imprudent move to take on all the debts of the banks as in Ireland. A second rule is not to underestimate the size of the problem and delay action till the problem gets much worse, when its harder to deal with. ECB president, Mario Draghi, pointed out the problem at Spain's handling of Bankia bank as a clear example, telling the European parliament recently: "There is a first assessment, then a second, a third, a fourth. This is the worst possible wayof doing things. Everyone ends up doing the right thing, but at the highest cost." A third rule is to set clear rules about banks, who gets rescued and who gets closed and why- so that its not left upto the discretion of officials. On this rule Spain's outgoing Zapatero administration gets good marks from WSJ for settting clear rules to the cajas svings banks. A fourth rule applicable to Europe is to first setup the expertise and conditions for a European banking regulator before setting up a banking union and direct injection of funds by the EFSF into banks of individual countries. A fifth rule is to avoid creating even larger mega banks by consolidating failing banks with large banks, and continuing the government's implicit guarantee of the bank because it is "too big to fail" and creates systemic risk- this is the situation after action by the U.S. Federal Reserve, regulators and the U.S. Treasury....

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Kessler in the WP corrects Obama's claim that he created 800,000 jobs. He says this is clever arithmetic as it takes a low point in Feb. 2010 following the financial crisis. Kessler points out that according to the Bureau of Labor Statistics, U.S. manufacturing jobs were 12.56 million in Jan. 2009 when Obama became president. In Nov. 2016, early estimates show there were 12.26 million manufacturing jobs, a loss of 300,000. This loss does not reflect the problems in the U.S. auto industry and older industries in the midwestern states as a result of trade and globalization that speeded up with the rapid industrialization of China. And led as Greg Ip pointed out in a recent WSJ report to a rapid acceleration of job losses in a decade that did not happen in the same scale during Japan's industrialization and urbanization in the sixties. This aggravated the situation in Michigan, Ohio, Wisconsin, Indiana, and Pennsylvania, and was met with a feeble response from Democrats. Even a economist like Krugman favoring the Obama administration's efforts came to the conclusion that TPP did not add much to gains from trade as most of the gains had already been realized. More of the gains went to tech and IT in California, at the expense of the auto industry based in the midwest. A report in WP show a president too close to IT in California and failing to grasp the situation in the midwest. Voters punish whoever is in power, regardless of being Conservative or Liberal, in Canada the hollowing out of manufacturing under Harper in Ontario and Quebec led to the win by Trudeau's Liberals.  ...

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Former Defense Secretary in the second term of the Obama administration, Chuck Hagel, says U.S. president Obama hurt his credibility when he failed to act on his own comments of a "red line" being crossed following the chemical attacks in Syria by the Assad government. Hagel was critical in an article in Foreign Policy magazine of the way the national security advisor, Susan E. Rice, ran discussions on foreign policy issues, with too many meetings and discussion followed up with deferring difficult decisions.