Archive for the ‘Economy’ Category

Adam Tooze on the global financial crisis

August 28, 2018

The great economic historian Adam Tooze, in his just-published book, CRASHED: How a Decade of Financial Crises Changed the World, showed me things I hadn’t known, and made me rethink things I thought I understood.

Above all, he jolted me out of thinking of the 2008 financial crisis as primarily an American crisis.  It was global in nature, its consequences are still rippling through the world economy and its basic causes have not been dealt with

It is a kind of bookend to his earlier book, THE DELUGE: The Great War, America and the Remaking of Global Order, 1916-1931. 

In the earlier book, Tooze described the continuing debt crisis following World War One, with Germans unable to pay reparations and the Allies unable to pay their war loans, and how the ongoing debt crisis shaped international relations and governmental policy in that era.

The United States, as the world’s top industrial power and top creditor nation, dominated the world financial system, but American leaders lacked both the understanding and the political means to resolve the crisis.  All the United States could think to do was lend money to Germany to keep the system from crashing.  In the end the financial system crashed anyhow..

Prior to the 2008 crash, the United States was in the opposite situation.   U.S. industrial power had been hollowed out and the United States was the world’s top debtor nation.  Economists feared the “twin deficits”—the U.S. trade deficit and government budget deficit—would cause runaway inflation.

This didn’t happen.  The U.S. dollar continues to be the medium of world trade, and the financial markets continue to consider U.S. Treasury bonds the world’s safest financial asset.

American financial leaders such as Ben Bernanke, Timothy Geithner and Larry Summers acted boldly to meet the crisis. They bailed out banks, stabilized the financial system and averted a 1930s-type great depression, which was a real possibility.

That was no small achievement.  What they failed to do was to reform the system so as to reduce the possibility of a second crash.

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I had put the blame for the crash on Clinton-era deregulation, which gave free rein to speculation and to unethical and illegal (but unprosecuted) manipulation of the subprime mortgage market.   Financial markets have always been subject to cycles of expansion and recession, but removing the brakes made the crash a disaster instead of just a problem.

What I learned from Crashed is that deregulation was international.  Prime Minister Margaret Thatcher’s government completely deregulated British financial markets in 1986, in what was called the “Big Bang.”  Her hope was to make the City of London, the British equivalent of Wall Street, the world financial center, and she succeeded.  American, European and Asian banks all made London their major hub, even though they did business in dollars.   The purpose of Clinton-era regulation was to enable Wall Street to catch up with the City of London.

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What will come next?

July 30, 2018

Centrally planned economies didn’t work.

Unbridled neoliberal capitalism isn’t working.

Blood-and-soil nationalism won’t work.

What will come next?  My candidate for the next big thing is some form of radical localism.

Small communities would push back against the power of multinational corporations and big government bureaucracies.

Ideally their civic and economic life would be based on a mixture of town-meeting democracy, volunteer groups, civic associations, producer cooperatives, consumer cooperatives, individually-owned  businesses and large numbers of self-employed workers.

A society based on radical localism wouldn’t be capable of building mega-projects or projecting world-wide military power.

But it might be more resilient when catastrophic global climate change kicks in, the global supply chains cease to work and dysfunctional national governments lose their legitimacy.

John Lanchester on the financial crisis

July 7, 2018

John Lanchester

The financial crash of 2008 was worldwide, and the failure of governments to address the causes of the crash also was worldwide.  Because the same thing happened in different countries under different leaders, the reasons for failure are systemic, not just the personal failings of particular leaders.  The solution must be systemic.  A mere change in leaders is not enough.

John Lanchester, writing in the London Review of Books, wrote an excellent article about the crash and its aftermath.  I hoped to call attention to it in my previous post, but, as of this writing, there has been only one click on the link.

I know people are busy and have many claims on their attention.  If you don’t want to bother reading the full LRB article, here are some highlights.  If you’re an American, bear in mind that, even though so much of what he wrote applies to the USA,  his focus is on British policy.

The immediate economic consequence was the bailout of the banks.  I’m not sure if it’s philosophically possible for an action to be both necessary and a disaster, but that in essence is what the bailouts were. 

They were necessary, I thought at the time and still think, because this really was a moment of existential crisis for the financial system, and we don’t know what the consequences would have been for our societies if everything had imploded.  But they turned into a disaster we are still living through.

The first and probably most consequential result of the bailouts was that governments across the developed world decided for political reasons that the only way to restore order to their finances was to resort to austerity measures.  The financial crisis led to a contraction of credit, which in turn led to economic shrinkage, which in turn led to declining tax receipts for governments, which were suddenly looking at sharply increasing annual deficits and dramatically increasing levels of overall government debt.

So now we had austerity, which meant that life got harder for a lot of people, but – this is where the negative consequences of the bailout start to be really apparent – life did not get harder for banks and for the financial system. In the popular imagination, the people who caused the crisis got away with it scot-free, and, as what scientists call a first-order approximation, that’s about right.

In addition, there were no successful prosecutions of anyone at the higher levels of the financial system.  Contrast that with the savings and loan scandal of the 1980s, basically a gigantic bust of the US equivalent of mortgage companies, in which 1100 executives were prosecuted.  What had changed since then was the increasing hegemony of finance in the political system, which brought the ability quite simply to rewrite the rules of what is and isn’t legal.

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Ten years after the financial crisis

July 6, 2018

Canary Wharf financial district in London. Source: Quartz.

Ten years after the financial crisis of 2008, the U.S. government has failed to do anything necessary to avoid a new crisis.   I just read an article in the London Review of Books that says that the U.K. government’s policies are just as bad.

Like the U.S.-based banks, the British banks engaged in financial engineering that was supposed to create high profit on completely safe investments—which, as experience proved, couldn’t be done.

The British government had to bail out the banking system in order to save the economy.  There probably was no alternative to that.  But it then proceeded to put things back just the way they were before.

John Lanchester, the LRB writer, said there was no attempt at “ring fencing”—what we Americans call firewalls—to split up investment banks, which speculated on the financial markets, and retail banks, which granted small business loans, home mortgages and other services to the real economy.

The UK, like the US, engaged in “quantitative easing”—injection of money into the banking system through buying bonds.  The basic idea was that if banks and corporations had more money to invest, they would invest more, and the economy would grow.

This didn’t happen.  Instead banks and corporations bid up the prices of existing financial assets and real estate, which added to the wealth of the already rich.

Ordinary Britons faced austerity.  Their government cut back on the social safety net and public services.  British life expectancy, like American life expectancy, has actually fallen.

The British, like us Americans, had 10 years to fix their financial system.  Like us, they wasted the opportunity.  Now it may be too late to avert the next crash—even if the UK and US governments wanted to act.

LINK

After the Fall: Ten Years After the Crash by John Lanchester for the London Review of Books.  Well worth reading in detail.  Hat tip to Steve B.

Chris Hedges on the coming collapse

May 30, 2018

Chris Hedges wrote last week about the next financial crash.

Wall Street banks have been handed $16 trillion in bailouts and other subsidies by the Federal Reserve and Congress at nearly zero percent interest since the 2008 financial collapse.

They have used this money, as well as the money saved through the huge tax cuts imposed last year, to buy back their own stock, raising the compensation and bonuses of their managers and thrusting the society deeper into untenable debt peonage.

Chris Hedges

Sheldon Adelson’s casino operations alone got a $670 million tax break under the 2017 legislation.  The ratio of CEO to worker pay now averages 339 to 1, with the highest gap approaching 5,000 to 1.  This circular use of money to make and hoard money is what Karl Marx called “fictitious capital.”

The steady increase in public debt, corporate debt, credit card debt and student loan debt will ultimately lead, as Nomi Prins writes, to “a tipping point—when money coming in to furnish that debt, or available to borrow, simply won’t cover the interest payments.  Then debt bubbles will pop, beginning with higher yielding bonds.”

An economy reliant on debt for its growth causes our interest rate to jump to 28 percent when we are late on a credit card payment.  It is why our wages are stagnant or have declined in real terms—if we earned a sustainable income we would not have to borrow money to survive.

It is why a university education, houses, medical bills and utilities cost so much. The system is designed so we can never free ourselves from debt.

However, the next financial crash, as Prins points out in her book Collusion: How Central Bankers Rigged the World, won’t be like the last one.  This is because, as she says, “there is no Plan B.”

Interest rates can’t go any lower. There has been no growth in the real economy. The next time, there will be no way out. Once the economy crashes and the rage across the country explodes into a firestorm, the political freaks will appear, ones that will make Trump look sagacious and benign.

Source: Truthdig

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Is a non-BS economy even possible?

May 26, 2018

What would the U.S. unemployment rate be if all useless or harmful jobs were eliminated?

It would probably be equivalent to the Great Depression of the 1930s.

Barack Obama, in an interview in 2006, stated the problem:

“I don’t think in ideological terms. I never have. … Everybody who supports single-payer healthcare says, ‘Look at all this money we would be saving from insurance and paperwork.’  That represents 1 million, 2 million, 3 million jobs of people who are working at Blue Cross Blue Shield or Kaiser or other places.  What are we doing with them?  Where are we employing them?”

Source: The Nation

David Graeber, in his new book, Bullshit Jobs: a Theory, quoted public opinion polls that found 37 percent of UK employees and 40 percent in the Netherlands thought their jobs made no meaningful contribution to the world.

Now maybe that is exaggerated.  Maybe some of them think they make a contribution, but that it’s not “meaningful.”

Offsetting this, the inherent bias of people is to think we are accomplishing more than other people think we do or the objective facts indicate.

For example, public relations, advertising, lobbying, consulting and even speculation on financial and commodities markets have their uses.  It is just that they play more of a role in the economy than they should.

I myself think the U.S. military and intelligence services are much greater than necessary to protect the homeland from attack.  Of course, if the mission is to make the United States the world’s only superpower, no number could be great enough.

The question is: What would happen if all these people were thrown on the job market, all at once?

It would be a catastrophe, unless there were some sort of basic income guarantee (which Graeber advocates) or basic job guarantee.

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Fed keeps financial markets on life support

April 27, 2018

Ever since the 2008 crash, the Federal Reserve Board has had the U.S. financial markets on life support.

The Fed has used its influence on the banking system and bond market to drive interest rates down to near zero.  Taking inflation into account, many interest rates are less than zero.

This drives investors who want a return on their investment into the stock market, and the fact that we’re in the market helps keep prices up.   But the rise in stock prices is not based on profitability of underlying businesses.

The idea is that low interest rates and a rising stock market will encourage new investment and a growth in the real economy.  But when the Fed hints that it may allow interest rates to return to normal levels, investors panic and the market falls.

Another way the Fed has tried to stimulate the economy is by “qualitative easing”—buying up banks’ so-called toxic investments.   This is supposed to empower the bankers to find better investments, which would enable the economy to grow.   But this was never a requirement.

Right now wages are rising and unemployment is falling.   It would be great if this continued for a long period of time.

Artificially low interest rates cannot go on forever and, as Stein’s Law says, if something cannot go on forever, someday it will stop.

LINKS

Donald Trump and the Next Crash: Making the Fed an Instrument for Disaster by Nomi Prins for TomDispatch.

The mini crash and class warfare by Larry Beinart for Al Jazeera.

How excess debt stifles economies

April 26, 2018

Economist Michael Hudson had a good explanation of how excess private debt leads to economic stagnation.

If private debt grows faster than GDP, the debt/GDP ratio will rise.  This stifles markets, and hence employment.  Wages fall as a share of GDP.

This is precisely what is happening. But mainstream models ignore the overgrowth of debt, as if the economy operates on a barter basis. 

[Australian economist Steve] Keen calls this “the barter illusion,” and reviews his wonderful exchange with Paul Krugman (who plays the role of an intellectual Bambi to Keen’s Godzilla).

Krugman insists that banks do not create credit but merely recycle savings – as if they are savings banks, not commercial banks.

It is the old logic that debt doesn’t matter because “we” owe the debt to “ourselves.”  The “we” are the 99%, the “ourselves” are the 1%.

Krugman calls them “patient” savers vs “impatient” borrowers, blaming the malstructured economy on personal psychology of indebted victims having to work for a living and spend their working lives paying off the debt needed to obtain debt-leveraged homes of their own, debt-leveraged education and other basic living costs.

Hudson has written extensively about debt, and how unpayable debt leads to financial crises.   As he is fond of saying, debts that can’t be paid won’t be paid.

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Another financial crash is on the way

April 26, 2018

Another financial crash is coming and it will be as bad or worse than the 2008 recession.

The reason is that all the conditions that existed before the 2008 crash exist now:

  • Growing concentration of wealth, which depresses the mass consumer market.
  • Growing debt, which can’t be repaid.
  • Reckless financial speculation, encouraged by lack of regulation and the expectation of another bailout.
  • A negative balance of trade, and a continuing overall weakness of the U.S. economy.
  • Lack of sufficient firewalls and safety nets to prevent cascading bankruptcies and financial failures.

Rich people on average spend less of their incomes than middle-class or poor people.   Once you get above a certain level, spending more money on yourself doesn’t make you happier.  You instead reinvest it so as to become even richer.

Middle-class people spend most of what they earn in order to maintain a middle-class material standard of living.  They are the ones who sustain the mass consumer market, which is the engine of American prosperity.

Poor people need to spend all they have just to survive.

When incomes don’t rise, middle-class people maintain their material standard of living through borrowing.  But this has limits.

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Goldman Sachs says water may be wet

April 25, 2018

A Goldman Sachs report says that the way for biotech companies is through medical treatments, not medical cures.

Selling medical treatments provides a stream of income that continues indefinitely.   Selling medical cures provides one-time sources of income, and even these may dry up if the disease disappears.

The moral feelings of any normal person will be outraged by this, but the logic is watertight, obvious and, according to the report, supported by experience.

You can’t stop for-profit companies in a free enterprise economy from pursuing the course that is most profitable, and you can’t stop analysts for investment companies from noticing the most profitable course.

Since cures are better than treatments (although treatments are useful), how can resources be shifted to cures?

A free market fundamentalist would say that the solution is to raise prices of cures to equal the lifetime cost of a treatment, plus a premium.

A neoliberal would propose subsidizing biotech companies’ work on cures.  A left-wing liberal would propose requiring biotech companies to devote a certain percentage of their research budgets to working on cures.

A radical would say that for profit-companies operating in a free market cannot be counted on to produce cures, and we should look instead to government or philanthropic institutions if we want a cure for cancer, AIDS or other life-threatening diseases.

Historically few if any medical breakthroughs have come from for-profit companies.   Dr. Jonas Salk developed the Salk vaccine for polio as head of a research laboratory at the University of Pittsburgh.

Dr. Alexander Fleming, the discoverer of penicillin, was a professor of bacteriology at St. Mary’s Hospital in London.   Penicillin and other antibiotics came into widespread use through efforts of the U.S. military during World War Two.

Probably the most profitable and widespread drug developed by a private company was aspirin—a great example of a drug that generates a continuing revenue stream.  Aspirin of course is of great benefit.   It’s just not the same thing as the Salk vaccine or penicillin.

So here again, the supposedly radical policy is to adopt time-tested policies that have worked in the past, while the supposedly un-radical policies are justified by theory and not by experience.

LINKS

Goldman Sachs report asks: ‘Is curing patients a sustainable business model?’ by Tae Kim for CNBC.

When What’s Good for the World Is Bad for Business by Nathan J. Robinson for Current Affairs.

Jordan Peterson and the dominant lobster

April 17, 2018

I forgot to mention the most striking metaphor in Jordan Peterson’s 12 Rules for Life—the struggle for dominance among lobsters.

Hierarchy is a law of nature, Peterson wrote; it is hard-wired in our brains by the evolutionary process.  It manifests itself not only as top dogs and pecking orders, but the struggle for dominance of our distant ancestor, the humble lobster.

Lobsters, it seems, compete for the best nesting places where they can be safe when they are shedding their shells.  The winners are lobsters with the biggest claws and a level of confidence produced by a substance called serotonin.   Sub-dominant lobsters not only fail to get good nesting places, but their level of serotonin drops so they can adjust to their lowly status.  Not only that, lobsters respond to Prozac.

So don’t be a loser lobster, Peterson says; stand up for yourself.

Illustration from 12 Rules for Life

It’s true, as he says, that human beings compete for dominance in subtle and not-so-subtle ways.  Everybody can see this.  I’ll never again observe a certain type of (usually) male behavior without forming a picture in my mind of a giant humanoid cartoon lobster, waving its claws.

And it’s also true that the human body produces serotonin.  But current thinking is that serotonin has little to do with mental states.  In human beings, its main function is to aid digestion.   Also, even though lobsters respond to Prozac, there is no evidence that it makes them happier.  Also, the lobster species is not the ancestor of the human species.

Peterson, to his credit, does not advocate being at the top of a dominance hierarcy as a life goal.   That way lies fascism by way of social Darwinism.  What he says is that life is tough and you need to be able to stand up for yourself.

Where he goes wrong is to claim dominance and hierarchy in the animal kingdom have any relevance to current arguments about economic inequality.

It is true that, within any group, there will be one or more persons who are more competent and confident than the others, and they will emerge as leaders.

But that has nothing to do with questions of the power of money in politics, the abuse of power by government or the growth of income inequality.  The current distribution of wealth and power in the USA and other countries does not reflect constants of human nature; it is the result of governmental and corporate policies during the past 35 years.

12 Rules for Life is inspirational, and Peterson mostly speaks good sense when he is dealing with matters of which he has personal experience or has studied deeply.   But on issues of economics and politics, he seems not to know what he doesn’t know.

LINKS

Psychologist Jordan Peterson says lobsters help to explain human hierarchies – do they? by Leonor Gonçalves for The Conversation.

Three More Reasons for Wealth-Deprived Americans to Take to the Streets by Paul Buchheit for AlterNet.  The real issues in the inequality debate.

 

Trade war tactics and strategy

March 5, 2018

Reuters reported that the European Union is considering applying 25 percent tariffs on American motorcycles, bourbon and blue jeans, if President Trump imposes new tariffs on steel and aluminum imports.

Motorcycles, bourbon and blue jeans?  Kevin Drum of Mother Jones explained the significance.

Hmmm.  Harley-Davidsons are made in—what?  Wisconsin, right?  In Menomonee Falls, actually, about 50 miles from Janesville, where Paul Ryan lives.  The Jim Beam bourbon distillery is in Clermont, Kentucky, about 20 miles from Mitch McConnell’s house in Louisville.  Levi’s is headquartered in San Francisco, about two miles from Nancy Pelosi’s house.

I think that’s a pretty funny example of trade war tactics.

Deaths of despair in America

March 1, 2018

Economists Angus Deaton and his wife, Anne Case, are authors of a study showing the increase in the rate suicide, and also of other “deaths of despair,” among middle-aged white Americans.

The mystery is why there’s no such trend among black and Hispanic Americans, or among Europeans, even though many of them are struggling economically as much or more than white Anglo Americans.

Deaton and Case, in an interview shown in the video above, saw the rising suicide rate as a failure of social and spiritual bonds, and not just a failure of public policy.

They speculated that some white Americans are failed by their religion.  He said many evangelical churches downplay social support because they believe salvation is an individual relationship with God.

I think this is a stretch, and they don’t provide any evidence for this.   My impression—admittedly based on limited experience—is that strict conservative churches provide at least as strong social support as mainstream churches.

The isolated ones would be the ones who think they don’t need a church community because they have an individual relationship with God.   This was true of J.D. Vance’s troubled family, which he described in Hillbilly Elegy.  When trouble comes, his family didn’t have any support system beyond each other.

Of course, all other things being equal, unbelievers suffer just as much or more from lack of a church community.

I think we white Anglo Americans are brought up to think that society is basically fair and that anything that happens to us is our own fault.   We’re taught to keep trying despite setbacks, and not to give up.  This is good—up to a point.

My guess is that black and Hispanic people on average are more aware that life is unfair and that they don’t invest so much of their self-esteem in being breadwinners.

My other guess is that life is more meaningful to those who join in solidarity with others to fight for change.

In an interview linked below, Deaton said the problem is not economic inequality as such.   It is fairness, he said.  It is not unjust for someone to get rich by creating something of value.   What matters is how you get rich.

He said the problem is that so many of the economic elite get rich through what he called “rent seeking”—extracting money from people without contributing anything of value.  The health insurance industry is an example of this.

Monopoly or “oligopoly” (control by a small number of firms) are a big part of the problem, he said.  Lack of competition results in lower inflation-adjusted wages, higher prices, fewer jobs and slower productivity growth.   Self-described progressives and conservatives ought be able to in fighting monopoly.

LINK

Angus Deaton on the Under-Discussed Driver of Inequality in America: “It’s Easier for Rent-Seekers to Affect Policy Here Than in Much of Europe”, an interview for Pro-Market, the blog of the Stigler Center of the University of Chicago Booth School of Business.

Mortality and morbidity in the 21st century by Anne Case and Angus Deaton for the Brookings Institution (2017).   This is their most recent study of “deaths of despair.”

‘Remind me why socialism is so great again’

February 22, 2018

Economist Mark J. Perry, who posted this chart on the American Enterprise Institute’s Ideas blog, argued that prices are highest in the economic sectors that are most heavily regulated.

Said he:  “Remind me of why socialism is so great again.”

One possible explanation of the price difference is Baumol’s Cost Disease, the tendency of the cost of human services to rise relative to the cost of manufactured goods.  That’s not the whole story.

The fact is that European countries that most Americans would consider socialist have free or affordable medical care and free or affordable higher education.   And it is not a case of costs being shifted from patients and students onto taxpayers.

Overall costs of health care and higher education are less in so-called socialist European countries (I write “so-called” because most of them have self-described conservative governments).

The reasons why health care costs less in those European countries than in the USA is that there are no for-profit insurance companies standing between the patient and the physician, that European countries control prescription drug prices and that the incomes of physicians and other health care providers are less.

My guess is that European universities cost less because they provide a no-frills education without spending huge sums on sports stadiums and student amenities.  My other guess is that their hospitals and universities are not so top-heavy with highly-paid administrators.

In and of itself, government regulation is neither good nor bad.  It depends on what is being regulated, how it is being regulated and in whose interest it is being regulated.

LINKS

Chart of the day (century?): Price changes 1997 to 2017 by Mark J. Perry for AEI Ideas.

Mark Perry Has Never Heard of William Baumol by ProGrowth Liberal for Angry Bear.

Chris Arnade on how the other half lives

January 13, 2018

This includes two updates

Half the world doesn’t know how the other half lives.   (old saying)

Chris Arnade spent 20 years as a Wall Street investment banker, then quit in 2011 to start a new career as a photojournalist, first interviewing and photographing drug addicts and prostitutes in the Bronx, then traveling across the country to talk to working people and poor people who’ve been left behind in the new economy.

Arnade said that what he concluded was that addiction is the result of isolation, isolation is the result of rejection and the chief source of rejection is the U.S. educational system.

The U.S. educational system, he said, teaches that the way to achieve success is to go to a good college, leave home and devote yourself to achievement in your professional life.

Those who do this successfully are the elite in American life.   The problem is that not everybody is able to succeed this way, and not everybody wants to do this.

Some people put family, community and religion first.  In this respect, he said, there is little difference between black people and white people, or between Anglos and Hispanics.

Arnade calls the first group the Front Row and the second group the Back Row. The Back Row are not only disrespected, Arnade said.  The economic system is rigged against them.

Every important decision on national policy, since at least the North American Free Trade Agreement  (NAFTA) in 1994, has put the interests of the Front Row ahead of the Back Row.

The one institution in society that welcomes the back row is the churches, he wrote.  He himself is an atheist, but he said that churches welcome you, no matter what your credentials or lack of them.  I’m not sure that is true of all churches, but his point is correct.

Another place the Back Row is welcome, he said, is McDonald’s restaurants.  McDonald’s original business model was a place where you can get in and get out quickly, but McDonald’s and other fast-food restaurants have become places where you can get a nourishing meal at a low price, charge your cell phone and hang out with friends.  Most of them have an old man’s table that retirees have staked out for their own.

If you’re a Front Row person and want to break out of your bubble, stop having coffee at Starbuck’s (or the equivalent) and stop start spending time in McDonald’s (or the equivalent), Arnade advised,

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Robots will not (necessarily) replace us

November 15, 2017

You Will Lose Your Job to a Robot—And Sooner Than You Think, argues Kevin Drum in Mother Jones.

His argument is simple.  Historically, computing power doubles every couple of years.   There is no reason to think this will stop anytime soon.   So at some point the capability of artificial intelligence will exceed the capability of human intelligence.  Machines will be able to do any kind of job, including physician, artist or chief executive officer, better than a human being can.

This will happen gradually, then, as AI doubles the last few times, suddenly.

When that happens, humanity will be divided into a vast majority who serve no economic function, and a tiny group of capitalists who own the means of production.   Rejection of automation is not an option, according to Drum.   It only means that your nation will be unable to compete with nations that embrace it.

The only question, according to Drum, is whether the wealthy capitalists will have enough vision to give the rest of us enough of an income to survive and to create a market for the products of automation.

I have long believed that automation is driven as much by administrators’ desire for command and control as it is by the drive for economic efficiency.   An automated customer service hotline does not provide better service, but it eliminates the need to deal with pesky and contentious human beings.

I also believe that, in the short run, the danger is not that computer algorithms will surpass human intelligence, but that people in authority will treat them as if they do.

Drum presents interesting information, new to me, about the amazing progress of machine intelligence in just the past few years.   But that’s not necessary to his argument.

His argument is based on continuation of exponential growth and (unstated) continuation of the current economic system, which works for the benefit of high-level executives and administrators and of holders of financial assets at the expense of the rest of us.

There’s no law of physics that says development of technology has to result in higher unemployment.  Under a different system of incentives and ownership, technology could be used to expand the capability of workers and to make work more pleasant and fulfilling.

To the extent that automation eliminated boring and routine jobs, it could free up people to work in human services—in schools, hospitals, nursing homes—and in the arts and sciences.

Technology does not make this impossible.   Our current economic structure does.   Our current economic structure was created by human decisions, and can be changed by human decisions.  Technological determinism blinds us to this reality.

Tax havens are big business

November 7, 2017

Research by the economist Gabriel Zucman shows that tax havens are big business.   He concludes that they substantially increase the after-tax income of the top 0.01 percent of the world’s population and that they enable U.S. and other corporations to evade taxes on nearly half their income from foreign operations.

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Offshore wealth as % of GDP.  Source: Gabriel Zucman. Click to enlarge.

Zucman is a respected economist  I’m not able to evaluate his estimates based on my own knowledge, or to meaningfully compare his figures with those of the Tax Justice Network and other sources.   But there’s no doubt that ultra-rich individuals and powerful corporations are able to keep a lot of their wealth hidden from view.

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The top 1 percent in Russia

October 6, 2017

I’ve posted many charts about the growing concentration of income and wealth in the United States in the hands of a tiny elite.   Here is a chart illustrating inequality in Russia.

You should take note about what this chart shows and doesn’t show.  The ruling elite in the old Soviet Union didn’t have large incomes, and they didn’t live like American millionaires and billionaires, but they did have special privileges, much like military officers compared to the rank and file or like American corporate executives with huge expense accounts.    They had special stories, special medical care, special schools for their children, etc.

Also, the chart indicates that relative equality isn’t everything.   I don’t think many Americans would have wanted to trade places with the average person in the old Soviet Union.

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Neoliberalism is about more than free markets

August 22, 2017

The common mistake about neoliberal ideology is to think that it is about nothing more than unrestricted free markets.

In fact, neoliberalism is about unrestricted accumulation of capital.

Concentration of wealth at the top is an intended, not an unintended, consequence.

The idea is that of classical economics’ three sources of wealth – land, labor and capital – it is capital that is the force multiplier.

Capital investment, as Karl Marx recognized in the Communist Manifesto, is what has increased the total amount of wealth available to humanity in the modern capitalist era.   What neoliberals say is that this process can and should continue, with capital remaining in private hands.

That is why neoliberals advocate upper-bracket tax cuts and government austerity, and oppose minimum wage laws and labor unions.   Working people only waste their wages on their personal needs, neoliberals think; capitalists invest and increase the wealth of society.

That is neoliberals they advocate bailing out banks in the USA and Europe, while insisting that home mortgages, student loans and the debt of nations such as Greece by repaid to the last penny.

There is logic to this, once you accept the underlying assumptions.  The wrongness of this idea is shown, not by economic theory, but by the history of the last 40 years.

We have had increasing austerity and increased concentration of wealth in the upper brackets, but the investment needs of the USA and other advanced countries are unmet.

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Book note: The Making of Global Capitalism

May 30, 2017

International financial organizations such as the International Monetary Fund and the World Trade Organization have come to be a kind of world government, dictating policy to supposedly sovereign governments.

I recently read a book, The Making of Global Capitalism (2012) by two Canadian leftists named Leo Panitch and Sam Gindin, on how this came about.   I thank my friend Tim Mullins for recommending it.

It’s quite a story.  It is not well understood.

The first part of the story is the U.S. New Deal.   President Franklin Roosevelt and the Democratic Congress gave the U.S. Treasury Department and the Federal Reserve System the authority they needed to stabilize the crumbling U.S. financial and banking system.

The second part is the 30 years following World War Two.   Under the leadership of the U.S. Treasury and Federal Reserve, international financial institutions were created that duplicated the U.S. system.  They presided over the era of greatest peace and prosperity that North Americans and Europeans had ever since.

The third part is what happened after that.  The world’s financial system endures a series of ever-greater financial crises.   To deal with them, international financial  institutions demand the surrender of gains made by American and European workers and the middle class in the earlier era.

The irony is that a financial governing structure created by American power is now stronger than ever, while the actual American economy is rotting away beneath it.

Panitch and Gindin described in great detail how this happened, step-by-step,.

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Neoliberalism and Its Discontents (1)

April 13, 2017

What follows is notes for the first part of a talk for the Rochester Russell Forum scheduled at Writers & Books Literary Center, 740 University Ave., Rochester, NY, at 7 p.m. Thursday, April 13, 2017

Neoliberalism is the philosophy that economic freedom is the primary freedom, economic growth is the primary goal of society and the for-profit corporation is the ideal form of organization.

It is the justification for privatization, deregulation and the economic austerity currently being imposed on governments by lenders.

Neoliberalism has its roots in classical liberalism, which arose in the 18th and 19th centuries.  Classic liberals said that the purpose of government is to protect human rights, including religious, intellectual, political and economic freedom.   They fought the absolute power of kings and the privileges of aristocrats and demanded the right of individuals to determine their own fates.

Classical liberalism came to be supplanted in the early 20th century by a belief that government regulation and welfare could, if well thought out, enhance human freedom by giving individuals more choices.   A graduate of a public school or university, for example, has more options than a person unable to afford an education, so taxing the public to pay for public schools and universities would be a form of liberation.

Neoliberalism is a backlash against social liberalism.  Neoliberalism affirms that freedom of enterprise is the only important freedom.   Its well-known adherents include Friedrich Hayek, Ludwig von Mises and Milton Friedman.

It came into widespread acceptance in the 1980s, as a reaction against the manifest failures of central economic planning and as a way to break the political gridlock of the welfare state.  Ronald Reagan and Margaret Thatcher were both strongly influenced by the neoliberals.

Neoliberalism’s strongest adherents are to be found among economists, journalists, financiers, Silicon Valley executives and right-of-center parties in the English-speaking world and western Europe, and in international institutions such as the International Monetary Fund, World Bank and European Central Bank, which enforce neoliberal policies on debtor countries.

It is more of an implicit philosophy than a credo, a series of assumptions that has come to permeate our society.

What follows is my attempt to understand the logic behind these assumptions.

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The case against the Internet

March 29, 2017

Double click to enlarge. Source: Visual Capitalist.

Andrew Keen’s book, The Internet Is Not The Answer (2015), which I recently finished reading, is a good antidote to cyber-utopians such as Kevin Kelly.

Keen says the Internet is shaping society in ways we the people don’t understand.  Some of them are good, some of them are bad, but all are out of control.

Like Kelly, he writes about technology as if it were an autonomous force, shaped by its own internal dynamic rather than by human decisions.  Unlike Kelly, he thinks this is a bad thing, not a good thing.

He does not, of course, deny that the Internet has made life easier in many ways, especially for writers.   But that is not the whole story.  He claims that—

  • The Internet is a job-destroyer.
  • The Internet enables business monopoly
  • The Internet enables surveillance and invasion of privacy.
  • The Internet enables anonymous harassment and bullying.
  • The Internet enables intellectual property theft

Keen quotes Marshall McLuhan’s maxim, “We shape our tools, then our tools shape us.”

What he doesn’t quite understand is that the “we” who shape the tools is not the same as the “us” who are shaped by them.

Or to use Marxist lingo, what matters is who owns the means of production.

Technology serves the needs and desires of those who own it.  Technological advances generally serve the needs and desires of those who fund it.

Advances in technology that benefit the elite often serve the general good as well, but there is no economic or social law that guarantees this.   This is as true of the Internet as it is of everything else.

Let me look at his claims one by one—

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Mike Whitney on U.S. anti-Russian policy

March 24, 2017

Will Washington Risk WW3 to Block an Emerging Russia-EU Superstate? by Mike Whitney for Counterpunch.

Map via Wikimedia

The rent is too damn high

March 7, 2017
Double click to enlarge

Double click to enlarge

This chart shows how the cost of different necessities and amenities of life have changed over the past 75 years.

The high and rising costs of housing stands out, but the cost of health care and education also are going steadily up.

I’d guess the falling cost of food is due to technology and the falling cost of clothing is due to globalization.

But why hasn’t technology brought down the cost of housing and transportation?

LINKS

Unprecedented Spending Trends in America, in One Chart, by howmuch.  Remember that the figures are adjusted for inflation.

Considerations on Cost Disease by Scott Alexander for Slate Star Codex.

Rich people’s countries, poor people’s countries

February 28, 2017
government-and-gdp-capita-ad92

Double click to enlarge.

This map shows national output (GDP) per person in different nations.   The leaders seem to be financial centers (Luxembourg, Switzerland, Singapore) and oil and gas producers (Qatar, Brunei, United Arab Emirates and maybe Norway).

The USA is both a financial and energy-producing center, ranking eighth behind those seven nations, but way ahead of Russia and China.

While China’s overall economy is thought to be larger than the American economy, that doesn’t mean that the average Chinese person is rich.

Of course GDP per person is not the whole story, either.  How the average person does depends on how wealth is distributed.  What the GDP figure shows is how potentially well off the individual person is.

LINK

Which Government System is the Best for People’s Wealth? on howmuch.