The Zero Room

This week, I have been mostly reading:

• Bankers, art and tax paranoia driven Ponzi schemes — Richard Murphy: The evidence it is that the vast majority of this art does not end up being displayed on the walls of a home, gallery, office, or anywhere else. Most of it is stored in the vaults of one of the art warehouses in the free ports of the world. […] What is more, this art market, pumped by a continual stream of new clients created by finance houses seeking to advise clients to join the trend, creates not just another asset bubble, but in fact an alternative currency as a mechanism for transferring value. The fact that art can also be stored in tax-free warehouse locations, beyond the reach of even local tax authorities with regard to any form of taxation in the state where it physically resides, just adds to this appeal. Who needs bitcoin to achieve anonymity when a Picasso in a warehouse achieves the same goal without all the risks that cryptocurrency entails?
• The Alcohol and Health Puzzle — Nigel Barber in Psychology Today: Denmark has more drinkers than any other country (95.3 percent women, 97.1 percent men). Despite drinking a lot, Denmark has repeatedly come out at the top of the heap in surveys of happiness. A skeptic might retort that more Danes take the survey while actually intoxicated. Amusing as this explanation is, it seems far-fetched. A more plausible explanation could be that the Danes, like the Irish, spend more time in pubs that play a central role in social networks in these countries. Another source of happiness in Denmark could be the very good quality of life that residents enjoy thanks to their affluence and the well-developed social democracy that minimizes inequality and alienation
• Central Bankers as ‘Dealers of Last Resort’ — Marshall Auerback in Naked Capitalism and elsewhere: A CDS is an instrument used by a buyer of corporate or sovereign debt. It was designed to eliminate possible loss arising from default by the issuer of the bonds. In theory, the swap acts like an insurance policy, the only difference being that (in the words of Mehrling): insurance is “organized as a network of promises to pay in the event that someone else doesn’t pay whereas our own world [the credit default swap] is organized as a network of promises to buy in the event that someone else doesn’t buy.” Of course, as we learned from the AIG fiasco, it becomes impossible to act as a credible writer of insurance, if you don’t have the financial resources to make good on the insurance payment if and when disaster strikes. Unable to make good the insurance payments arising from the swaps, AIG eventually had to be bailed out. By contrast, the Treasury/Federal Reserve (it’s useful to think of them as a unified whole in this instance) is uniquely placed to make the CDS a credible instrument, as it can always create the dollars required to make good the payment in the event of default (or financial accidents). But for the CDS system to work going forward, the Fed (or any other central banker/dealer of last resort) has to “charge” the right premium to reflect the risks being undertaken by the parties who enter into a contract to buy and sell the CDSs. And if that means charging such an extortionate premium that the underlying activity (or event) isn’t undertaken, so much the better for financial stability.
• Young couples 'trapped in car dependency' — Roger Harrabin, BBC environment analyst: Researchers visited more than 20 new housing developments across England in what they say is the first piece of research of its kind. They found that the scramble to build new homes is producing houses next to bypasses and link roads which are too far out of town to walk or cycle, and which lack good local buses. Gosh. Imagine such a thing! Oh, hang on, I don't have to…
• Bizarro — Wayno & Pirarro:
  
• Cesar Sayoc’s Home Was Foreclosed on by Steve Mnuchin’s Bank, Using Dodgy Paperwork — David Dayen at the Intercept, with everything you need to know to understand US politics: It’s highly doubtful Sayoc knew any of this when he allegedly sent bombs through the mail. But it shows how political partisans cannot often assess what forces carry the greatest impact on their lives. A miscreant bank foreclosed on Sayoc. Democrats could have done more to punish that bank and others like it for a mountain of foreclosure-related crimes, but they failed to do so. That created a sense that the system was rigged, providing an opening for a right-wing populist like Trump.
• Forget jobs. Will robots destroy our public services? — Atif Shafique for the RSA: In her groundbreaking but frightening book Automating Inequality, academic Virginia Eubanks examines how in the US advancements in technology - particularly automated decision-making, data mining and predictive analytics - are being used to control the poor and sever their access to public support. The book shows that this is nothing new: it is part of a historical trend stretching back decades. Crucially, Eubanks doesn’t entertain the science fiction notion that the real threat comes from machines outsmarting humans, becoming unaccountable and wreaking havoc as people look on helplessly. Neither is it just a case of human biases unintentionally finding their way into technology, as critics of algorithmic decision-making have cautioned. Instead, some of the worst features of the tech are intentional and baked in from the beginning.
• Why positive thinking won’t get you out of poverty — Farwa Sial and Carolina Alves in openDemocracy: Poverty alleviation, however, is a hugely complex subject that touches on the strengthening of institutions, the health of governance, the structure and dynamics of markets, the workings of social classes, macroeconomic policies, distribution, international integration and many other issues, none of which can be replicated from one context to another. That means that analyses of poverty have to be based on a critical examination of processes and actors that cannot be ‘controlled’ against—thus violating the principle of [Randomised Controlled Trials]. Recent developments in economics have failed to account for these fundamental determinants of poverty. Instead, the success of RCTs can be narrowed down to essentially statistical arguments that seek to identify ‘what works’ and ‘which interventions’ should therefore be employed to improve the lives of the poor. In such processes, the focus tends towards the individual or the household and (initially at least) to the design of small changes that are supposed to enable them to exit poverty, although eventually the ‘scaling up’ of interventions might also occur. Akin to the ‘nudge’ approach that has been popularised by Cass Sunstein and Richard Thaler, the idea is that people’s choices can be shaped to allow them to escape from poverty and dispossession. As a consequence, this approach individualises the ‘problem’ of poverty whilst failing to acknowledge, contextualize, highlight or analyse the structures, institutions and actors that actually make and keep some people poor.
• 'It's Like Amazon, But for Preschool' — Audrey Watters: A year ago, the richest man in the world asked Twitter for suggestions on how he should most efficiently and charitably spend his wealth. And today, Jeff Bezos unveiled a few details about his plans – other than funding space travel, that is. His new philanthropic effort, The Day 1 Fund, will finance two initiatives: the Families Fund will work with existing organizations to address homelessness and hunger; and the Academies fund “will launch an operate a network of high-quality, full-scholarship, Montessori-inspired preschools in underserved communities.” “We’ll use the same set of principles that have driven Amazon,” Bezos wrote in a note posted to Twitter. “Most important among these will be genuine intense customer obsession. The child will be the customer.”
• On “the policy” and the Governor of the Bank of England — Ann Pettifor for Progressive Economy Forum: Mark Carney was appointed by George Osborne in late 2012 in the hope that new blood at the Bank would give both the institution and the economy a boost. His salary was set at a considerably higher rate (at £480,000) than that of predecessor (£305,000) in the hope that he would deliver. Instead he has presided over a period of prolonged stagnation. In his defence, the persistent weakness of the UK economy cannot be attributed to him, or to any single man or woman. The setting of post-crisis policy by the Treasury and the Chancellor; the stubborn insistence on contracting the economy by grinding it down with austerity – these policies were endorsed by Carney, but were not of his design. He never raised any substantial objection to the dysfunctional nature of ‘monetary radicalism and fiscal consolidation’. Instead, he once remarked correctly that the Bank was “the only game in town.” Five years after his appointment, and ten years after Lehman’s bankruptcy, the economy continues to vegetate.

This week, I have been mostly reading:

• Perry Bible Fellowship — by Nicholas Gurewitch:
  
• There’s a psychological link between conspiracy theories and creationism — Stephan Lewandowsky in the Conversation: The Fribourg researchers conducted three studies with more than 2,000 participants overall. Echoing previous studies, the findings showed that teleological thinking was associated with the rejection of evolution and the acceptance of its pseudo-scientific alternative, creationism. But the researchers also showed a strong association between creationism and conspiracism. People who believed in creationism also tended to believe in conspiracy theories, regardless of their religious or political beliefs. Conspiracism was also associated with teleological thinking. This confirms that seeking purpose in random events, such as the death of Princess Diana in a drink-driving accident, or natural phenomena such as rain clouds or the necks of giraffes, reflects a common underlying way of thinking.
• The economy of permanent war — Claire Connelly in Medium: What the world thinks of as debt creation is actually the creation of credit for the financial sector. Dr Kadri says the west can make far more money from destruction than from trade. […] “You cannot expand the economy without war. War is, in fact, a necessity; it absorbs the surplus. By issuing bonds the state absorbs the excess surplus existent in the western hemisphere. That is the principal condition for global economic imbalance.” Issuing bonds has the effect of creating a military economy in a way that doesn’t interfere or compete with the private sector and acts as conveyer belt for its resources.
• Non Sequitur — by Wiley Miller:
  

Among the headlines in the AFR Real Estate section this morning:

• Brisbane buyers now look to sell at discount
• Mortgage payments to near 20-year high
• New home sales fall 27pc from peak
• 6700 projects across Australia blacklisted for loans
• Developers squeal over apartment price slump

So, soft landing?: "Allianz-owned PIMCO, like many analysts, expects a decline in overall housing prices of 10 per cent over the next couple of years and says the market slowdown engineered by macroprudential regulator APRA does not indicate a crash likely to threaten financial stability."

What's happened since the last time I looked at private sector debt to GDP ratios? Not much, but something:

If you zoom in on the post-GDP period (caution: non-zero y-axis origin ahead):

(Source: BIS total credit statistics)

Usual disclaimer: This is the rear mirror view. Only part of the picture, and systemic crises may be closer than they appear. The fall in the total since 2016 is entirely due to the corporate sector; the situation for households is no better than a couple of years ago. To get household debt down in the face of falling property values (which should never have been allowed - indeed encouraged - to get that high in the first place) somebody has to do some spending to both raise GDP and the income necessary for repayment of household debt. Corporations won't do it; they are delevering. Households can't do it; they have debt, not savings.

The government must step in to fill the spending gap by increasing benefits and decreasing taxes on households, and by employing (lots of) people. If they don't, the best outcome will be a continuation of the post-GFC new normal of stagnation and unnecessary hardship. As far as I can see, an Australian domestic mortgage-backed crash is no less likely in 2018/19 than in 2016, and the qualitative evidence (not least: sanguine predictions by very smart people with very vested interests, designed to quell restive animal spirits) points in the same direction.

This week, I have been mostly reading:

• Hundreds of Researchers From Harvard, Yale and Stanford Were Published in Fake Academic Journals — Daniel Oberhaus for Motherboard: In the so-called “post-truth era,” science seems like one of the last bastions of objective knowledge, but what if science itself were to succumb to fake news? Over the past year, German journalist Svea Eckert and a small team of journalists went undercover to investigate a massive underground network of fake science journals and conferences. In the course of the investigation, which was chronicled in the documentary “Inside the Fake Science Factory,” the team analyzed over 175,000 articles published in predatory journals and found hundreds of papers from academics at leading institutions, as well as substantial amounts of research pushed by pharmaceutical corporations, tobacco companies, and others. Last year, one fake science institution run by a Turkish family was estimated to have earned over $4 million in revenue through conferences and journals.
• The biggest policy mistake of the last decade — Ryan Cooper in the Week: After the 2008 financial crisis, old-fashioned Keynesians offered a simple fix: Stimulate the economy. With idle capacity and unemployed workers, nations could restore economic production at essentially zero real cost. It helped the U.S. in the Great Depression and it could help the U.S. in the Great Recession too. But during and immediately after the crisis, neoliberal and conservative forces attacked the Keynesian school of thought from multiple directions. Stimulus couldn't work because of some weird debt trigger condition, or because it would cause hyperinflation, or because unemployment was "structural," or because of a "skills gap," or because of adverse demographic trends. Well going on 10 years later, the evidence is in: The anti-Keynesian forces have been proved conclusively mistaken on every single argument. Their refusal to pick up what amounted to a multiple-trillion-dollar bill sitting on the sidewalk is the greatest mistake of economic policy analysis since 1929 at least.
• We’re in a new age of obesity. How did it happen? You’d be surprised — George Monbiot in the Guardian: As Jacques Peretti argued in his film The Men Who Made Us Fat, food companies have invested heavily in designing products that use sugar to bypass our natural appetite control mechanisms, and in packaging and promoting these products to break down what remains of our defences, including through the use of subliminal scents. They employ an army of food scientists and psychologists to trick us into eating more than we need, while their advertisers use the latest findings in neuroscience to overcome our resistance. They hire biddable scientists and thinktanks to confuse us about the causes of obesity. Above all, just as the tobacco companies did with smoking, they promote the idea that weight is a question of “personal responsibility”. After spending billions on overriding our willpower, they blame us for failing to exercise it.
• Omarosa’s New Book — Ted Rall:
  
• Miscalculating Medicare-for-all — J.D. Alt at New Economic Perspectives: We habitually imagine these treasury operations to be “borrowing”—and even tally them up as something we call the “national debt.” But modern analysis and explanation shows that in a sovereign money system the definition of “borrowing” does not apply to treasury operations; the securities created by the operations, themselves, are “money” issued—as needed—by the federal government. Thus, the U.S. government can (and does) pay for anything that Congress deems necessary or desirable—so long as it’s for sale in U.S. dollars—without collecting tax-dollars. Regarding Medicare-for-all, then, the initial pertinent question is NOT whether we can raise enough taxes to cover $3.3 trillion in new expenditures (that question is not pertinent at all!)—the question is whether the medical services to be purchased are actually available in America. Do we have the doctors and nurses, the hospitals and clinics, necessary to provide the care and procedures? If so, and if Congress decides it is in the interest of the American people to have access to that care, the U.S. treasury can, through its securities operations in coordination with the Federal Reserve, create the “health-dollars” necessary to pay the bill.
• Trump Officials Were Warned That Family Separations Would Traumatize Children — Ryan Devereaux at the Intercept: The government’s program of forcibly removing thousands of children from their parents, including toddlers and babies, was the result of conscious decisions made by specific Trump administration officials. Tuesday’s hearing added new data points to that story, with a career civil servant testifying that his office, tasked with providing care for minors in the immigration system, raised concerns with administration officials in the year leading up to “zero tolerance” becoming an official policy, warning that the separation of children from their parents would put the children at risk of serious psychological harm and that the system was not built to handle such an initiative. Additionally, officials testified that there was little warning within their respective agencies that “zero tolerance” was actually being implemented until it was imminent, or already happening.