The Zero Room

This week, I have been mostly reading:

• Review of Steve Keen’s “Can we avoid another financial crisis?” — Michael Hudson: Mainstream models are unable to forecast or explain a depression. That is because depressions are essentially financial in character. The business cycle itself is a financial cycle – that is, a cycle of the buildup and collapse of debt. Keen’s “Minsky” model traces this to what he has called “endogenous money creation,” that is, bank credit mainly to buyers of real estate, companies and other assets. He recently suggested a more catchy moniker: “Bank Originated Money and Debt” (BOMD). That seems easier to remember.
• Education Can’t Fix Poverty. So Why Keep Insisting that It Can? — Jennifer Berkshire interviews Harvey Kantor in the Have You Heard blog: One of the consequences of making education so central to social policy has been that we’ve ended up taking the pressure off of the state for the kinds of policies that would be more effective at addressing poverty and economic inequality. Instead we’re asking education to do things it can’t possibly do. The result has been increasing support for the kinds of market-oriented policies that make inequality worse.
• Three radical ideas to transform the post-crisis economy — Martin Sanbu in the AFR: If private management of the money supply is a recipe for instability, the radical alternative is to nationalise the money supply. This is do-able today: central banks can offer accounts to all members of the public (or make central bank reserves available to everyone). Banks could be restricted to allocating existing savings to investments, rather than creating new credit. Another imperative is that of economic security. Previous radicals created safety nets where none existed. Today we have ample welfare states, but they still leave large groups in precarious conditions. Sometimes they trap them there, as generous benefits for low earners are withdrawn with rising incomes, creating prohibitive effective marginal tax rates for the modestly paid. The radical solution is a universal basic income, the proposal to pay an unconditional benefit to all citizens, financed by tax rises. The idea is rediscovered by every other generation; the time to put it into practice may now have come.
• Can Trump Deliver on Growth? — James K. Galbraith in Dissent Magazine: As things stand, the financial sector neither serves a public purpose nor does it deliver the growth it once did, until it broke down nine years ago. While there are people who feel obliged to borrow, and there will always be new generations of suckers, boom-and-bust banking credit isn’t a viable model for growth any more. What should be done about the banks? These are institutions with high fixed costs and with technologies and transnational legal structures that are designed to facilitate tax evasion and regulatory arbitrage. They face very limited prospects for sustained profitability in activities that correspond to social need. Their entire structure isn’t viable in a world of slow growth, except by fostering short-lived booms (of which the shale rush was the most recent example), followed by busts and bailouts. In short, the financial sector as a whole is a luxury we cannot afford.
• Savings are an Export Product — Neil Wilson: Foreign entities are holding your currency as savings. Similarly, financial products denominated in your currency are held as savings. Savings are, in effect, an export product of your currency area. Once you look at it this way, then savings are very similar to a barrel of oil in stock, or an aircraft engine. If your country relies upon oil exports and people stop wanting oil then you may have a problem. If you rely on aircraft engine exports and there are no orders for new aircraft, you may have a problem. If you rely upon people taking your savings (because they had an export-led policy — which implies a savings-import policy) and that changes (the export-led policy moves to a domestic-led policy, as we’re starting to see in China) then you may have a problem.
• The University Does Not Think — Simon Cooper in Arena: If we look at the various levels of university activity, from undergraduate teaching to academic research, to the relationship between the university and the wider social realm, it becomes quickly apparent how the university has been captured by instrumental logic since the expansion of the system in the 1980s. The increasing dominance of knowledge as a commodity (as opposed to other modalities of knowledge—critique, interpretation, wisdom and so forth) has played out across various domains. Starting with undergraduate education, we can see how the introduction of fees and debt systems creates a shift around the meaning of education towards a more narrowly instrumental one for both the student and the institution. As G. L. Williams remarks, ‘students have been metamorphosed from apprentices into customers and their teachers from master craftsmen to merchants’. University education as vocational training has become an increasingly central way of framing the student’s relation to knowledge, with a consequent decline in less ‘market-friendly’ subjects. The atrophy of the pure sciences, philosophy, social theory, literature etc. within many tertiary institutions is well established. In some cases, humanities departments have closed, replaced by ‘creative industries’ centres whose rationale is to marketise skills generated by an applied-humanities model, discarding all others.
• The Rock-Star Appeal of Modern Monetary Theory — Atossa Araxia Abrahamian at the Nation: According to this small but increasingly vocal cohort of economists, including Bernie Sanders’s former chief economic adviser, once we change the way we think about money, we can provide for everyone: We don’t have to “find” the money to “pay” for universal health care by “cutting” the budget elsewhere. In fact, our government already works that way: Spending must precede taxation, or there would be no dollars in the economy to tax. It’s the political will to spend on certain things, not the money to afford it, that’s lacking.
• Immiseration Revisited: The four phases of working time — Sandwichman at Angry Bear: The four phases of working time can be labeled cooperation, exploitation, immiseration and ruin. The incentive for employers is to progress inexorably toward the last phase unless regulated by legislation or collective bargaining.[…] In conclusion, yes, there is a neo-classical immiseration theory. The economists who propounded it apparently were unaware that it was such a theory. By extension, that immiseration theory is a crisis theory. There is no built-in mechanism of negative feedback from prices that militates against the passage from the immiseration phase to the ruin phase. Hicks assumed that a “very moderate degree of rationality on the part of employers will thus lead them to reduce hours to the output optimum as soon as Trade Unionism has to be reckoned with at all seriously [emphasis added].” But by the time exploitation has progressed to the immiseration phase, trade unionism doesn’t have to be “reckoned with at all seriously” by employers.
• What is human capital? — Peter Fleming in Aeon Essays: Friedman had discovered in human capital theory more than just a means for boosting economic growth. The very way it conceptualised human beings was an ideological weapon too, especially when it came to counteracting the labour-centric discourse of communism, both outside and inside the US. For doesn’t human capital theory provide the ultimate conservative retort to the Marxist slogan that workers should seize the means of production? If each person is already his own means of production, then the presumed conflict at the heart of the capitalist labour process logically dissolves. Schultz too was starting to see the light, and agreed that workers might actually be de facto capitalists: ‘labourers have become capitalists not from the diffusion of the ownership of corporation stocks, as folk law would have it, but from the acquisition of knowledge and skill that have economic value.’

Via MacroBusiness, here's the TL;DR of the Business Council of Australia's submission to a 2012 Senate inquiry into social security allowances:

• "The rate of the Newstart Allowance for jobseekers no longer meets a reasonable community standard of adequacy and may now be so low as to represent a barrier to employment.
• "Reforming Newstart should be part of a more comprehensive review to ensure that the interaction between Australia’s welfare and taxation systems provides incentives for people to participate where they can in the workforce, while ensuring that income support is adequate and targeted to those in greatest need.
• "As well as improving the adequacy of Newstart payments, employment assistance programs must also be reformed to support the successful transition to work of the most disadvantaged jobseekers."

Not only did the BCA's confederacy of Scrooges suffer unaccustomed pangs of sympathy, the Liberal Party senator chairing the inquiry also agreed that Newstart is excessively miserly. However, he failed to recommend raising the allowance, saying:

"There is no doubt the evidence we received was compelling. Nobody want's [sic] to see a circumstance in which a family isn't able to feed its children, no one wants to see that in Australia. But we can't fund these things by running up debt."

Sigh. (Here we go…) There is no need to "fund these things", whether it be by "running up debt" or any other means. The Federal Government creates money when it spends. We, as a country, run out of the capacity to feed our children when we run out of food. We cannot run out of dollars, since we can create the dollars without limit.

The government does however, at the moment, have a purely voluntary policy of matching, dollar-for-dollar, all spending with government bond sales. There's no good reason for this; as Bill Mitchell says, it's just corporate welfare. Even so, selling bonds is not issuing new debt. Bonds are purchased with RBA credits (or "reserves", if you prefer). The purchasing institution simply swaps a non-interest-bearing asset (reserves) at the RBA for an interest-bearing one (bonds), still at the RBA. It's just like transferring some money from a savings account to a higher-interest term deposit account at a commercial bank; do we say that this is a lending operation? Of course not.

There is no fiscal reason why the government should punish the unemployed to the extent that they become an unemployable underclass. Even if we are generous and assume the good senator and his colleagues on the inquiry are just ignorant about how the economy works, we are still bound to conclude that there must be some (not so ignorant) people in government, who do want to see people suffering for no just reason.

This week, I have been mostly reading:

• Toronto Housing Bubble Pops. “Genuine Fear” of Price Collapse — Wolf Richter: “Clearly, the year-over-year decline we experienced in July had more to do with psychology, with would-be home buyers on the sidelines waiting to see how market conditions evolve,” said [Toronto Real Estate Board] President Tim Syrianos. Alas “psychology” is precisely what causes house price bubbles – not fundamentals, such as 2.3% annual wage increases. And when that “psychology” turns, it pricks those bubbles.
• Housing bubble is now official, commence arse-covering (panic)! — Matt Ellis: We look to be approaching the final panic stages of the last blow off in this epic bubble, as the kitchen sink is thrown at the market in a desperate attempt to avoid the inevitable. But it will only do further damage, and ultimately prove futile. This is the cost that we all have to pay for those beloved property prices – that illusory “wealth effect” that simply amounts to a pile of household debt as large as the difference between the total nominal value and the total fair value of the housing market.
• Explainer: shadow banking and where it came from — Huon Curtis in the Conversation: Australia can’t do much to remedy global uncertainty. However, policies it pursues do link into shadow banking practices in multiple ways. Policies that erode the standard employment relation and cut pay rates increase consumer demand for short-term credit products. This increases private debt for consumers, but feeds its attractiveness into an asset class for institutional investors.
• I See What Google Did There… — Adam Croom: Today Google announced what is, again, a fun and intriguing tool called AutoDraw. You draw some squiggly lines and it uses AI to guess what you meant to draw. […] Does Google really want to improve drawing everywhere? Did Google find a specific weakness within the human race and thus felt compelled to solve a world problem? Or is Google creating a product that meets a market need of designers who need quick icons? Nah, none of those. Does it want to improve machine learning? Hell yes it does.
• British Labour has to break out of the neo-liberal ‘cost’ framing trap — Bill Mitchell: Statements such as the ‘nation cannot afford the cost of some program’ are never made when the military goes crazy and launches millions of dollars of missiles to be blasted off in the dark of the night. But when it comes to public health systems or the nutritional requirements of our children, the neo-liberals have their calculators out toting up the dollars. However, the actual cost of a government program is the change it causes in the usage of real resources. When we ask whether the nation can afford a policy initiative, we should ignore the $x and consider what real resources are available and the potential benefits. The available real resources constitute the fiscal space. The fiscal space should then always be related to the purposes to which we aspire, and the destination we wish to reach. British Labour needs to learn those basics fast and to break out of the neo-liberal ‘cost’ framing it is trapped within.
• With or without edtech — Jonathan Rees: Can you live without edtech? [You just knew I had to get around to edtech here eventually, right?] Shockingly enough, there were actually good schools in the United States long before Bill Clinton and Al Gore decided to put a computer in every classroom. Plenty of teachers and professors offer great classes of all kinds without anything more sophisticated than their voices and a chalkboard. Weirdly enough, just this morning, right after I read that article, I was pitching our dean on starting a digital humanities program in our college. “What about the professors who don’t want to use technology?,” he asked me. I said I would never in a million years force any teacher to use technology if they don’t want to, but it’s a actually a good thing if students have a wide range of classes in which they can enroll, some of which use educational technology and some of which don’t.

This week, I have been mostly reading:

• Meritocracy: the great delusion that ingrains inequality — Jo Littler: When the word meritocracy made its first recorded appearance, in 1956 in the obscure British journal Socialist Commentary, it was a term of abuse, describing a ludicrously unequal state that surely no one would want to live in. Why, mused the industrial sociologist Alan Fox, would you want to give more prizes to the already prodigiously gifted? Instead, he argued, we should think about “cross-grading”: how to give those doing difficult or unattractive jobs more leisure time, and share out wealth more equitably so we all have a better quality of life and a happier society.
• ‘When I Was Your Age, We Used A Thing Called Cash’: And Other Ways to Fight Back Against The Banks — Warwick Smith in New Matilda: We need to stop seeing housing as a way to accumulate wealth and start to see it as… well, housing. This is largely a government policy responsibility and not something we can do as individuals. However, as individuals we can claw back a little bit of control and cut out the banks as middle men by using cash when we spend. This is particularly useful for the small local businesses where we shop. It could be the difference between them surviving and going under – or being able to pay staff versus working 12 hour days themselves. Those staff could be your kids or your friends.
• Mortality Crisis Redux: The Economics of Despair — Pia Malaney, Institute for New Economic Thinking: Case and Deaton estimate that the upturn in mortality rates in the US is starkly divergent from other developed countries, and accounts for 96,000 deaths that could have been avoided between 1996 and 2013. Their latest work delves deeper into the underlying causes of this decline. “Deaths of Despair” — by suicide, drug overdose or alcohol abuse — cannot be completely explained simply by stagnant or declining incomes. Income profiles for middle aged blacks and Hispanics look similar, without a corresponding rise in mortality. Rather, the authors posit, it can be traced to a “cumulative disadvantage over life”, where declining labor market opportunities have led to declining outcomes not just in the labor market but also in health, marriage, and child rearing. In other words, the stress accompanying the shock of downward mobility is likely driving this health crisis. And:
• America’s prison population is getting whiter — Keith Humphreys: The 21st century has witnessed remarkable decay in the well-being of many non-Hispanic white Americans. In a new report, economists Anne Case and Angus Deaton document that non-Hispanic whites who have a high school education or less have experienced reduced life expectancy and increased rates of suicide and addiction. Recent correctional system data highlight another dimension of this population’s travails: they are increasingly spending time in jail.
• After 12 Rejections, Apple Accepts App That Tracks U.S. Drone Strikes — Josh Begley, the Intercept: Smartphones have connected us more intimately to all sorts of data. As Amitava Kumar put it recently, “The internet delivers ugly fragments of report and rumor throughout the day, and with them a sense of nearly constant intimacy with violence.” Yet information about drone strikes — in Apple’s universe — had somehow been deemed beyond the pale.
• One weird trick for dealing with government-bashers — Jen Sorensen at Daily Kos:
• Oh, Jeremy Corbyn — Neil Wilson on Medium: Student loans are not really loans. It’s just a list of people who are liable to a form of additional taxation after graduation. Even then it is only paid by those who managed to get a decentish job after graduation. Two thirds of the loans will likely be written off anyway. Scrapping tuition fees and the loan system is simply a tax cut for those who have bettered themselves and managed to get a reasonable job. Getting rid of the albatross around their necks and the necks of thousands, if not millions, of ex-students who were not quite so lucky in the jobs market will increase their capacity to spend in the economy. The resulting expansion and multiplier effect throughout the economy will absorb that spend via additional production and job expansion.
• The Top Ed-Tech Trends (Aren't 'Tech') — Audrey Watters: In 2012, I chose “the platforming of education” as one of the “top ed-tech trends.” […] Platforms aim to centralize services and features and functionality so that you go nowhere else online. They aspire to be monopolies. Platforms enable and are enabled by APIs, by data collection and transference, by data analysis and data storage, by a marketplace of data (with users creating the data and users as the product). They’re silos, where all your actions can be tracked and monetized. In education, that’s the learning management system (the VLE) perhaps.
• Announcing Unpaywall: unlocking #openaccess versions of paywalled research articles as you browse — Heather Piwowar and Jason Priem of Impactstory, the team behind Unpaywall, on the LSE Impact Blog: Today we’re launching a new tool to help people read research literature, instead of getting stuck behind paywalls. It’s an extension for Chrome and Firefox that links you to free full-text as you browse research articles. Hit a paywall? No problem: click the green tab and read it free! The extension is called Unpaywall, and it’s powered by an open index of more than ten million legally-uploaded, open access resources.