The Zero Room

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.

I was just in the chemist shop, waiting for a prescription to be filled. I became aware of a customer behind me, asking an assistant if she had anything to help with insomnia. She said she was very, very stressed, and having trouble sleeping. I am not a psychologist (and in fairness nor was the shop assistant), but the lady was clearly not in a happy place, psychologically. So did the shop assistant at least suggest that the customer pop in to see her GP to find out if there was anything they might recommend?

Did she f***. She sold her some f***ing valerian pills!

It's like calling a crisis hotline and being told "It's probably nothing. Have you tried a nice cup of hot chocolate?"

It's bad enough that pharmacists are allowed to sell snake oil from the same shelves as real medicines. In a sane world any pharmacist caught doing this would be instantly deregistered. At the very least, staff should be instructed to err on the side of caution in the case of any ailment with a potential psychological component. The above conversation should have gone something more like this:

"Do you have anything for insomnia?"

"Yes, we do. This is a mild sedative. For anything stronger you'll need to see your doctor, which would be a good idea anyway if it's a persistent problem. And this here is a medieval folk remedy. Might do you some good. Might do you harm. No solid evidence either way. In fact I've no idea why we stock it. Given there's nothing to recommend it beyond uninformed heresay, you'd be a fool to try it."

This week, I have been mostly reading:

• Amid Unprecedented Controversy, W3C Greenlights DRM for the Web — Cory Doctorow, Electronic Frontier Foundation: It was the most controversial vote in W3C history. As weeks and then months stretched out without a decision, another W3C member, the Center for Democracy and Technology, proposed a very, very narrow version of the covenant, one that would only protect security researchers who revealed accidental or deliberate leaks of data marked as private and sensitive by EME. Netflix's representative dismissed the idea out of hand, and then the W3C's CEO effectively killed the proposal. Today, the W3C announced that it would publish its DRM standard with no protections and no compromises at all, stating that W3C Director Tim Berners-Lee had concluded that the objections raised "had already been addressed" or that they were "overruled."
• The Troubling Appeal of Education at For-Profit Schools — Dana Goldstein reviews the brilliant Tressie McMillan Cottom's new book in the NY Times: In the revelatory “Lower Ed: The Troubling Rise of For-Profit Colleges in the New Economy,” the sociologist Tressie McMillan Cottom introduces us to London, a 48-year-old widow and single mother of three children. London lives in rural North Carolina, and has watched as decent working-class jobs in the textile industry disappeared from her region. […] At various times she trained to be a child care provider, a medical biller, a computer technician and, most recently, a medical assistant. Cottom asked London what she would do if she could not find the middle-class health care administration job she desired — a type of position that often requires training in a medical specialty like cardiology. London’s program at a branch of for-profit Everest College does not provide such specialized training. She smiled and told Cottom, “Jesus is my backup plan.”
• Lower Ed: A Review — Matt Reed at Inside Higher Ed has a longer and better review of the same: In trying to answer the question of why so many students poured into for-profit colleges from about the mid-1990’s to 2010-ish, she argues for a different answer than the ones usually given. The usual answers are twofold. Either the for-profit colleges are simply slick thieves who preyed upon the unwitting, or the labor market suddenly required skills that nobody else could offer at scale. She suggests a third, which she calls credentialism. In her telling, students are not witless dupes, and technological change was not unique to the mid-90’s. Instead, for-profit colleges formed a sort of “negative social insurance” program by which students hoped to protect themselves against being left behind in a labor market that had outsourced training costs to workers themselves.
• The Good News is Obamacare is Probably OK. The Bad News… — Ted Rall:
• Pigouvian Taxes and Bounties — Timothy Taylor observes — to paraphrase a prominent public intellectual — who knew fiscal policy could be so complicated?: A related problem in thinking about Pigovian taxes arises when choosing the tax rate. For example, in the case of alcohol there is some evidence that moderate consumption may have health benefits, through a reduction in blood pressure. However, inappropriate and excessive consumption of alcohol can also lead to drunken driving, violence, fetal alcohol syndrome, and other consequences. Thus, it seems as if the appropriate Pigouvian tax on alcohol should be to subsidize the light social drinker, but to impose a high tax on drinkers who impose high social costs. When the effects of an action on third parties are heterogenous in this way. choosing an appropriate Pigouvian tax becomes tricky, and society may well feel a need for use of alternative or complementary policy tools.
• RBA all but calls the dumb bubble — David Llewellyn-Smith quotes the Age quoting RBA Assistant Governor Michele Bullock: “We don’t want households to find themselves in a situation where they have to emergency sell or whatever because they can’t afford it any more.” In the past year Sydney prices had climbed 18 per cent and Melbourne prices have risen 13 per cent.
• Careful Car Care Made Care Free - Tires and fluids! — Phil Are Go!:

Charts! Nobody asked for them, but I have them anyway! Over the last few years the Bank for International Settlements have been publishing a fab set of statistics that are not usually brought to bear in the tea leaf reading of mainstream economists. This is a shame, as they are exactly the sort of statistics which would indicate the risk of imminent financial crisis. Last month the BIS updated the data to the end of (calendar year) 2016. Here's an illustration (courtesy of LibreOffice) of where Australia is, relative to some comparable and/or interesting countries (click to embiggen):

As the BIS explains, the Debt Service Ratio (DSR):

"reflects the share of income used to service debt and has been found to provide important information about financial-real interactions. For one, the DSR is a reliable early warning indicator for systemic banking crises. Furthermore, a high DSR has a strong negative impact on consumption and investment."

So as a measure of Australia's ability to pay at least the interest on our private sector debts, if not pay down the principal, you might think this is not a bad result. We clearly substantially delevered after the GFC, thanks in large part to the Rudd stimulus pouring public money into the private sector, then levered up a bit since, but we've ended up between Canada and Sweden, which is a pretty congenial neighbourhood. But this is total private sector debt; what happens when we take business out of the equation and just look at households (and non-profit institutions serving households - NPISHs)?

Woah! Suddenly we're in a league of our own. Canada's flatlined here since the GFC, meaning the subsequent increase in their total private debt burden has largely come from investment in business capital. In such a case, provided this investment is directed at increasing productive capacity, and is accompanied by public sector spending to proportionally increase demand, this is sustainable debt. Australia has been doing the opposite.

Here's another way of looking at the coming Australian debt crisis, private sector credit to GDP:

This ratio will rise whether the level of debt rises, GDP falls, or both, so it's another good indicator of unsustainable debt levels. The current total level (in blue) of over 200% is at about the ratio Japan was at when its real estate bubble burst in the early 1990s. Breaking this down again into household and corporate sectors, we see that over the mid-1990s Australia switched the majority of its private sector borrowing from business investment to sustaining households. What happened in the mid-90s? Data here from the OECD:

From the mid-1990s to 2007 Australia experienced the celebrated run of Howard/Costello government fiscal (or "budget") surpluses. We all know, or should know, thanks to Godley's sectoral balances framework, what happens when the public sector runs a surplus: the private sector must run a corresponding deficit, equal to the last penny. There is nowhere else, net of private sector bank credit creation (which zeroes out because every financial asset created in the private sector has a corresponding private sector liability), for money to come from. When the government taxes more than it spends, it is withdrawing money from the private sector. Mainstream economics calls this "sustainable", and "sound finance", meaning of course it is nothing of the sort.

How did the private sector, and the household sector in particular, continue to spend from that point onward, behaving as though losing money (not to mention public infrastructure and services) down the fiscal plughole was not merely benign but quite wonderful? It chose to Nimble it and move on, going on a massive credit binge. The banks were happy to provide all the credit demanded, because the bulk of the lending was ulitimately secured by residential real estate prices, and these were clearly going to keep rising without limit (thank heavens, because if they were to fall like they did in the US in 2007…).

The Global Financial Crisis put a dent in the demand for credit, but as subsequent government fiscal policy has tightened, under the rubric of "budget repair", it is rising again. We are already in a state of debt deflation: Australia's household debt service ratio (as above), at between 15 and 20 percent of household income for over a decade, has dampened domestic demand, leading to rising unemployment and underemployment, leading to more easy credit as a quick fix for income shortfalls ("debtfare"). More of what income remains is redirected to debt servicing rather than consumption, and so we spiral downwards, our incomes purchasing less and less with each turn. [I will post more about some of the social and microeconomic consequences in (over-)due course.]

The Australian government needs to spend much, much more - and quickly. Modern Monetary Theory, drawing on an understanding of the nature of money that goes back a century, shows us that government spending (contrary to conventional wisdom) is not revenue-constrained; a currency-issuing government can always buy anything available for sale in the currency it issues. There is nothing about our collective "budget" that needs repairing before we can do so. The same data from the OECD shows that most currency-issuing governments with advanced industrial economies run fiscal deficits almost all the time:

In fact, under all but exceptional conditions, government fiscal surpluses (i.e. private sector fiscal deficits) are a recipe for recession or depression. The greater the surplus, the greater the subsequent government spending required to lift the private sector out of crisis, as can be seen above in the wild swings in neoliberal governments' fiscal position from the mid-90s on. The fiscal balance over any given period is nothing more than a measurement of the flow of public investment into the private sector. What guarantees meaningful sustainability is a government's effective use of functional finance to manage the real (as opposed to financial) economy in pursuit of public policy objectives. Refusing to mobilise idle resources (including, crucially, labour) for needed public goods and services is not "sound finance"; it is the very definition of economic mismanagement, as was once widely recognised:

"It is true that war-time full employment has been accompanied by efforts and sacrifices and a curtailment of individual liberties which only the supreme emergency of war could justify; but it has shown up the wastes of unemployment in pre-war years, and it has taught us valuable lessons which we can apply to the problems of peace-time, when full employment must be achieved in ways consistent with a free society.

"In peace-time the responsibility of Commonwealth and State Governments is to provide the general framework of a full employment economy, within which the operations of individuals and businesses can be carried on.

"Improved nutrition, rural amenities and social services, more houses, factories and other capital equipment and higher standards of living generally are objectives on which we can all agree. Governments can promote the achievement of these objectives to the limit set by available resources.

"The policy outlined in this paper is that governments should accept the responsibility for stimulating spending on goods and services to the extent necessary to sustain full employment. To prevent the waste of resources which results from [un]employment is the first and greatest step to higher living standards."

Australian Government, 1945, White Paper on Full Employment

We chose to forget all this from the 1980s onward. We can choose to remember it at any time.