The Zero Room

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.

This week, I have been mostly reading:

• The Philistine Factory — Stuart Whatley in the baffler: One plank in the Republican education-policy platform is student-loan privatization, even though most economists doubt that “liberalizing” this market would do any good. If private banks are brought into the process of granting student loans, they will have an incentive to favor certain academic majors over others. Any course of study that does not promise easy employment and a high salary after graduation will be denied financing, or treated as a subprime, punitively high-interest loan. This will, no doubt, have the desired effect of homogenizing the future labor force to fit American corporations’ standardized needs. As it happens, the Democrats’ ultimate goal for education in recent years has amounted to the same thing. To the extent that Hillary Clinton offered specific education policy proposals in the 2016 election, she did so only in the context of boosting workforce competence and productivity. The sole purpose of education, apparently, is to enable “young people from everywhere . . . to be prepared to compete for those jobs.”
• Centrelink’s Data-Matching Fiasco — Gerard McPhee in Arena: […] ministers want to reduce Centrelink expenditure and have a deep-seated suspicion about a class of people ‘rorting the system’. The factual basis of that suspicion is not critical here. What is critical is that Cabinet has a predisposition to support any additional method to detect imagined ‘rorters’ or ‘undeserving’ poor people, and will do so at a policy level, not considering the consequences of added complexity or transactional volume to the systems it will call on.
• Ten points for Democracy Activists — George Lakoff: Know the difference between framing and propaganda: Frames are mental structures used in thought; every thought uses frames. Every word in every language is defined relative to a mental structure — a frame. Frames, in themselves, are unavoidable and neutral. Honest framing is the use of frames you believe and that are used to express truths. Propaganda expresses lies that propagandists know are lies for the sake of political or social advantage.
• The world’s biggest gamblers — your chart porn for the week from the Economist: To the general public, Australia hardly leaps to mind as a gambling hotbed. Yet industry insiders know it is far and away their most lucrative market: according to H2 Gambling Capital (H2G), a consultancy, betting losses per resident adult there amounted to $990 last year. That is 40% higher than Singapore, the runner-up, and around double the average in other Western countries. The most popular form of gaming in Australia is on ubiquitous electronic poker machines, or “pokies”, which are more prevalent there than anywhere else. Although the devices are legal in many other markets, bet sizes are usually capped at modest levels. By contrast, in Australia, which began to deregulate the industry in the 1980s, punters can lose as much as $1,150 an hour.
  
• “Tulip bubble” Murray shakes snoring APRA — David Llewellyn-Smith in MacroBusiness: Switzer: “How vulnerable do you think our banks are to the apartment oversupply?” David Murray: “Well, the economy’s vulnerable because there’s a bubble in the housing market. All the signs of a bubble are there. Many of the signs are the same as the bubble in Dutch Tulips… People’s behaviour, people’s defensiveness about any correct in that market. All those signs are there. Now, if the economy tracks along OK, it might turn out that this thing sorts itself out. But when those risks are there, something needs to be done about it in a regulatory sense and the RBA and APRA need to stay on it”…
• What in the Heck Is “Money Printing,” Anyway? — Steve Roth at Evonomics has an interesting piece that packs a lot into a small word count. However I think it falls down by failing to distinguish between government-backed financial assets and real assets. Yes, when the dollar-denominated valuation of stock market or real estate assets goes up, we can say in one sense that private sector asset values have increased, but if everyone were to try to cash in at once those valuations would suddenly change drastically. On the other hand, for government-backed cash, central bank reserves, bonds, and private sector bank credits, a dollar is a dollar is a dollar — at least as far as extinguishing tax liabilities is concerned. For any other definition of "value", see a philosopher, not an economist.
• Universal Basic Income Accelerates Innovation by Reducing Our Fear of Failure — Scott Santens at Medium from an enthusiastically pro-market perspective, makes an argument that generalises to we socialist fuddy-duddies: For decades now our economy has been going through some very significant changes thanks to advancements in technology, and we have simultaneously been actively eroding the institutions that pooled risk like trade unions and our public safety net. Incomes adjusted for inflation have not budged for decades, and the jobs providing those incomes have gone from secure careers to insecure jobs, part-time and contract work, and now recently even gig labor in the sharing economy. Decreasing economic security means a population decreasingly likely to take risks. Looking at it this way, of course startups have been on the decline. How can you take the leap of faith required for a startup when you’re more and more worried about just being able to pay the rent?
• Listen up, Scott Morrison. It's time to bust the myth of the budget surplus — Warwick Smith brings MMT to the Guardian: Private sector debt in Australia is currently about 210% of GDP, compared to government debt of about 30%. What Scott Morrison needs to explain to the Australian people is why he’s so keen to increase the private debt they hold over their homes and businesses when it’s already so high.
• We showed I, Daniel Blake to people living with the benefits system: here’s how they reacted — Stephanie Petrie in the Conversation: During our screening, we were told that assessments often ignored significant health conditions. One profoundly deaf woman was informed: "In your application form for ESA you stated that following an illness when you were a child, you are now profoundly deaf. After your assessment I tried to contact you to discuss your assessment. I telephoned you several times, but you did not answer, therefore I left you a voicemail. You still did not respond. I have therefore found you fit for work."
• How will we get over the Trump addiction? — Robert Fisk in the Independent: Not long after the Lebanese civil war ended more than a quarter of a century ago, I found my landlord in a depressed mood. He had suffered in the fifteen years of war – part of his family had been “cleansed” from their home in east Beirut – but peace had returned to the ruins of the city, the Mediterranean sloshed opposite our apartment block and in front of the little candy store he ran on the Corniche. What on earth could be the matter? “It’s so boring, Mr Robert,” he confessed to me one bright morning.
• #ProtectTheTruth — George Lakoff: When President Richard Nixon addressed the country during Watergate and used the phrase “I am not a crook,” he coupled his image with that of a crook. He established what he was denying by repeating his opponents’ message. This illustrates a key principle of framing: avoid the language of the attacker because it evokes their frame and helps make their case.
• Why Australia’s rental system needs reform — Leith van Onselen, MacroBusiness: One of the great strengths of the German housing market is that it provides strong protections for tenants. […] because renting is the dominant housing choice in Germany (see below chart), the political system is highly sensitive to tenants’ rights and perceived threats to the status quo typically receive prominent media attention and political responses. Also, because renters enjoy secure tenure (and housing supply is fairly responsive), Germans have little incentive to rush into owner occupation. As such, Germany doesn’t suffer from the ‘panic buying’ and speculation often present in bubble housing markets, like Australia’s.