Joseph Stiglitz -- former World Bank economist and Nobel economics laureate -- has a suggestion for dealing with the Barclay's bank scandals and those that follow:
put bankers in jail.
— Cory
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Cory Doctorow at 6:50 am • • 
Alternet's new series on "job insecurity" opens with a frightening and infuriating piece from Lynn Parramore, who paints a picture of a nation where the new normal is to be marginally employed, in terror of a coming layoff, haunted by unshakable student debt, and in a continuous, panicked search for work, all at once:
It wasn’t supposed to be like this. Our capitalist endeavor was supposed to make us safe from the vagaries of weather conditions and arbitrary events that harassed our ancestors. But somehow we’ve ended up more worried than ever.
Anxiety disorders now plague 18 percent of the U.S. adult population –- a whopping 40 million people. Only half that number are affected by mood disorders. The drug alprazolam — familiar by its brand name, Xanax — was prescribed 46.3 million times in 2010, making it that year’s bestselling psychiatric drug. Prozac, the happiness-and-optimism pill, has been pushed aside by a medication meant to just help you get through the day without collapsing in a puddle of anxiety.
It’s easy to see the appeal of popping a Xanax. A recent survey by the American Psychological Association paints a picture of workers on the verge of a nervous breakdown.
* Sixty-two percent say work has a significant impact on their stress levels.
* Almost 50 percent indicate their stress levels have increased between 2007 and 2008.
* Forty-five percent of workers say job insecurity has a significant impact on stress levels.
...When we fear the hatchet will fall, when the future is a fog, when we’re paralyzed by powerlessness, we start to flip out. We pile on more work than we can handle. We don’t take sick days when we need them. We start fueling up on coffee and cigarettes, and dropping the things that are good for us, like leisure activities and trips to the gym. Under chronic stress, our immune systems start to buckle from “overresponsivity.”
Job Insecurity: It’s the Disease of the 21st Century -- And It’s Killing Us
(via Naked Capitalism)
Cory Doctorow at 2:00 pm • •
Here's a well-cited and pretty scary article describing the vast scale of corruption at the highest levels in China, and the extent to which "the success of 300m Chinese who live in western level prosperity depends on the continued exploitation and good nature of one billion people who live on an average of $5000 per annum." The author, Steve Keen (Professor of Economics & Finance at the University of Western Sydney) ranges widely over Chinese industry, government, and the military.
Zoomlion has an interesting business model, it is similar in many of ways to Caterpillar, except whereas Caterpillar report falling sales, Zoomlion reports astounding sales growth with a fivefold increase in revenue since 2007. Zoomlion customers sometimes buy ten concrete mixers when they planned to initially by one or two. They have a perverse incentive to buy more than they need because these concrete trucks are purchased via finance packages supplied by Zoomlion.
Then the machines can be garaged and used as collateral to borrow further funds from other lenders. Zoomlion continues to grow while cement sales have plunged. In May, cement output increased 4.3 per cent YoY, down from 19.2 per cent recorded last year. Zoomlion’s new debt of $22.5B buys roughly 900,000 trucks which could produce enough concrete (at six loads a day) to build over thirty Great Pyramids of Giza a day .
Every sector is infected with these kinds of perverse business practices, steel traders used loans meant for steel projects to speculate in property and stocks , it has been common (apparently) for steel traders to secure loans to buy steel then use this same steel as collateral to borrow funds to invest in property development and the stock market. In many ways this is the steel version of the Zoomlion model. A fundamental foundation of any lending market is the ability of the lender to ensure title and guarantee ownership of collateral...
...The current political leadership of China represents the greatest looting of a country by the political class ever seen in history. In the Hurun Report released in March 2012—the richest 70 members of the government have a net worth of $89.8 billion, an average of over $1B each. This compares to $7.5 billion for the 660 for the US government, an average of $11M each. China’s Billionaire People’s Congress Makes Capitol Hill Look Like Paupers. In a country so indoctrinated in the works of Marx, it seems only a matter of time before the current Chinese proletariat, suffering under extreme wealth distribution, will rise up. One only has to look at the geographic distribution of wealth to see where the problems might begin.
Furthermore, this does not take into account the wealth held by the families of these politicians. Nor is this corruption limited to politicians. The military, according to John Garnaut’s report, has become one of the most corrupt state enterprises of all. China’s wealth distribution is becoming completely one sided The success of 300m Chinese who live in western level prosperity depends on the continued exploitation and good nature of one billion people who live on an average of $5000 per annum. This week Chinese military leaders have been ordered to report assets under the following CCP directive – The General Political Department, Discipline Inspection Commission: Leaders Must Report Income, Real Estate Holdings and Investments. This is likely to be met with extraordinary resistance. This could result in a standoff between the CCP and the PLA , where both bodies equally riddled with corruption struggle for the upper hand. The great
The Looting of China by the Kleptokapitalist Bourgeoisie Roaders
(via Naked Capitalism)
Cory Doctorow at 12:04 pm • •
Austin "Steal Like an Artist" Kleon pulls the Table of Contents from PT Barnum's 1880 book Art of Money Getting (which Mark wrote about last year), noting "Like most prescriptive books (including my own) you could probably write a whole book simply stating the opposite, but there’s so much in this book I love..."
* Don’t mistake your vocation
* Select the right location
* Avoid debt
* Persevere
* Whatever you do, do it with all your might
* Depend upon your own personal exertions
* Use the best tools
* Don’t get above your business
* Learn something useful
* Let hope predominate, but be not too visionary
* Do not scatter your powers
* Be systematic
* Read the newspapers
* Beware of “outside operations”
* Don’t indorse without security
* Advertise your business
* Be polite and kind to your customers
* Be charitable
* Don’t blab
* Preserve your integrity
P.T. Barnum, The Art Of Money Getting (1880)
(via Beth Pratt)
Cory Doctorow at 11:12 am • •
My latest Guardian column is "Disorganised but effective: how technology lowers transaction costs," a piece about a new kind of group that has been enabled by the Internet -- a group with no formal structure that can still get stuff done, like Occupy and Anonymous.
The things that one person can do define what is "human". The things that transcend the limits of an individual – building a skyscraper, governing a nation, laying a telecommunications network, writing an operating system – are the realm of the super-human.
The most profound social revolutions in human history have arisen whenever a technology comes along that lowers transaction costs. Technologies that makes it cheaper to work together lower the tax on super-human powers.
Language (which allowed for explicit communication), writing (which allowed for record-keeping), literacy (which allowed for communication at a distance and through time) and all the way up to assembly lines, telegraphs, telephones, cryptography (which lowers transaction costs by reducing the amount of energy you have to expend to keep attackers out of your coordination efforts), computers, networks, mobile phones and beyond.
Decreasing transaction costs means that the powerful can do more. If you've already organised a state or criminal enterprise or church with you at the top, it means that you've figured out how to harvest and distribute resources effectively enough to maintain your institutional stability.
Disorganised but effective: how technology lowers transaction costs
Cory Doctorow at 6:57 am • •
On Crooked Timber, Aaron Swartz reviews Twilight of the Elites, Chris Hayes's indictment of "meritocratic" society. I recently blogged an excerpt from Twilight, published in The Nation -- I was really impressed by it. Swartz's review has cemented that view.
Hayes pins the blame on an unlikely suspect: meritocracy. We thought we would just simply pick out the best and raise them to the top, but once they got there they inevitably used their privilege to entrench themselves and their kids (inequality is, Hayes says, “autocatalytic”). Opening up the elite to more efficient competition didn’t make things more fair, it just legitimated a more intense scramble. The result was an arms race among the elite, pushing all of them to embrace the most unscrupulous forms of cheating and fraud to secure their coveted positions. As competition takes over at the high end, personal worth resolves into exchange value, and the elite power accumulated in one sector can be traded for elite power in another: a regulator can become a bank VP, a modern TV host can use their stardom to become a bestselling author (try to imagine Edward R. Murrow using the nightly news to flog his books the way Bill O’Reilly does). This creates a unitary elite, detached from the bulk of society, yet at the same time even more insecure. You can never reach the pinnacle of the elite in this new world; even if you have the most successful TV show, are you also making blockbuster movies? bestselling books? winning Nobel Prizes? When your peers are the elite at large, you can never clearly best them.
The result is that our elites are trapped in a bubble, where the usual pointers toward accuracy (unanimity, proximity, good faith) only lead them astray. And their distance from the way the rest of the country really lives makes it impossible for them to do their jobs justly—they just don’t get the necessary feedback. The only cure is to reduce economic inequality, a view that has surprisingly support among the population (clear majorities want to close the deficit by raising taxes on the rich, which is more than can be said for any other plan). And while Hayes is not a fan of heightening the contradictions, it is possible that the next crisis will bring with it the opportunity to win this change.
This is just a skeletal summary—the book itself is filled with luscious texture to demonstrate each point and more in-depth discussion of the mechanics of each mechanism (I would call it Elster meets Gladwell if I thought that would be taken as praise). So buy the book already. Now, as I said, I think Hayes is broadly correct in his analysis. And I think his proposed solution is spot on as well—when we were fellows together at the Harvard Center for Ethics, I think we annoyed everyone else with our repeated insistence that reducing economic inequality was somehow always the appropriate solution to each of the many social ills the group identified.
Interestingly, the term "meritocracy" was originally coined as a pejorative, and it originates with Michael Young, who also founded the Open University.
Guest Review by Aaron Swartz: Chris Hayes’ The Twilight of The Elites
(via 3 Quarks Daily)
Cory Doctorow at 12:55 pm • •
The Leo Burnett/Arc Worldwide agency has won a gold prize in the Effie awards for their hoax "Book Burning Party" campaign, which is credited with saving the public library in Troy, MI. Michigan's extreme austerity measures and collapsing economy had put the library under threat, and the town proposed a 0.7% tax raise to keep it open. The local Tea Party spent a large sum of money opposing the measure on the grounds that all taxes are bad, so the Burnett campaign reframed the issue by creating a hoax campaign to celebrate the library's closure with a Book Burning Party a few days after the vote.
The outrage generated by this campaign was sufficient to win the day for the library, as Troy's residents made the connection between closing libraries and burning books, focusing their minds on literacy and shared community, rather than taxation.
Troy Public Library would close for good unless voters approved a tax increase. With little money, six weeks until the election, facing a well organized anti-tax group who'd managed to get two previous library-saving tax increases to fail, we had to be bold. We posed as a clandestine group who urged people to vote to close the library so they could have a book burning party. Public outcry over the idea drowned out the anti-tax opposition and created a ground-swell of support for the library, which won by a landslide.
BOOK BURNING PARTY
(via MeFi)
Cory Doctorow at 7:51 pm • •
Yanis Varoufakis, "an academic economist," recounts the story of how his widely read writings on the Euro crisis led to a job offer from Valve software, who were contemplating the creation of a shared virtual currency between two worlds. Valve founder Gabe Newell was contemplating balance of payments when he realized "this is Germany and Greece," and he wrote to Varoufakis to ask for his consulting help.
Varoufakis is now Valve's economist-in-residence, and he has set out "to forge narratives and empirical knowledge that (a) transcend the border separating the ‘real’ from the digital economies, and (b) bring together lessons from the political economy of our gamers’ economies and from studying Valve’s very special (and fascinating) internal management structure."
He will blog his findings on the brand new Valve Economics blog. The inaugural post tells the tale of his recruitment, and tantalizes with the prospect of more to come.
For the first time since I switched from mathematical statistics to economics (around 1982), I saw an opportunity for scientific research on some really existing (albeit digital) economy. For let’s face it: Econometrics is a travesty! While its heavy reliance on statistics often confuses us into believing that it is a form of applied statistics, in reality it resembles computerised astrology: a form of hocus pocus that seeks to improve its image by incorporating proper science’s methods, displays and processes. Is this not too harsh a judgment on econometrics?
Not in the slightest. Econometrics purports to test economic theories by statistical means. And yet what it ends up testing is whether some ‘reduced form’, an equation (or system of equations), that is consistent with one’s theory, is also consistent with the data. The problem of course is that the ‘reduced form’ under test can be shown to be consistent with an infinity of competing theories. Thus, econometrics can only pretend to discriminate between mutually contradictory theories. All it does is to discover empirical regularities lacking any causal meaning. To put it bluntly, it is impossible to avoid absurd conclusions such as “Christmas is explained by a prior increase in the demand for toys”. And when we do (avoid them), it is only by accident (or because of a good hunch), as opposed to scientific rigour.
IT ALL BEGAN WITH A STRANGE EMAIL
(via MeFi)
Cory Doctorow at 3:12 pm • •
"Robbing banks: Crime does pay – but not very much," a paper by academic economists commissioned by the Royal Statistical Society and American Statistical Association on the economics of bank-robbery concluded that bank-robbers are wasting their time. The return from robberies is "rubbish". John Timmer summarizes the paper for Ars:
The basic problem is the average haul from a bank job: for the three-year period, it was only £20,330.50 (~$31,613). And it gets worse, as the average robbery involved 1.6 thieves. So the authors conclude, "The return on an average bank robbery is, frankly, rubbish. It is not unimaginable wealth. It is a very modest £12,706.60 per person per raid."
"Given that the average UK wage for those in full-time employment is around £26,000, it will give him a modest life-style for no more than 6 months," the authors note. If a robber keeps hitting banks at a rate sufficient to maintain that modest lifestyle, by a year and a half into their career, odds are better than not they'll have been caught. "As a profitable occupation, bank robbery leaves a lot to be desired."
Worse still, the success of a robbery was a bit like winning the lottery, as the standard deviation on the £20,330.50 was £53,510.20. That means some robbers did far better than average, but it also means that fully a third of robberies failed entirely.
Economists demonstrate exactly why bank robbery is a bad idea
The pricetag for the UK "snooper's charter" -- a comprehensive warrantless spying proposal from the government -- is in: "
at least £1.8 billion." This is how the coalition fight crime, even as thousands of police take to the streets to protest cuts in front line patrols, and even as private companies are taking over "policing duties" in cities and towns across the nation. What austerity, huh? Nothing's too dear when you're spying on an entire nation's entire digital life.
— Cory
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Cory Doctorow at 5:44 pm • •
Jonah Lehrer takes to The New Yorker to discuss Thinking, Fast and Slow, the latest book from Daniel Kahneman, a psychologist who's won the Nobel prize in economics. Lehrer discusses Kahneman's contention that smart people are no less prone to cognitive bias than anyone else, but are prone to believing that they are immune to error. Kahneman himself admits that he makes systematic cognitive errors all the time, even though he's devoted his career to studying them.
This has particularly grim implications for a society that thinks it is a meritocracy but is really an oligarchy, because the competitively educated people at the top believe (incorrectly) that they don't need to have their intuitions reviewed by lesser mortals.
And here’s the upsetting punch line: intelligence seems to make things worse. The scientists gave the students four measures of “cognitive sophistication.” As they report in the paper, all four of the measures showed positive correlations, “indicating that more cognitively sophisticated participants showed larger bias blind spots.” This trend held for many of the specific biases, indicating that smarter people (at least as measured by S.A.T. scores) and those more likely to engage in deliberation were slightly more vulnerable to common mental mistakes. Education also isn’t a savior; as Kahneman and Shane Frederick first noted many years ago, more than fifty per cent of students at Harvard, Princeton, and M.I.T. gave the incorrect answer to the bat-and-ball question.
What explains this result? One provocative hypothesis is that the bias blind spot arises because of a mismatch between how we evaluate others and how we evaluate ourselves. When considering the irrational choices of a stranger, for instance, we are forced to rely on behavioral information; we see their biases from the outside, which allows us to glimpse their systematic thinking errors. However, when assessing our own bad choices, we tend to engage in elaborate introspection. We scrutinize our motivations and search for relevant reasons; we lament our mistakes to therapists and ruminate on the beliefs that led us astray.
The problem with this introspective approach is that the driving forces behind biases—the root causes of our irrationality—are largely unconscious, which means they remain invisible to self-analysis and impermeable to intelligence. In fact, introspection can actually compound the error, blinding us to those primal processes responsible for many of our everyday failings. We spin eloquent stories, but these stories miss the point. The more we attempt to know ourselves, the less we actually understand.
Why Smart People Are Stupid
Cory Doctorow at 2:00 pm • •
In The Nation, Christopher Hayes has a brilliant article on the way that "meritocracy" inevitably turns into oligarchy, and what that means for our society today. Hayes's account of the transition from meritocracy to oligarchy isn't just about self-delusion ("I am on top, and I am superior, therefore we live in a meritocracy") but also about the way that those who move to the top cement their position by changing the rules. He relates this to the end of economic mobility in the US, the concomitant concentration of wealth, and the way that these factors were a harbinger of collapse in other societies.
In order for it to live up to its ideals, a meritocracy must comply with two principles. The first is the Principle of Difference, which holds that there is vast differentiation among people in their ability and that we should embrace this natural hierarchy and set ourselves the challenge of matching the hardest-working and most talented to the most difficult, important and remunerative tasks.
The second is the Principle of Mobility. Over time, there must be some continuous, competitive selection process that ensures performance is rewarded and failure punished. That is, the delegation of duties cannot simply be made once and then fixed in place over a career or between generations. People must be able to rise and fall along with their accomplishments and failures. When a slugger loses his swing, he should be benched; when a trader loses money, his bonus should be cut. At the broader social level, we hope that the talented children of the poor will ascend to positions of power and prestige while the mediocre sons of the wealthy will not be charged with life-and-death decisions. Over time, in other words, society will have mechanisms that act as a sort of pump, constantly ensuring that the talented and hard-working are propelled upward, while the mediocre trickle downward.
But this ideal, appealing as it may be, runs up against the reality of what I’ll call the Iron Law of Meritocracy. The Iron Law of Meritocracy states that eventually the inequality produced by a meritocratic system will grow large enough to subvert the mechanisms of mobility. Unequal outcomes make equal opportunity impossible. The Principle of Difference will come to overwhelm the Principle of Mobility. Those who are able to climb up the ladder will find ways to pull it up after them, or to selectively lower it down to allow their friends, allies and kin to scramble up. In other words: “Who says meritocracy says oligarchy.”
Hayes goes on to interview various Wall Street titans and hedge fund managers, and gets their own account of how they feel that they are innately superior -- the smartest guys in the room -- and how great it is that the nation takes its cues from them.
Why Elites Fail
Katharine sez, "Dartmouth Films are working with the Equality Trust on a documentary film of 'The Spirit Level, which aims to take the message of
the book -- that more equal societies are better for everyone -- out to a wider audience. With growing unease over the last year about tax avoidance & the social effects of inequality (and the success of movements such as Occupy and Uncut), the film hopes to put pressure on governments and political parties from all ends of the political spectrum to pursue fairer policies. The film's campaign is live for three more weeks only at
Indiegogo, and you can support the project by pre-buying the film or following the film on
Twitter."
— Cory
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Cory Doctorow at 3:02 pm • •
Share or Die is a new anthology from Shareable.net (whose mandate is to promote sharing in all its guises), written by 20-somethings struggling through austerity and econopocalypse, who find in sharing a solution to some of their problems. I was privileged to write the book's foreword, and I thoroughly enjoyed it. You can buy a copy or get a PDF for free -- all the book's publishers ask is that you tweet the fact that you've gotten a copy yourself. Here's a snip of my foreword:
This was supposed to be the disconnected generation. Raised on video-games and networked communications, kept indoors by their parents' fear of predators and the erosion of public transit and public spaces, these were the kids who were supposed to be socially isolated, preferring the company of video-game sprites to their peers, preferring Facebook updates to real-life conversations.
The Internet's reputation for isolation is undeserved and one-dimensional. If the net makes it possible to choose to interact through an electronic remove from "the real world," it *also* affords the possibility of inhabiting the "real world" even when you've been shut away from it by your fearful parents or the tyranny of suburban geography.
Even as entertainment moguls were self-servingly declaring "content is king," they failed to notice that content without an audience was about as interesting as a tree that falls in the deserted woods. Conversation is king, not content. If we gather around forums to talk about TV shows or movies or games or bands, it's because we enjoy talking with each other, because "social" is the best content there is. Content is just something to talk about. That's why telcoms -- the industry that charges you to connect with other breathing humans -- is 100 times larger than entertainment.
Which is to say that our "disconnected" generation is more connected than any generation in history -- connected via a huge, technologically augmented peripheral nervous system of communications technologies that gives them continuous, low-level insight into their peers and the world they inhabit. Which is not to say that being wired up to the net's social radar is an unadulterated good: adding capacity and velocity to your nervous system can be a recipe for disaster, creating race-conditions in which minor disagreements snowball into vicious fights, where the bad as well as the good can find itself magnified through positive feedback loops that ratchet minor stimuli into feedback screams.
Download a Complete Copy of Share or Die
Domestic airlines in the United States are failing financially. Fine. Sure. We knew that. But here's the kicker:
They've been financially failing for 40 years, almost the entire time they've been popular. And that? Is fascinating. Back at the turn of the 20th century, a lot of the first electric utilities and long-distance railroad companies went bankrupt, because people couldn't figure out how to make a profit in an industry with huge, fixed overhead costs. This is some evidence that the kinks haven't totally been worked out on that, even today.
(Via Matt Yglesias) — Maggie
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