Wednesday, 26 July 2017

Modu's whistling arrowhead

Must Hegelian Irony yet, Merlin's Debt, us thus manciple? 
Or a bad Actuarial bet become our Revelation Principle?
Touman's infinite Empire of the Xiongnu
 One whistling arrowhead for Modu

Tuesday, 25 July 2017

With my last breath I'd defend Brexit

 Were I a newly ennobled hero who could the Nation rouse
& tho' horse after horse sink under me, yet win at Cowes
With my last breath I'd defend Brexit
Long after the last Banker legs it.

Since Volatility's jump is Liquidity's sump or else Creodes' Sea-roads shrink.
Prince! Thy vaunted moat is only such crusted port as Dons were wont to drink.

Saturday, 22 July 2017

Remember the Li Equation & the Gaussian Copula?

Remember the Li Equation & the Gaussian Copula?
The bad actuarial math which caused the Crash?
 In uberrima fides - a Lie Noble for Popular-
 Relationships Reinsure Love as Trash

Prince! Not Merlin's 'Monstrous Debt' escheats Eternity
Nor Profit's Prelacy, Knightian Uncertainty

Friday, 21 July 2017

Why did Indian scientists and mathematicians fall behind China?

The short answer is they didn't really.

What happened was China decided Science & Maths were good things at about the same time that India decided that Stupidity & endless Moralising were even better things provided someone else kept refilling one's begging bowl.

Still it seems strange that India had a head start and chose, quite democratically, to throw it away.

The fact is, some Indians started studying Western Mathematics and Science about fifty years earlier than any Chinese.
By 1850, there were some Indians teaching in private Colleges, or Institutions funded by the East India Company, who sought to publish and circulate their findings amongst Western scholars.

Master Ramachandra, of Delhi College was the most prominent; his name has come down to us as 'De Morgan's Ramanuja'.

Speaking generally, English speaking Indian savants of the period faced acute social and financial pressures. On the one hand, they could secure a safe bureaucratic career by doing 'applied' work rather than 'pure' theory. However, if they were really good at their job, then, like Radhanath Sikdar, they would be denied transfer to the more lucrative branches of officialdom.

On the other hand, if they wished to gain employment as a College instructor, they had to produce credentials of a costly and inutile sort before sacrificing their working lives to the intolerable drudgery of cramming the mandated curriculum into heads destined to be sacrificed to a like bureaucratic maw. Ramachandra may have hoped that conversion to Christianity, or loyalty to the Company would help him. It didn't. It marked him as a fool. Mastery of Sanskrit mimamsa could raise a man up in the estimation of John Company and make his fortune for him in the law courts. Mathematics held little prestige. It is noteworthy that Ramachandra made no further contribution to Mathematical research after his conversion. I suppose it was no small thing to have survived the Mutiny, when converts like himself were butchered. Still, it is sad to think of him sinking back into the drudgery of the scholastic round- he, who had once thought to overturn the tyranny of the Mullah and the Padre! was now as but their puerile drill-master.

De Morgan, in his preface to Ramachandra's book, seeks ineffectually to differentiate Hindus (he calls Ramachandra a Hindu because he uses the term in a racial sense) from naked cannibals- albeit, not the South Indian Hindus, amongst whom De Morgan himself was born, who struck him as being identical in appearance and culture to such incorrigible savages as, I suppose, were constituted by those Tasmanians whom European Enlightenment was busy exterminating about that time

De Morgan's point is that Mathematics can't progress save by speculative means and the methods of pure a priori ratiocination. Hindu stagnation in mathematics illustrates his thesis. Their racial inability to maintain the spirit of pure inquiry is what led to the ossification of their Mathematics into a set of 'practical rules'.

Clearly, the methods of pure Mathematics or Theoretical Science can only be inculcated in minds that work on their own. But the same is true of linguistic ability. It is not enough to be able to convey your own wishes in a particular language or to ensure that they are complied with by a fluent speaker. Unless you can wish to say anything anyone else might convey, you haven't really mastered it at all.
Why? Intention is a register in intensional discourse and can only be discriminated by an equal intention.

De Morgan's thinks that some external entity can generate a particular type of cumulative creative thought in a Society, by initially offering some impetus or encouragement and then afterwards rewarding merit. This has a Darwinian ring. If we want to breed a race of monkeys that can type Parliamentary speeches, we initially settle a group of monkeys in the Visitors' Gallery at Westminster and to encourage them to press keys on typewriters in return for bananas. We periodically check on the monkeys to see if they are taking down Mr. Gladstone's speech correctly and suitably reward those monkeys which come closest. While this is a theory which certainly explains much in Hansard that must otherwise remain opaque to the eyes of even the most Gadamerian hermeneut,  I confess, it isn't really convincing.
 It violates De Morgan's own principle of induction.  A series with a particular property can't be defined inductively if there is an exogenous determinant of fitness for inclusion. Even if the monkeys end up doing a better job than any human, so long as monkeys don't talk or think like Mr. Gladstone they can't be said to have transcribed his speech. There is some causal connection between what they are doing and what Mr. Gladstone is doing. But that connection is not the same sort of connection as subsists between a human transcriber and a human speaker. For a start, no monkey can bear witness as to the accuracy of his transcription. Thus, if Mr. Disraeli calls upon Hansard to show that Gladstone, on such and such a date, declared his willingness to eat his own cat, contingent upon an eventuality which has since come to pass, no monkey can confirm that this is exactly what happened. Thus, if Gladstone gets out of his commitment by eating his head gear rather his own pussy, no charge of bad faith can be sustained against him.

More generally, there can't be a 'Chinese Room' type examiner in a Turing Test of either mathematical method or linguistic capacity.
Well, either the monitoring system is itself an equal or superior application of the method that is being tested, the capacity that is being assayed, or else it can be gamed. (There is an argument from Razborov & Rudich, re. 'Natural proof', which explains why.)

If monitoring capacity is equal or superior and interacts with what it examines, it isn't exogenous at all.

You can get a 'zero knowledge proof' for information but not one for intensional consistency.

There can't be a 'hands off' approach to Paideia.

Victorian England knew very well that this was the weakness of the 'capitation' system.
If you pay Schools to cram a certain curriculum, all you get is better cramming and lower comprehension. 
The same problem arises at the other end of the social spectrum.
If you discriminate mathematical talent through demanding Examinations- e.g. those for the Cambridge Tripos in which top scorers received the title of 'Wrangler'- you don't necessarily get creative mathematicians. Indeed, the system may be adversely selective in this respect. The young man who has gained a sinecure by holding his nose to the grindstone may choose to stick it in no theoretical nook where it fails to earn an equal or immediate reward. The fact that the English Tripos was more 'mixed'- i.e. physicalist and computational- than the new 'purer' methods of analysis gaining ground in France and Germany- meant that the great British scientists of the second half or the century, most of whom had done the Tripos, appeared to confirm, not challenge, a common sense view of the world as pervaded by some electromagnetic ether or other guarantor of sound Newtonian substantivism.

De Morgan, writing at the mid Victorian noon-tide, could not envisage how swiftly his own country, and its Capital City where he himself taught, would be eclipsed and rendered provincial with respect to his own profession. This passage of his holds a melancholy interest-

Why did London sink while Berlin rose?
The answer is, firstly, that German Universities competed with each other for able Professors and Students. Endogenous competition promotes 'run away' effects. Savants are more ready to go where pure speculation takes them because they answer to no exogenous monitor or system of reward. The Germans increasingly adopted the 'Seminar' system- popularised by Indological philology- which in turn meant future competition would be Research based thus reducing the importance of exams or disciplinary regulations. In part this was because students had more power because they could more easily 'vote with their feet'. However, it was also the feeling that Germany was obliged to find its Empire in the Mind- not the Indies- in order to equal or surpass the glory of England or France or Russia, which drove the startling ascent of German academia.

In Britain, many pedagogues, having exhausted their intellectual promise in the slog towards a Fellowship, idled away their time in petty intrigue while the Port went round. Meanwhile, the profits of Industry and the tributes of Empire piled up so quickly against the wolf at the door that none questioned a habitus of decreasing effort and increasing rewards. Though the day was short and of frost and fire, they slept before evening.

In Germany, by contrast, there was a nexus between Universities and the newly emerging knowledge based industries whose fate was tightly interwoven with the Financial institutions which supported their growth. This nexus relied upon and was relied upon by the State. However, all too palpably, that State was so menaced or menacing that nothing was really secure. Speculative thought carried less risk and greater reward precisely because it allowed one a sort of 'internal emigration' to, not a changeless Platonic realm, but something dynamic and Heraclitean.

Writing in the 1850's, before Germany had begun its Industrial ascent, De Morgan may be forgiven  a certain complacency. Yet, by that iron law of irony every Zeitgeist imposes upon its own arbiters- more particularly Professors of Logic- he was bound to say the most foolish thing possible about his own country while writing about a native of one of its far dependencies. 

Thus, he paints a rosy picture of the apple cheeked English yokel, or soot begrimed Scottish mechanic, turning joyfully to the pages of 'Tensor Calculus Tidbits' as a way of recruiting his spirits before turning back to his wearisome task. No doubt, women and children employed in the textile mills could no longer 'bend over the Principia of Newton' as was the wont of English weavers in days of yore, but surely the Bobby on the beat, or the postman delivering letters, or the rag & bone man on his rounds, paused every so often at the Newsagents to keep abreast of the latest developments in Galois Theory or Algebraic Topology.

Turning aside from De Morgan and returning to India, we can but sympathise with the Sikdars and Ramachandras whose youthful promise was quenched by the drudgery of bureaucratic or pedagogic employment. In Bengal, a greater concentration of wealth and the emergence of a highly emulous bildungsburgertum did create a better atmosphere. Calcutta University was intended to be a first rate institution with high entrance requirements. It pushed up standards but also contributed to a sense of failure and inadequacy in the rising generation unable to cram such indigestible fare for the meagre reward of a Babu's berth.

Thus, though on the one hand, by the turn of the century, India was getting its share of Senior Wranglers, there was also, on the other, a disproportionate and larger recoil from, and rejection of, Western paideia. 

In any case, it was lawyers- not professors or bureaucrats- who were making the big bucks. The Mathematical Sciences were at best a hedge against a decline in Social Status. They were certainly not a route to the top nor did they hold the key to a Political Revolution which might have the equivalent effect of saving one from poverty and powerlessness. On the contrary, once even London returned barristers gave up their horsehair wigs for khaddar caps and exchanged Macaulay's orotund English for senile or sententious versions of the Vernacular, it was clear that the pure Sciences would play a diminishing role in independent India. Thus the Bose for whom the boson is named made no further contribution, not because of an obstruction placed by European racism, but because of the distraction posed by local politics.

Were there any creative Indian mathematicians prior to the advent of the great Ramanujan? 
Apparently, only one- Syamadas Mukhopadhyaya- but the general level of instruction in Mathematics- and later Statistics- continued to improve- which is why Ramanujan could receive a leg up from Indian amateur mathematicians.

Indeed, even in 1950, Indian students in Statistics and O.R were ahead, not behind, their coevals in America. Still, the fact is, Maths declined in prestige. It actually became more difficult for a talented mathematician without a degree (which would have involved cramming a lot of Milton and Botany and other such useless subjects) to get a University appointment. Influential patrons like Professor Hardy could help but that sort of patronage could also be counterproductive. Andre Weil says Hardy spoiled many Indian mathematicians. They continued working on problems which had ceased to be of interest. But Weil himself was not to last long in India. Genius or not, he was after all an unclean White man and unclean White men were ceasing to matter. Being the right caste or belonging to the right clique or having married into the right politically connected clan was what mattered. Even if you got your Professorship, you'd be pensioned off at 55- as happened to Ananda Rau.

The case of D.D Kosambi, who worked with Weil at Aligarh, is instructive. The poor fellow, though a Harvard man and well connected, could not hack academic politics and, like his father, ended up taking a lowly lecturer's position in his native place. His boss was a Cambridge Wrangler who, true to form, never touched Mathematics again.  Kosambi could scarcely flourish having been so cut off from his peers. He was sacked because his students couldn't understand him. They just wanted to pass their exams and get jobs. How or what was he meant to make them understand?

At this juncture, Knowledge based private industry came to his rescue. He was offered a high salary to do pure research for the Tata Institute. I believe he was the first Indian to be sent abroad for work to do with the development of the electronic computer. Nehru, who was socially at ease with the scions of wealthy industrialists who had received a similar education as himself and whose families had financed Gandhi, created some Research Institutes funded by the Government but run by these plutocrats. The results were not particularly impressive. However, it must be said, purely Government sponsored Institutes seem to have performed even worse.

Perhaps, if there had been wholly private investment in Fundamental Research, the story would have been different. In the case of early work on the electronic computer, it took many years to pay off. But pay off it did and on a scale few could imagine.

 For Kosambi, however, there was the more immediate attraction of Chinese Communism and posing as some sort of Marxist historian cum philologist.

Around this time, he published a proof of the Reimann hypothesis in some Indian Journal devoted to Agricultural Statistics. Was it all a practical joke? Perhaps. Still, the damage was done. Kosambi is remembered as some sort of jhollawallah retard- more particularly when he published a second proof of the Reimann conjecture a couple of years before his death.  Why did he do so? The Communist J.B.S Haldane- who took Indian Citizenship for some silly political reason- was also behaving oddly around this time. The truth is, posh people who think they are smart go stir crazy in 'Soft State' Bureaucratic milieus. Ultimately, I suppose, it is the hypocrisy that gets to them. In proper Communist countries, you have brazen lies and people getting shot. That can be quite invigorating for Leftists. In India nobody got shot and nobody bothered to lie. Everybody just talked nonsense incessantly.

The pity of it is Kosambi could have been a great mathematician and an effective populariser of Science. Interestingly, an early contribution of his has secured him joint credit along with Cartan & the (slightly later work of the ) Chinese mathematician, Chern, for what is increasingly called KCC theory which, for a reason De Morgan pointed out, bears some resemblance to Master Ramachandra's work. But, thereafter, Kosambi went increasingly off the rails.

As he said to his friend, Norbert Weiner, who greeted him as a 'Wise Man from the East!'  he was just a 'wiseguy from Cambridge'.

Why? India was falling behind in not just Science and Mathematics but also the ability to write sensibly about History or even poetry- even verse as pellucid as Bhratrhari's. Everything had just come down to cramming and vomiting so as to get a bureaucratic berth. For alumni of either Cambridge, something more was required- viz. hypocrisy and fraud. Statistical methods can't prove the Reimann conjecture. It is hypocritical and fraudulent to pretend otherwise, but who the hell cares? Let's just go ahead and do it anyway. That way we will be trusted as ideological allies rather than 'useful idiots' from whose eyes the blinkers might at any moment drop.

It may be objected that Indian savants could have developed a professional ethos and subjected each other to the discipline of peer-review.  But, their economic base was so slender. Indian mathematicians and Statisticians did club together and set up periodicals but how could they assure quality control? Who will tell the V.C that his paper on Gandhian Mathematics- based on going on hunger strike till intractable equations experience a change of heart and solve themselves- is worthless drivel?

In any case, Indian politics had been on a increasingly irrational trajectory from about 1917 onward. People who spoke the same language and who lived in the same village suddenly declared that they actually spoke completely different languages and belonged to wholly different nations. Ideology could not provide social cohesion. The only thing two ideologues of whatever stripe could agree on was that everybody else was an evil schismatic bought and paid for by some sinister foreign power. Stalin came to loathe the Indian Communists because they kept demanding he kill every other Indian Communist- more particularly those with whom they themselves enjoyed the closest or most cordial relations. Why couldn't they just knife each other? It was all just a case of Brahminical disdain for manual labour. 

The Soviets did take a lot of Indian students and treated them generously. However, these students were convinced that the White man would not pass on his secrets and wanted to keep the brown man permanently ignorant. So, Indian students astonished their Soviet hosts by the extent of their corruption and concupiscence. By contrast, Indians who paid their own way to the States worked their asses off and fast traced to citizenship.

One reason Universities and Govt. funded Research Institutions had to start treating Math mavens properly was that they now had options. If you harass them too much, they'll just book their ticket to America and never look back.

Still, it is the growth of indigenous private sector Knowledge based industries which are dependent on a newly assertive and self respecting professional class of academics and researchers which will restore Mathematics to its rightful place in India. 

What about China? They started later than us but, because they invested heavily in getting the best instruction, they started producing great mathematicians very quickly. Furthermore, they were not obsessed with paper qualifications. 

Take Hua Luogeng. He had no formal qualifications. He happily turned from pure to applied research when the needs of the Nation- or Chairman Mao's whims- demanded it. Interestingly, it was Norbert Weiner- a colleague of D.D Kosambi's father- who enabled Hua to study with Prof. Hardy in the Thirties. Hua survived the Cultural Revolution because Mao perceived him as an 'applied' man of the people, not a bourgeois purist.

One of Hua's friends was the utterly brilliant Shiing-Shen Chern who settled in America. However, after Nixon's trip to Beijing, people like him were able to reconnect with the Chinese mathematical community which had suffered so much during the Cultural Revolution. Hua played a role in making this possible. Once America and China had restored their traditional friendship, the diaspora helped lift up the native country. This was a symbiotic, not parasitic relationship. As China became wealthier, a two way relationship has been established. The next Shing-Tung Yau may well be of diasporic origin but live and work in China.

Of course, it should be mentioned, China- unlike India- had made a point of importing the best Professors on high salaries as soon as it became a Republic. Universities were truly National institutions- not a method of rationing jobs in the Bureaucracy. Furthermore, unlike Indian Research Institutes where the bureaucrat or socially prominent insider held the power and the technical staff were expected to display sycophancy not results, China followed the Soviet model of protecting Defence related Technicians from the Ideological Commissars and, in some cases, even shielding them from the excesses of the Cultural Revolution.

It is ironic that the 'Mandarin' mentality prevailed in India as 'Competition Wallahs' lorded it over Scientists while the country which devised the system of Competitive Exams developed a dynamic indigenous Defence Research capacity. It must be said, that not all Indian Research Institutes are moribund. Clearly, it has some remarkable people and very successful programs. However, this happy outcome was the product of a lot of skillful behind-the-scenes politicking. This was not the initial expectation in the Fifties. Many Scientists believed that Nehru would set up a Technical Cadre of equal rank to the Administrative Cadre. The manner in which this initiative was strangled by the IAS makes for horrific reading. Fortunately, military and economic setbacks in the Sixties weakened the grip of the 'Babus' so some useful work got done. Strangely, it was the Hindu Nationalist party- whom we all firmly believed to rustic retards- which carried forward the 'Nehruvian' vision. The Leftists were no use at all.

China and India have changed a great deal over the last thirty years. Both now have a cohesive indigenous class of professional scientists and mathematicians who can be safely left alone to get on with their job. Increasingly, they will be self-funding. India can quickly acquire World Class institutions, of a type China already has, simply by disintermediating the U.G.C and giving the private sector an increasing role. Government money can't come without strings attached otherwise bogus or corrupt institutions- like Nalanda International University under Amartya Sen- will turn into scandalously mismanaged money pits.

Thursday, 20 July 2017

Let Vulcan burn & Goyim thirst

How, to a plough share, turn the sword of Mars?
Or stone to death the adulterous stars?
Let Vulcan burn & Goyim thirst
Christ's cherev was widowed first.

Tuesday, 18 July 2017


Before I met you, you'd flee me through lonely forests again and again
But, because my Love's trees were all 'Ashokas,' always in vain.
Red they would flower as fleetly as you fled
  Now torn up by the roots lest they reveal where I bled.

Sunday, 16 July 2017

Income inequality & Junk Social Science

Kumhof & Rancierre, published a paper in 2010 linking inequality and financial crashes-
The United States experienced two major economic crises over the past century—the Great Depression starting in 1929 and the Great Recession starting in 2007. Both were preceded by a sharp increase in income and wealth inequality, and by a similarly sharp increase in debt-to-income ratios among lower- and middle-income households. When those debt-to-income ratios started to be perceived as unsustainable, it became a trigger for the crisis. In this paper, we first document these facts, and then present a dynamic stochastic general equilibrium model in which a crisis driven by income inequality can arise endogenously. The crisis is the ultimate result, after a period of decades, of a shock to the relative bargaining powers over income of two groups of households, investors who account for 5% of the population, and whose bargaining power increases, and workers who account for 95% of the population

The U.S has experienced a number of economic crises over the last hundred years. Two of these are linked to poor regulation and incredible stupidity on the part of Economic pundits.  The Great Depression led to unemployment peaking in 1933 at an unprecedented and never repeated 25 %. The 2007 crisis, by contrast, led to unemployment peaking at just 9.8 % in 2010- i.e over half a percent less than it had been in 1983. Why was the early 80's recession worse for America (it took fifteen years for Unemployment to fall back to its 1973 level) than the recent one where Unemployment has quickly gone back to its 1999 level in half the time? The answer is that cost-push inflation mattered in the Eighties. Monetary policy proved an ineffective panacea because inflationary expectations weren't the only problem- distributional issues, different interest groups trying to increase their share of the pie, were highly salient. Since inflation favours borrowers over lenders, we would expect the rich, or those with more institutional power, to favour a credit rationing regime which permits them to have higher leverage. Once inflationary bias is removed, however, absent effective Regulation or Prudential screening, we expect the reverse. Instead of credit rationing, we expect Banks to over-lend so as to increase fee income. This, by itself, fuels a speculative bubble.
 In 1983, the top 5 percent exhibited a debt-to-income ratio of just over 80 percent and the bottom 95 percent a ratio of just over 60 percent. Twenty five years later, the situation is dramatically reversed, with a ratio of 60 percent for the top 5 percent and almost 150 percent for the bottom 95 percent. 
One big change between '83 and 2007 was that a global savings glut sought a home in the seeming inflation proof US dollar. Clearly, certain asset classes were over-valued. After the US Government took over the downside risk, even this constraint was removed. Thus household deleveraging- and the associated output contraction- could be reversed or otherwise compensated for. The American story is not now one about rich people trapping poor people into debt. It is about poor Chinese savers lending to rich Americans.

Kumhof & Ranciere's model is as follows-

 The key mechanism is that top earners, rather than using all of their increased income for higher consumption, use a large share of it to accumulate financial wealth in the form of loans to bottom earners.
Notice, if inflationary bias exists, that 'top earners' may end up earning a negative real return. Wealth distribution becomes more equal if they persist in such behaviour.
By accumulating financial wealth, top earners allow bottom earners to limit the drop in their consumption, but the resulting large increase of bottom earners’ debt-to-income ratio generates financial fragility that eventually makes a financial crisis much more likely.
Financial Wealth represents a Present Value on an income stream. If top earners lend money to bottom earners just for present consumption, then, unless bottom earners' real wages rises more rapidly than their debt service burden, the Net Present Value will be negative. Moreover, if real wages are rising, it is likely that Technology is improving. It would be better to invest in Technology than to engage in usury- more particularly to NINJA (no income, no job, no assets) creditors. If real wages are falling, then it is folly to lend to people who are barely solvent as it is.

No financial crash has ever occurred because rich people lent money to poor people. The Wall street Crash happened because of highly leveraged speculation by people who were rich or hoped to become so very soon. There was a stock market bubble which led brokers to jump off skyscrapers and the banks which had lent them money to become insolvent. There was no widespread default in either consumer or mortgage credit which triggered the Crash.

Similarly, in 2007-8, it was not the case that the poor defaulted on 'subprime' while the rich did not on 'prime' mortgages. On the contrary, prime mortgage default greatly exceeded subprime default. This was a speculative bubble- not a story about poor people borrowing to feed themselves and then having to go bankrupt because they couldn't meet the interest payments.

Though both share a background of incredibly stupid Punditry and poor Regulation, there are two big differences between the Great Depression and our own more recent Recession.

1) Our Monetary authorities coordinated efforts to bail out the Banks. Thus, there was no repeat of the disastrous collapse of credit and economic activity which marked the three years preceding F.D.R taking office. Fiscal policy, too, has been more elastic. There has been no great increase in tax and tariff rates. However, some small countries with fixed exchange rates or those lacking monetary sovereignty- like Greece- did experience simultaneous fiscal and monetary contraction. 

2)  F.D.R was able to turn the economy around within months of taking office by passing the Emergency Banking Act. Within a year, the Banking sector was restored to health with only about a 15 percent haircut for depositors. Similarly, in our own era, the US essentially nationalised the downside risk on mortgages and supplied enough liquidity through Quantitative Easing to permit deleveraging on a wide class of assets.
By contrast, F.D.R's Government was not Keynesian and resisted fiscal reflation. One reason for this was because the superior alternative appeared to be that of directly tackling structural inequality. However such initiatives proved to be contentious, difficult to administer and yielded little in the way of a 'multiplier' effect. Thus, the New Deal ran out of steam before politically or racially sensitive distributional questions gained salience.  In effect, some workers and enterprises gained at the expense of others through Cartelisation. Push-back from the Courts gave policy makers a good excuse to drag their feet on more substantive measures.

Very wealthy people in 1933, were prepared to, in the words of Joe Kennedy, 'sacrifice half their wealth, in order to keep the other half under the Rule of Law'. There was a genuine fear of Revolution in the air. Nothing similar happened after 2008. The very rich viewed the crisis as a shake out of wannabes. Many in the Media pushed a narrative about the crisis having been caused by Government action forcing 'sub prime' mortgages on an unwilling market. In other words, an attempt to improve the distribution of wealth had backfired causing financial chaos. Moreover, our recent Economic recovery- in the narrow sense of unemployment headcount- has been predicated on, if not a lower then a less secure, real wage whereas by the second half of the Thirties many workers in manufacturing were seeing an increase in real wages and living standards.

Bearing this in mind, let us return to Kumhof & Ranciere's thesis. What does it amount to? Essentially, it asserts that a bad loan made to a poor person will make you rich while a bad loan made to a rich man will make you poor.

This is nonsense. Stupidity and a piss-poor Regulatory Environment will lead to bad Loans. We all know that it doesn't matter whether those loans are made to poor people buying worthless properties out of desperation or to the inventors of perpetual motion machines or to a country which is about to lose a War or undergo a Communist Revolution. A bad loan is a bad loan is a bad loan.

Some rich people as well as some poor people borrow money imprudently to invest in a bubble. There are some lenders who turn up their noses at poor people who want to get in on a bull market. Those lenders will still go bankrupt if they lend to imprudent rich people who over-leverage to cash in on that same bull market.

Even if Banks started employing bouncers to chuck out poor people who approach them for a loan, still, those poor people's savings get pooled by Institutional investors and thus are at risk from a bubble. Moreover, even if all poor people are excluded from credit markets altogether, they would still be affected by the negative wealth effect on aggregate demand of a speculative bubble.

Kumhof & Ranciere believe that poor people are 'Loan Liars'. They think it rational to cheat their way to credit and then to 'rationally' default. 
The crisis is the result of an endogenous and rational default decision on the part of bottom earners, who trade off the benefits of relief from their growing debt load against output and utility costs associated with default. Lenders fully expect this behavior and price loans accordingly. The crisis is characterized by partial household debt defaults and an abrupt output contraction, a mechanism that is consistent with the results of Philippon and Midrigan (2011) and Gärtner (2013) for the Great Recession and the Great Depression, respectively. When a rational default occurs, it does provide relief to bottom earners. But because it is accompanied by a collapse in real activity that hits bottom earners especially hard, and because of higher post-crisis interest rates, the effect on their debt-to-income ratios is small, and debt quickly starts to increase again if income inequality remains unchanged.
So that's what happened in 2008. Lying cheating scumbags- the poor whom we shall always have with us- made a rational decision to default on loans and become homeless. This led to an economic contraction which affected the rest of us.

Damn those pesky poor people! They deliberately go to all the trouble and expense of acquiring a subprime property only to get thrown out onto the streets a couple of years later. Why? Poor people like being homeless. Sleeping rough is great. Why pay utility bills when you can sit under a street lamp for free?

Lenders weren't irresponsible at all in getting suckered by these pesky poor people. They fully expected poor people to default because ...urm... that's the assumption built into this model.

Kumhof & Ranciere updated their paper in 2015. They must have known that nothing of the sort they hypothesised actually took place. Poor people who bought property before 2002 did not default or sold up at a profit. Rich people who bought after 2006 did default. Timing was everything because only timing matters in a speculative bubble.

It is true, poorer people have higher default rates but overall, because they have poorer access to credit, they contribute proportionately less to delinquency.

In Kumhof & Ranciere's stylised world, poor people are gaming the system. There is a 'bargaining game' at the general equilibrium level. Why? It is because, in their world, there is no quantitative credit rationing. Lenders always correctly compute risk and borrowers accept these terms with the intention to strategically default. Since borrowers are poor and worse hit by an output contraction, a brake is put upon their sociopathic behaviour. Still inequality will tend to increase because poor people are lying little shits and thus bound to fuck up.

There can be a bargaining game between employees and employers- workers can go on strike for higher wages while employers can shut down operations and shift production overseas.

By contrast, there can't be a bargaining game between poor and rich in financial markets if lenders can always screen correctly for risk. Furthermore the market works to coordinate default on badly screened asset classes such that predatory lending carries higher risk. One caveat may be mentioned. , Where there is an uncertain inflationary bias such that credit rationing creates rents and has regressive distributional consequences, there could be a bargaining game. However, it is likely to feature a decrease in nominal wealth inequality because the rich will borrow from the poor at a negative interest rate.

 However, that is a special case with 'embedded' information asymmetry. In practice, no Brokerage can legally and systematically differentiate or price discriminate between funds whose beneficial owners are mainly poor and those whose owners are generally rich. No doubt, there is some risk of 'insider trading' or of excessive management fees. Regulators may stipulate that a rich guy suspected of this sort of conduct be confined to a 'Family office'- i.e. he can only manage his own money, not leverage his position by tapping the market. 

Suppose there is no inflation and a positive real interest rate. If poor people are stupid, they can be fooled into borrowing more and more money for current consumption. The moment they default on payments, the evil usurers swoop in and sell off their assets so as to recoup their loans. The poor are forced onto the streets where they eke out a miserable existence by giving blow jobs to rich bankers. That's the real story behind 'Occupy Wall Street'. Those weren't protesters at all. They were ordinary working class people whose homes had been repossessed and who needed to suck off a Banker or two just to be able to afford a crust of bread.
In our model, the financial sector intermediates funds between the increasingly richer top fraction of the population and the increasingly more indebted bottom fraction of the population. As the flow of funds between the two groups increases, so does the size of the financial sector as measured by total assets or total liabilities over GDP.
Since poor people, by definition, don't have infinite funds, they are going to default on their interest payments sooner or later- unless of course they aren't stupid and don't get into debt in the first place. If the economy features ubiquitous riskless assets with a real rate of return above the interest rate this process can run and run till all the stupid poor people have no assets and are sleeping in the streets and sullenly sucking off Bankers to avert starvation.
Why hasn't it happened?
The answer is that riskless assets with a positive rate of return don't exist in an ubiquitous or un-problematic way. Models may pretend otherwise but they are bankrupt and probably sleeping on the streets sucking off Bankers to avert starvation.

Why are Kumhof & Ranciere pretending that capitalists have super powers while the poor are as stupid as shit?
 Michael Hudson- the son of a Trotsykite Labour leader unjustly jailed for 'trying to overthrow the Government' and a famous Cassandra of the Housing bubble- offers us this definition- Junk Economics: A public relations exercise promoted by vested interests to depict their behaviour in a positive light instead of as exploitative zero-sum rent-seeking. Junk economics is a kind of “as if” science fiction with assumptions appropriate to a utopian parallel universe in which rentiers are the heroes. Much as a good novel or play must have characters that act consistently, the criterion of this economic pseudo-science is merely the internal consistency of its assumptions, not worldly realism. Many of the most applauded economists reason logically by a priori axioms about a world that might hypothetically exist.'

No doubt, Hudson was taking aim at Right Wing Economists. Yet his stricture applies equally well in this context. Rentiers don't have super-powers. If they do, it is pointless to resist them.

Suppose there was some mechanism such that a bargaining problem between workers and capitalists could worsen the position of the former through debt. Then a scenario like the following would be feasible-
The real wage over the initial decade collapses by close to 6%, while the return to capital increases by over 2 percentage points. Workers’ consumption however declines by only around two thirds of the decline in wage income, as workers borrow the shortfall from investors, who have surplus funds to invest following their increase in bargaining power. Over the 30 years prior to the outbreak of the crisis, loans more than double to bring workers’ leverage, or debt-to-income ratio, from 64% to around 140%, with the crisis probability in year 30 exceeding 3%. The loan interest rate for most of this initial period is up to 2 percentage points above its initial value, as lenders arbitrage the return to lending with the now higher return to capital investment.

Suppose you are a Capitalist and find the above model convincing. You should go in for Capital widening- i.e. increase production keeping the Capital to Labour output constant. There's no need for Capital deepening or automation or offshoring. So long as you are rich, you'll just keep getting richer by investing in employment generation. As a matter of principle, you may insist that workers sleep on the streets and suck off a Banker or two before showing up at work. That is a matter of personal taste.

Why have real wages increased not fallen since 2010?

The answer, of course, is that Inequality increased between '79 and 2007 to such an extent that the poor were too poor to make the rich richer by getting any poorer.  

What policy conclusion are the author's pushing?

restoration of poor and middle income households’ bargaining power can be very effective, leading to the prospect of a sustained reduction in leverage that should reduce the probability of a further crisis. 

But bargaining power has been declining since 1979 if not earlier! Should the Government 'restore bargaining power' by increasing property rights in jobs and passing pro Union legislation? Some workers may support this notion. However, they would do so irrespective of its impact on household debt because what they really value is higher income. If Debt is an issue, the favour statutory write-offs- a 'debt Jubilee'.
A guy who is told he has cancer is worried by a lot of things- not just being forced to borrow. Nobody says, 'I don't want to get cancer because I'm afraid of getting into debt'. They say 'I don't want to get cancer because I'm afraid of dying a painful death.'

More voters are now net lenders and non workers than ever before. It seems unlikely that democratically elected Governments will choose to boost the 'bargaining power' of a minority of voters.

'Bargaining power' is a red herring.  We can't assert much control over it without letting a lot of other genies out of the bottle. Reforming the tax code by looking again at interest deductions and bogus depreciation schedules, on the other hand, is perfectly sensible. However, we should be doing this sort of reform even if Inequality is falling because it is good in itself.

Kumhof & Ranciere's paper features a wholly unrealistic model and makes a politically infeasible policy prescription. Clearly it is not 'economic' in any sense of the word; rather it is a virtue signalling type of advocacy. Junk Social Science of this sort is counterproductive.  It raises up a bogeyman- 'Inequality' in this case- without providing any corresponding remedy or rite of exorcism. No doubt, this contributes to its own success as part of an availability cascade but it is still a waste of resources.

Friday, 14 July 2017

Trust Kamakshi's eyes

The Professor is droning on about Popperian methods in Poverty Studies
I am sitting in the gods exchanging sly punches with my buddies
Must you look our way? Turn calamitous this day?
Trust Kamakshi's eyes to pauperise her own jeunesse dorée!

Monday, 10 July 2017

More Sex is not safer Sex unless it entails autocephalous self-sodomy

Some twenty years ago Prof. Michael Kremer wrote this paper which helped make 'Freakanomics' sexy. I don't mean Kremer lubed up Arrow or instructed Debreu in the technique of the reach-around but rather that his paper contributed to the notion that Economics Professors have counter intuitive insights which could improve policy making.

The opportunity cost of Abstinence is having sex- a very big deal indeed. The opportunity cost of using a condom is much smaller. As a matter of fact, men rapidly get used to it and the truth is it diminishes the extent and stickiness of the dreaded wet spot. It makes sense to target Persuasive Messages at behaviour which has a low opportunity cost. One sacrifices little- rather, one gains, by avoiding unwanted pregnancies- by using a condom. By contrast, adopting abstinence has a high opportunity cost. Much more than the pleasure of sex is wholly foregone.

Politicians, however, might want Public Health Messages to stress abstinence because they have a particular religious or social agenda to advance which is itself predicated on the irremediable stupidity or sinful nature of the public. They may want to cut public provision of health care for sexually transmitted diseases which are believed to have higher incidence amongst despised minorities. Thus, it may be futile to point out to them that condoms actually reduce the spread of STDs while worthless bromides about abstinence are a stupid waste of resources. Still, in that case, one should hold up such politicians to ridicule and contempt- not suggest that they have made a pardonable error by reason of lack of expertise in economic theory or econometric practice.

What is utterly stupid is to engage in 'preliminary calculations using standard epidemiological models and survey data' to conclude that people do not chop off their own heads and shove them up their own arses in order to talk worthless Junk Social Science shite. Why? Because never in the history of humankind has anyone ever chopped off their own head and shoved it up their arse.

Similarly, never in the history of human sexual relations has acceptance of Abstinence as a superior action-guiding ethical theory altered STD risk for those engaged in sexual intercourse. By contrast, fear of disease or pregnancy, can reduce STD risk even after intercourse commences.

It is not merely the promotion of Abstinence which does not change risk for those engaged in sexual intercourse. The formulation of a Junk Social Choice argument while in the throes of passion is equally useless.

It may be that there is some rare combination of circumstances such that it is feasible to chop off one's head and shove it up one's own arse. Similarly, it may be possible to invent a scenario where public health messages regarding abstinence reduce STD risk during intercourse. However, it is sheer stupidity and careerist Junk Social Science to take the proposition seriously and write a fucking paper about it.

Why does Junk Social Science happen?
The answer is that Economics, as a profession, is not solely concerned with asserting that one can cut one's head off and shove it up one's arse- because, under the standard assumption of perfect information (by which the Second Law of Thermodynamics is annulled) a Heath Robinson contraption can be easily conceived to make this feasible- but, rather, that once one's head is lodged firmly in one's rectum, it will pronounce the most mischievous possible policy prescription with added oracular force.

Consider the following-

This is sheer stupidity.
People who can reduce their rate of partner change can also develop costly signals and screen for risk- in other words the matching mechanism changes. Thus the population is segmented. The equation given here has no value.

The equation assumes that libido is a fixed endowment and that all matches have an identical mechanism. This is scarcely realistic. The promiscuous won't stop banging each other at every opportunity just because they are also banging faithful partners.

I suppose, it could be argued that if some non promiscuous people gratuitously make their genitals available for what is essentially a masturbatory purpose, then there may be some set of miserly and undiscriminating agent who don't get an STD. The problem is that this can't be described as an 'externality'. It is a sacrifice- a very sad one.

Turning to a more cheerful prospect, consider the epidemic of Economists cutting off their own heads and shoving them up their own arses so as to publish Junk Social Science papers.  Suppose the rate of growth of this epidemic is determined by the mean and variance of the number of co-authors per published paper and is correctly specified by the equation given above.

If a certain proportion of less shite Economists decide to reduce the number of co-authors on their papers, or even stop publishing papers altogether, then it must be the case that the rate of growth of the Epidemic will increase. Thus, we can predict that, provided at least one Economist cuts off his head and shoves it up his arse, then more and more will do so. More remarkably yet, less shite Economists who reduce their number of  co-authors will cause a 'negative externality' such that the steady state prevalence of Economists cutting off their own heads and lodging them securely in their rectal cavities, will increase.

As a matter of fact, academic Economics already recognises that its own theorems can represent   a negative externality giving rise to an epidemic of Junk Social Choice which is morally equivalent to Economists chopping off their own heads and shoving them up their poopers.

Thus, contra Landsburg, Economists are not obliged to believe that 'more sex is safer sex' unless, of course, they also collectively commit to an endemic steady state such that a significant proportion of their number suffer autocephalous self-sodomy the moment the thing becomes feasible.

The myth that Ha Joon Chang is against mainstream economics

The following is extracted from an interview published in Truthout. My comments are in bold.
Ha-Joon Chang: The biggest myth about globalization is that it is a process driven by technological progress. This has allowed the defenders of globalization to brand the critics as "modern Luddites" who are trying to turn back the clock against the relentless progress of science and technology.
However, if technology is what determines the degree of globalization, how can you explain that the world was far more globalized in the late 19th and the early 20th century than in the mid-20th century? During the first Liberal era, roughly between 1870 and 1914, we relied upon steamships and wired telegraphy, but the world economy was on almost all accounts more globalized than during the far less liberal period in the mid-20th century (roughly between 1945 and 1973), when we had all the technologies of transportation and communications that we have today, except for the internet and cellular phones, albeit in less efficient forms.

The World was much less globalised between 1870 and 1914 than in the 1950's in absolute terms. Hundreds of millions of subsistence farmers in Asia and Africa and Latin America had virtually no connection with global markets. Even in many parts of Europe, linkages to global markets were very weak. The great Russian famine of 1891 was exacerbated by poor transport links and bottlenecks in the distribution of relief shipments- for example, those sent from America. The great Indian famines of the 1870's and 1890's showed British administrators, like Sir Bartle Frere, that the majority of the native population had no reliable connection to global markets and thus local food availability deficits could not be remedied by the cash nexus. China too suffered terrible famines. The North China famine probably had more casualties than the Indian famines of the period. This was despite no overall global food availability deficit. 

It was not till technology and infrastructure improved greatly that the terms of trade started to move against primary products from the 'Global South'. However, this meant that in relative terms Globalisation might appear to decrease- for e.g. India's share of World Trade dropped quite steeply. This did not mean that Indians got richer. No. They were pursuing stupid autarkic policies and asserting their proud independence by passing around the begging bowl in a shameless manner. It was not till India dropped its 'principled' opposition to Globalisation, and Gandhian addiction to panhandling, that living standards and life chances started to improve for the majority.
Technology is a determinant of globalisation- it makes transport and infrastructural linkages more feasible and cheaper- but it isn't the only factor to be considered.

 Between 1914 and 1950 large parts of the globe were affected by warfare or internecine conflict. This meant that even Liberal Britain had to introduce conscription and restrictions on Economic freedom of various types. The US- which had a Protectionist history- though not directly threatened, did face an internal political crisis (one which featured a 'Capital Strike') which complicated its response to a purely financial crash. Thus, US citizens lost the right to hold gold along with many other quintessentially Liberal freedoms.
After the Second World War, the Militarisation of Societies meant that incentive structures and patterns of behaviour diverged greatly from what had previously obtained. Ex army personnel employed by Corporations brought a different ethos with them. The post-war Japanese Corporation is an example of relatively flat income distribution combined with extreme disparity in power and status.  Other post war economies were characterised by a similar 'habitus' and/or social compact. However, the divorce between ownership and control, or 'Managerial Revolution' was not actually as equitable a process as Macro-Economic statistics might indicate. There were a lot of 'perks' and rent seeking opportunities for those at the top which the figures don't capture.
What is different about today's globalisation and that of the 'Liberal' late Victorian/Edwardian era is that it is colour and gender blind. Thus, a young female factory worker in China can become a billionaire because the barrier to entry into global informational and financial markets has fallen greatly in a manner advantageous to vast numbers of people- including women- whose ancestors lived miserable malnourished lives. 
No doubt, under Victorian Liberalism, some Chinese or Indian peasants were shipped off under articles of indenture to work in plantations and a few who survived terrible conditions had some prosperous descendants. However, power remained with the metropolitan bourgeoisie. It took considerable political struggle and sacrifice for these people- similar to the victims of outright chattel slavery- to gain Civic Rights and Social Mobility.
The reason why the world was much less globalized in the latter period (i.e. after the second World War) is that, during the period, most countries imposed rather significant restrictions on the movements of goods, services, capital and people, and liberalized them only gradually. Actually the restrictions were imposed during war time and were only gradually lifted because of Balance of Payments considerations which only ceased to have salience after the collapse of the Bretton Woods system of fixed exchange rates. However, rationing of foreign exchange in a manner unfavourable to the working class did not immediately disappear. Indeed, there was a lot of rationing and 'restrictive covenants' and price and service provision discrimination which was quite legally practised for the greater part of that period.

 What is notable is that, despite [its] lower degree of globalization … this period is when capitalism has done the best: the fastest growth, the lowest degree of inequality, the highest degree of financial stability, and -- in the case of the advanced capitalist economies -- the lowest level of unemployment in the 250-year history of capitalism. This is why the period is often called "the Golden Age of Capitalism."
The Soviet Union and China (prior to the Great Leap forward) saw an even more rapid improvement in living standards (because not being bombed or shot increases productivity) and Samuelson himself believed there was some substance to Khrushchev's boast that Communism would bury Capitalism by providing workers with a higher standard of living. 

Moreover, people like Galbraith, Tinbergen, Morishima etc pointed out that what was actually happening looked more like 'convergence' to something Weberian and Bureaucratic, not Capitalist at all.
Obviously, the Post War era was going to have some unusual features. The end or reduction in hostilities, freed up resources which, in turn, could be used much more efficiently than ever before because of technological and engineering breakthroughs made during the War or by the Military Industrial complex. There was also a baby boom which itself may be causally linked to the World War. Thus there were plenty of 'low lying fruit' and, because of Cold War rivalries, there was also direct Super power f.d.i for industrial development.
It may be argued that the pattern of International Trade in the post War period was shaped by a type of Economic thinking which rejected the autarkic or corporatist mindset of the Thirties.  However, in reality, this wasn't always the case. France under De Gaulle grew at a good clip despite his bizarre economic ideology. The truth is, not economists but pragmatic technocrats made up policy as they went along. Consider, ENI- the Italian oil and gas company. Enrico Mattei turned it into a giant. But, what was it? Did it fall into the category of Public Sector or Private Sector or Mafia sector? In the end, nobody cared. 

One reason even leaders whose worldview was shaped by the war started to retreat from dirigisme is because it had become obvious that traditional Economic theories of Trade and Development were worthless shite. 

Intra-industry trade became a big feature and export led growth, based on carefully nurtured acquired advantage, proved a far better vehicle for rapid growth than import substitution. South Korea was about as poor, more corrupt, more politically divided and faced a far greater existential threat than Kerala- with which it was comparable in terms of education and land distribution. Kerala, as part of India, was excluded from globalisation and ended up exporting people. Korea also exported people but also built up huge export industries some of which are now technological leaders and dominate their field. Still, the fact is 'the Golden Age of Capitalism' wasn't very golden for most Koreans. Indeed, its protectionist strategy was initially very costly though later on, after a shakeout, benefits began to flow through. 

In any case, it was only after the socially polarising consequences of inflationary bias in Advanced Democracies proved resistant to Monetarist medicine, that 'Globalisation' really came into its own as a way to hold down costs while letting unemployment rise to its natural level.
Crucial to the cost containing potential of Globalised supply chains was greatly improved technology of an inherently novel type- things like computers and fax machines and electronic dildos- now more commonly used as smartphones.
Technology only sets the outer boundary of globalization -- it was impossible for the world to reach a high degree of globalization with only sail ships. It is economic policy (or politics, if you like) that determines exactly how much globalization is achieved in what areas.
What determines how much globalization is achieved, other things being equal, is the absence of war or the threat of war. Iran and Russia and North Korea would probably like more, not less, globalization but can't get it because of a perceived military threat.
The current form of market-oriented and corporate-driven globalization is not the only -- not to speak of being the best -- possible form of globalization. A more equitable, more dynamic and more sustainable form of globalization is possible.
Yes. It is already happening. Zhou Qunfei makes touchscreens for mobile phones. She is 45 years old and worth 10 billion US dollars. Not bad for a girl who went to work in a distant factory at the age of 16.
Ha Joon Chang admits that the post War World was more equitable because Globalisation based on European Imperialism could not sustain itself militarily. However, it seems poor people are irremediably stupid and sold themselves into slavery to big Corporations because they didn't understand this was just a form of neo-colonialism.
He says-
Unfortunately, starting in the 1980s but accelerating from the mid-1990s, there has been a rollback of the sovereignty that the post-colonial countries had been enjoying. The birth of the WTO (World Trade Organization) in 1995 has shrunk the "policy space" for developing countries. The shrinkage was intensified by subsequent series of bilateral and regional trade and investment agreements between rich countries and developing ones, like Free Trade Agreements with the US and Economic Partnership agreements with the European Union.
India liberalised at the start of the Nineties. What 'rollback of sovereignty' has it experienced? None. Which foreign company can cause a political storm in India by threatening to lay off workers? Not a single one. By contrast, what Tata Steel does with its British subsidiary can affect the outcome of more than one Parliamentary seat.
No doubt, 'policy space' for stupid bureaucrats shrank. But the Indians realised this was a good thing. Finally, under Narendra Modi, they got rid of the Planning Commission because it was a waste of space.
The second thing that distinguishes the post-1973 globalization is that it has been driven by transnational corporations far more than before. Transnational corporations existed even from the late 19th century, but their economic importance has vastly increased since the 1980s.
OMG! Has this man never heard of the British East India Company or the Dutch East India Company or the Royal Africa Company or other Seventeenth and Eighteenth Century enterprises which engaged in the Slave Trade? Adam Smith and Edmund Burke exposed the malpractices of these 'transnational corporations'. Surely, this Cambridge economist has read at least the former?
They have also influenced the shaping of the global rules in a way that enhances their power. Most importantly, they have inserted the investor-state dispute settlement (ISDS) mechanism into many international agreements. Through this mechanism, transnational corporations can take governments to a tribunal of three adjudicators, drawn from a pool of largely pro-corporate international commercial lawyers, for having reduced their profits through regulations. This is an unprecedented extension of corporate power.
It is not unprecedented at all. Rather, what has happened is that MNC privilege has been curtailed. American Defence Contractors enjoyed extraterritoriality in Iran under the Shah. Employees of I.B.M or E.D.S could literally get away with murder. In Leftist India, the Government bent over backwards to ensure that Union Carbide's CEO escaped the clutches of the Indian courts. There was a time when the United Fruit Company could topple regimes in 'banana Republics'.  
Rules based Globalisation can curb Corporate malpractice. It is true that stupid bureaucrats and ignorant politicians found that ISDS could boomerang upon them. Canada thought ISDS was a stick to beat the Mexicans with, not a gun pointed at their heads by investors in dirty Energy.
Politicians and bureaucrats are now  smartening up and hiring better lawyers on the one hand and working with their counterparts abroad to change the rule-set. No doubt, Trump's election has thrown a spanner in the works for the moment. Still, there is no reason to believe this was an inevitable outcome or that the situation, going forward, is irremediable.

Chang: The assumption that globalization benefits everyone is based on mainstream economic theories that assume that workers can be costlessly re-deployed, if international trade or cross-border investments make certain industries unviable.
Mainstream ne0-classical economic theories assume that markets benefit everyone only if there is no need for markets and markets don't cost anything to run. They prove only that Economics, under ideal conditions, won't do any harm because it would be completely useless.  
Heterodox economic theories, mainstream or otherwise, assume that ordinary people are as stupid as shit and don't notice that they are being incessantly raped and robbed by evil politicians or corporations or some abstraction like 'neoliberalism' or 'austerity' or 'Populism' or 'Globalisation'. They counsel doing the stupidest thing possible under the circumstances because that's the only way ordinary people will wake up and understand that they are being sodomised and stolen from. Thus, what America needs to do is to actually do what Trump said he'd do while impeaching Trump because he is actively anally raping  every single American citizen on a daily basis.
In this view, if the US signs NAFTA with Mexico, some auto workers in the US may lose their jobs, but they will not lose out, as they can retrain themselves and get jobs in industries that are expanding, thanks to NAFTA, such as software or investment banking.
You will immediately see the absurdity of the argument -- how many US auto workers do you know who have retrained themselves as software engineers or investment bankers in the last couple of decades? Typically, ex-auto-workers fired from their jobs have ended up working as night-shift janitors in a warehouse or stacking shelves in supermarkets, drawing much lower wages than before.
The point is that, even if the country gains overall from globalization, there will always be losers, especially (although not exclusively) workers who have skills that are not valued anymore. And unless these losers are compensated, you cannot say that the change is a good thing for "everyone".…
Since the US Federal Govt. can't legally compensate every loser from Globalisation, it follows that Trump's Protectionism is what is required by the Rawlsian Difference Principle which focuses exclusively on the fate of the least well off.
Of course, most rich countries have mechanisms through which the winners from the globalization process (or any economic change, really) compensate the losers.
No. There is a safety net- a 'social minimum'- but no specific compensation. It may be argued that 'property rights in jobs'- e.g. statutory redundancy pay- represent compensation. This is not the case as it encourages 'last in first out' and imposes a higher Present Value loss on the youngster who gets fired than the old crock who has already been featherbedded.
 The basic mechanism for this is the welfare state, but there are also publicly financed retraining and job-search mechanisms -- the Scandinavians do this particularly well -- as well as sector-specific schemes to compensate the "losers" (e.g., temporary protection for firms to promote restructuring, money for severance payments for the workers). These mechanisms are better in some countries than others, but nowhere are they perfect and, unfortunately, some countries have been running them down. (The recent shrinkage of the welfare state in the UK is a good example.)
In your view, Ha-Joon Chang, is the convergence of globalization and technology likely to produce more or less inequality?
Chang: As I have argued above, technology and globalization are not destiny.
The fact that income inequality actually fell in Switzerland between 1990 and 2000 and the fact that income inequality has hardly increased in Canada and the Netherlands during the neoliberal period show that countries can choose what income inequality they have, even though they are all faced with the same technologies and same trends in the global economy.
Switzerland saw increased wealth inequality, more particularly at the top 0.05 percent, because of the way their tax system is structured. Canada doesn't have world famous brands for structural reasons and so will look different to the U.S. The Dutch legal system deals with debt differently and, in any case, the stupidity of their leaders make even Belgium's wholly dysfunctional state look good by comparison. Still, they are Dutch. They don't choose anything. Otherwise they wouldn't be Dutch.
There is actually a lot that countries can do to influence income inequality. Many European countries, including Germany, France, Sweden and Belgium are as unequal as (or occasionally even more so than) the US, before they redistribute income through progressive tax and the welfare state. Because they redistribute so much, the resulting inequalities in those countries are much lower.
Oh! So Globalisation is a good thing provided you have a decent 'Social Minimum' and are careful about the type of bilateral or multilateral Trade agreements you sign. Urm...isn't that the mainstream view? What is wrong with you? Do you not understand that a heterodox economist has to do more than just expose the myth that everybody isn't genuinely being anally raped and robbed by Neoliberalism but also give the most mischievous possible policy prescription? Other Cambridge economists have no difficulty with the second part. I appreciate that South Koreans don't like fucking up Economies, but you owe it your elevated position in an essentially worthless profession to rid yourself of such childish scruples.

Tuesday, 4 July 2017

Siah mashq

I have no ink with which to write
Of that lunatic Moon tonight
Love, let this black bile serve
To pen Pain's Peano curve

James Meek & the true Labour theory of Value

James Meek has a well researched article in the LRB about a Cadbury factory which relocated from England to Poland.

The English workers, thanks to the use of robots, enjoyed quite high pay (as much as £50,000) and received generous redundancy packages (Meek mentions a worker who received £100,000).  The Poles received much less which also meant that expensive robots were not used on the production line. However, as wages in Poland rise, it appears likely that such factories will shift Eastwards to countries poorer yet. Ironically, prior to 2014, the E.U subsidised this export of jobs- a fact which has turned some of the English ex-Cadbury workers into Brexiters. Similarly, in Poland, the Conservative, homophobic, ruling party is attractive to the working class because of its anti EU rhetoric.

Why did English Cadbury workers enjoy high wages and a good standard of living? The answer is that England, over the course of centuries, had developed Naval and Rail technology and so could import raw materials and ship finished products cheaply. Moreover, the Rule of Law was well established- once again because of centuries of investment. This meant Factories could retain a larger proportion of the price to the consumer. Competition between Factories raised wages thus, the maker of the chocolate gained proportionately more than its transporter or distributor. 

By contrast, historically low wage parts of Poland were notably less favoured in all the above respects.

England lost its inherited 'acquired' advantages in manufacturing but developed others connected to Finance, Education, Culture & so on. The working class could still find some high real wage niches but, increasingly, not in big factories where, in any case, migrants might work harder for less money. 

Meek reports an ex Cadbury worker as saying ' ‘We were just the keepers of those jobs. We needed to hand them down to our children and our children’s children.’ This makes sense. If there are to be property rights in jobs, they should be heritable. However, the law permits the hiring of migrants or others genealogically unconnected to current workers. Understanding this, such workers prefer to accept a fair redundancy package and let the matter drop. Even in Poland, more and more of the production line jobs are being taken by Ukrainian contract workers. Thus, we ought not to expect a major backlash from working class people as factories move to where costs are lower yet.

Meek is evidently troubled by an ugly, xenophobic, spirit to be seen in post Brexit Britain and in Kaczyński's increasingly psychotic Poland. He is trying to explain these unwholesome developments as a response to greedy multinationals destroying well paid manufacturing jobs and replacing them with ill paid and precarious employment. The obvious rejoinder is that National Governments could, under pressure from voters, establish high minimum wages and restore strong property rights in jobs. Why haven't Poland and Britain done so? The answer, obviously, is that these property rights can't be made heritable without running afoul of equal opportunity legislation and the terms of the relevant European treaty. All that would happen, if property rights were ramped up, would be that a generational divide would worsen- grown up sons would either emigrate or remain in idleness under the paternal roof- and that migrants would be sucked in to keep things ticking over. Notably, it was France, not Britain or Poland, where a truly extreme party- the National Front- became a serious contender for power.

Meek concludes his essay by conjuring up the spectre of a Marxian 'under-consumption crisis'

Robots eat something much more expensive than chocolate- viz. technical knowledge of an arcane type. If the children of comfortably off working class parents are so stupid as to believe that they will inherit jobs in the same factories at the same or higher real wage, then they will quite rightly refuse to acquire any such knowledge. They may try to learn the guitar or disco dancing or whatever it is that kids are into nowadays because such knowledge impacts directly on their reproductive success.

As a matter of fact, kids everywhere understand that 'nerds' can make the big bucks and get the hot blonde- like in 'Big Bang Theory'- so they are in fact willing to acquire arcane knowledge and skills. Not everybody can be a rocket scientist or robot designer. But everybody can be alert to the main chance and allocate their own labour better than some guy sitting in a skyscraper back at Corporate HQ. The true Labour theory of value is that labour which values itself stops getting reamed in the pooper. Marxism, as a political force increasingly relevant in our troubled times, is struggling manfully to avert this outcome.