Four Lessons (Not) Learned From The Financial Crisis

By John T. Harvey – That’s fantastic. Good work, Presidents Bush, Obama and Trump. But just because we bailed the water out of the sinking ship doesn’t mean we patched all the holes. And while the former is a necessary first step, without the latter we won’t remain upright for long.

So what didn’t we fix that could still potentially cause a catastrophic leak? Too much. Here’s a short list of what we should have learned but didn’t.

  1. If you are going to bail someone out, bail out the debtor and not the creditor
  2. Financial institutions should be very closely supervised
  3. The market is not always right
  4. Deficit spending doesn’t cause inflation or bankruptcy

Most people assume that what financial institutions do is loan out other people’s money. That is, of course, part of what they do, but what is far more significant is the fact that they create money. I don’t just mean the intro-econ, money-multiplier story where banks make loans after the Federal Reserve injects new funds. In fact, that view is so wrong that economics professors are beginning to eliminate it from their curriculum (not nearly fast enough, but it’s getting there).

Rather, the standard scenario is one in which banks increase the money supply first by making loans to customers and then the Federal Reserve steps in second to supply the necessary reserves. Financial institutions make money out of thin air, not from someone’s savings, and if that leaves the system short of reserves then the Fed buys securities from banks. They do this to prevent interest rates from rising above their targeted rate and therefore the central bank accommodates rather than dictates when it comes to the supply of money. more>

Anthropic arrogance

By David P Barash – Welcome to the ‘anthropic principle’, a kind of Goldilocks phenomenon or ‘intelligent design’ for the whole Universe. According to its proponents, the Universe is fine-tuned for human life.

The message is clearly an artificial one and not the result of random noise. Or maybe the Universe itself is alive, and the various physical and mathematical constants are part of its metabolism. Such speculation is great fun, but it’s science fiction, not science.

It should be clear at this point that the anthropic argument readily devolves – or dissolves – into speculative philosophy and even theology. Indeed, it is reminiscent of the ‘God of the gaps’ perspective, in which God is posited whenever science hasn’t (yet) provided an answer.

Calling upon God whenever there is a gap in our scientific understanding may be tempting, but it is not even popular among theologians, because as science grows, the gaps – and thus, God – shrinks. It remains to be seen whether the anthropic principle, in whatever form, succeeds in expanding our sense of ourselves beyond that illuminated by science. I wouldn’t bet on it. more>

Could China’s Raw Materials Strategy Leave US Automakers Behind?

By Charles Murray – China’s business relationships are so aggressive, said Jose Lazuen, an electric vehicle and supply chain analyst for Roskill, that it’s almost “too late” for automakers in other regions of the world to catch up now.

“The North American and European companies are not at the same level as the Chinese OEMs,” Lazuen stated. “They’ll face problems if raw material costs increase at some point.”

Chinese suppliers at the show said they view relationships with miners as a necessity, given the volatile and unpredictable nature of the market. “The only way you’re going to (get control) is to have a mindset to get ahead of the game by buying rights to those minerals to keep the prices down,” noted Robert Galyen, chief technology officer of CATL, a China-based company that is now the biggest battery manufacturer in the world.

The question of future metal costs is a growing concern, experts said this week, because lithium, cobalt, and nickel will continue to play key roles in future electric car batteries. One speaker at the show noted that the price of cobalt rose 130% last year, while lithium climbed by 50% and nickel was up 28%.

If those increases continue, raw material costs could negate any economies of scale that might otherwise be gained through increases in production volume. more>

Lessons From The Greek Tragedy Unlearnt

By Simon Wren-Lewis – Private banks were happy to lend to the Greek government because they mistakenly believed their money was as safe as if they were lending to Germany.

Other governments first delayed and then limited Greek default because they were worried about the financial health of their own banks. They replaced privately held Greek debt with money the Greek government owed to other Eurozone governments.

From that point voters would always want all their money back. In an effort to achieve that the Troika demanded and largely achieved draconian austerity and a vast array of reforms.

The result was a slump which crippled the economy in a way that has few parallels in history. Most economists understand that in situations like this it is ridiculous to insist that the debtor pays all the money back. For basic Keynesian reasons this insistence just destroys the ability of the debtor to pay: it is not a zero sum game between creditor and debtor. This is why so much of German debt was written off after WWII.

By July 2015 the Greek government was able to pay for its spending with taxes, so all it needed was loans rolled over. The Troika would only do that if the Greek government started running a large surplus to start paying back the debt i.e. further austerity. more>

Updates from Adobe

Inside the Mind of Digital Dreamer Archan Nair
By Charles Purdy – Self-taught visual artist and illustrator Archan Nair creates complex, imaginative, and lushly colorful digital art that expresses his fascination with the interconnectedness of the universe and the mysteries of existence. Working primarily in Adobe Photoshop CC, Nair creates compositions for a wide variety of clients, including Sony, GQ, Samsung, and Nike, as well as his own personal projects.

There are many ways to create a rough canvas on which to begin building an abstract Photoshop creation in Nair’s style. Nair started with a radial gradient layer; he used the Gradient Editor dialog box to experiment until he had a gradient he liked, consisting of two tones of reddish tan. (If you’re new to the Gradient Editor, check out this primer.) He then duplicated this layer, set the duplicate’s opacity to 15%, and changed the layer’s blending mode to Color Burn.

He added a photograph of a woman on a new layer, set that layer’s opacity to 25%, and changed the layer’s blending mode to Overlay. Then he duplicated that layer and changed the duplicate layer’s blending mode to Soft Light.

After making further adjustments, Nair added a layer on which to draw some outlines of the woman’s face, using a brush with sharp edges for definition. Then he deleted the layer with the original photograph on it. more>

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Updates from Chicago Booth

Why the ‘dollars a day’ pitch works
By Alice G. Walton – Charities that encourage people to donate “just dollars a day” may have the right idea—and more businesses should consider following suit. University of Rhode Island’s Stephen A. Atlas and Chicago Booth’s Daniel Bartels find that framing a cost as a series of small daily expenses makes an offer more tempting—plus people think they’re getting more for their money, whether the outlay is for charity or a purchase.

The researchers established this preference for periodic pricing in a series of experiments that asked participants about charitable donations, car leases, and meal-delivery services.

“Our framework and results suggest that periodic pricing can help people appreciate the benefits they accrue from a purchase,” the researchers write. “So, under the right conditions, marketers can encourage purchase with periodic pricing, even for significant sums of money.” more>

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Updates from Siemens

Digital Enterprise Industry Solutions for Automotive OEMs
Siemens – Automotive OEMs are remaking themselves in an era of digital disruptions across the industry. Product complexity, technological change, and increasing competition places pressure on OEMs to innovate faster. Leading automakers are increasingly using systems engineering processes that span the domains of mechanical, electrical and software functions to realize the innovation needed for next-gen cars.

Siemens PLM Software solutions are built on open standards to allow for seamless integration across disciplines. This gives automakers the flexibility to digitalize product development, enabling everyone to access a car’s digital twin. more>

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A Warning From Europe: The Worst Is Yet to Come

By Anne Applebaum – That moment has passed. Nearly two decades later, I would now cross the street to avoid some of the people who were at my New Year’s Eve party. They, in turn, would not only refuse to enter my house, they would be embarrassed to admit they had ever been there.

In fact, about half the people who were at that party would no longer speak to the other half. The estrangements are political, not personal.

Poland is now one of the most polarized societies in Europe, and we have found ourselves on opposite sides of a profound divide, one that runs through not only what used to be the Polish right but also the old Hungarian right, the Italian right, and, with some differences, the British right and the American right, too.

Perhaps this is unsurprising. All of these debates, whether in 1890s France or 1990s Poland, have at their core a series of important questions: Who gets to define a nation? And who, therefore, gets to rule a nation? For a long time, we have imagined that these questions were settled—but why should they ever be?

You can call this sort of thing by many names: nepotism, state capture. But if you so choose, you can also describe it in positive terms: It represents the end of the hateful notions of meritocracy and competition, principles that, by definition, never benefited the less successful. A rigged and uncompetitive system sounds bad if you want to live in a society run by the talented.

But if that isn’t your primary interest, then what’s wrong with it?

Sooner or later, the losers of the competition were always going to challenge the value of the competition itself.

More to the point, the principles of competition, even when they encourage talent and create upward mobility, don’t necessarily answer deeper questions about national identity, or satisfy the human desire to belong to a moral community.

The authoritarian state, or even the semi-authoritarian state—the one-party state, the illiberal state—offers that promise: that the nation will be ruled by the best people, the deserving people, the members of the party, the believers in the Medium-Size Lie. more>

Updates from ITU

Advocacy Target 4: Digital Skills & Literacy
ITU – Effective education systems are essential for meeting future challenges and delivering on the SDGs. Although rapid technological change has taken place over the last thirty years, education systems in many countries have remained largely unchanged over the last century. Education is about much more than merely providing people with the skills and knowledge to work, and must create a framework through which people can lead diverse and fulfilling lives. People of all ages should have opportunities to learn about their own cultures, in their own languages.

There is broad agreement that education needs to ensure that people gain four main skills: creativity, communication, collaboration, and critical thinking. Alongside skills such as literacy and numeracy, people should now also gain basic digital skills. They need to have a comprehensive understanding of the rapidly changing world in which they live, as well as their roles and responsibilities within it. ITU’s Global ICT Development Index (IDI) includes a measure of digital skills and capabilities.

There is considerable debate as to what proficiency in digital skills and an ‘adequate’ level really mean. Digital skills have been broken down into three categories:

  1. the basic digital literacy needed for all workers, consumers and citizens in a digital society;
  2. the advanced ICT skills (coding, computer science and engineering) which are needed to develop innovative ICT products and services; and
  3. e-business skills or the specific know-how needed for digital entrepreneurshipn. Figure 15 shows how global averages for digital skills vary from 5.2% (using a programming language) to 43.7% (transferring files).

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Updates from Chicago Booth

Is corporate market power really surging?
By Alex Verkhivker – In economic circles, an argument has gained traction that corporate market power is surging, resulting in skyrocketing markups, a falling labor share, and other negative consequences for consumers and workers. But some researchers are pushing back, emphasizing weaknesses in the argument and urging policy makers to be cautious before taking any actions.

Proponents of the market-power argument often rely on one of two methodologies, one that calculates and compares total revenues and costs at the economy-wide level and another that uses company-level data. University of Minnesota’s Loukas Karabarbounis and Chicago Booth’s Brent Neiman focus on the first of these two, in which the economy is considered a pie that is made of up three slices: the labor share (which goes to workers), the capital share (costs incurred to use factories, equipment, software, etc.), and economic profits. Economic profits are calculated by finding the difference between revenues and costs, including the cost of capital faced by companies to fund their assets used in production. more>

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