Category Archives: Media

Why Elon Musk Isn’t Superman

The Betting Economy vs. The Operating Economy
By Tim O’Reilly – At one point early this year, Elon Musk briefly became the richest person in the world. After a 750% increase in Tesla’s stock market value added over $180 billion to his fortune, he briefly had a net worth of over $200 billion. It’s now back down to “only” $155 billion.

Understanding how our economy produced a result like this—what is good about it and what is dangerous—is crucial to any effort to address the wild inequality that threatens to tear our society apart.

In response to the news of Musk’s surging fortune, Bernie Sanders tweeted:

Bernie was right that a $7.25 minimum wage is an outrage to human decency. If the minimum wage had kept up with increases in productivity since 1979, it would be over $24 by now, putting a two-worker family into the middle class. But Bernie was wrong to imply that Musk’s wealth increase was at the expense of Tesla’s workers. The median Tesla worker makes considerably more than the median American worker.

Elon Musk’s wealth doesn’t come from him hoarding Tesla’s extractive profits, like a robber baron of old. For most of its existence, Tesla had no profits at all. It became profitable only last year. But even in 2020, Tesla’s profits of $721 million on $31.5 billion in revenue were small—only slightly more than 2% of sales, a bit less than those of the average grocery chain, the least profitable major industry segment in America.

No, Musk won the lottery, or more precisely, the stock market beauty contest. In theory, the price of a stock reflects a company’s value as an ongoing source of profit and cash flow. In practice, it is subject to wild booms and busts that are unrelated to the underlying economics of the businesses that shares of stock are meant to represent. more>

Green markets won’t save us

Markets are an unreliable guide for navigating a problem as large and complex as climate change.
By Katharina Pistor – How can one make wise decisions about a perpetually unknowable future? This question is as old as humankind, but it has become existential in light of climate change. Although there is sufficient evidence that anthropogenic climate change is already here, we cannot possibly know all the ways that it will ramify in the coming decades. All we know is that we must either reduce our environmental footprint or risk another global crisis on the scale of the ‘little ice age’ in the 17th century, when climatic changes led to widespread disease, rebellion, war and mass starvation, cutting short the lives of two-thirds of the global population.

The British economist John Maynard Keynes famously argued that investors are driven ultimately by ‘animal spirits’. In the face of uncertainty, people act on gut feelings, not ‘a weighted average of quantitative benefits multiplied by quantitative probabilities’, and it is these instinct-driven bets that may (or may not) pay off after the dust settles. And yet policy-makers would have us trust animal spirits to help us overcome the uncertainty associated with climate change.

Humanity has long sought to reduce uncertainty by making the natural world more legible, and thus subject to its control. For centuries, natural scientists have mapped the world, created taxonomies of plants and animals, and (more recently) sequenced the genomes of many species in the hope of discovering treatments against all imaginable maladies.

What maps, taxonomies and sequences are to chemists and biologists, numbers and indicators are to social scientists. Prices, for example, signal the market value of goods and services, and the expected future value of financial assets. If investors have largely ignored certain assets, the reason might be that they were improperly measured or priced. more>

Bad stimulus: Government payments to individuals are a terrible way to solve America’s structural economic problems

By Albena Azmanova and Marshall Auerback – The new Democratic administration is poised to make its first proud step in delivering on its electoral promise to build back (America) better: the successful adoption of a $1.9 trillion stimulus package, the main components of which are a third round of stimulus checks, a renewal of federal unemployment benefits, and a boost to the child tax credit, as well as funding for school reopenings and vaccinations. It will probably not include a federal minimum wage hike.

Biden’s stimulus is not the stuff of economic revolution—it’s a mix of common sense and keeping the lights on. And the fundamental thinking behind the stimulus approach reflects a continuation of neoliberal policies of the past 40 years; instead of advancing broader social programs that could uplift the population, the solutions are predicated on improving individual purchasing power and family circumstances.

Such a vision of society as a collection of enterprising individuals is a hallmark of the neoliberal policy formula—which, as the stimulus bill is about to make clear, is still prevalent within the Democratic and the Republican parties. This attention to individual purchasing power promises to be the basis for bipartisan agreement over the next four years.

The reality is that social programs on health care and education, and a new era of labor and banking regulation, would put the wider society on sounder feet than a check for $1,400.

There are very few federally elected officials who behave as though they understand that economic insecurity can breed political instability and governing paralysis.

Globalization, deindustrialization, the contraction of the public sector, and the rise of contract labor via the gig economy have made individuals feel insecure in their private circumstances. This has contributed to the appeal of populist politicians, whose tenures generally are corrosive to liberal democracies. Moreover, these tendencies have together undermined our social contract as a whole, depriving governments of the means and resources to tend to the public interest. more>

Disinformation Is Among the Greatest Threats to Our Democracy. Here Are Three Key Ways to Fight It

By Daniel J. Rogers – In October 2019, the late Supreme Court Justice Ruth Bader Ginsberg was asked what she thought historians would see when they looked back on the Trump era in United States history. Justice Ginsberg, known for her colorful and often blistering legal opinions, replied tersely, “An aberration.”

As President Biden’s administration settles in, many feel an enormous sense of relief, an awareness that the United States dodged a proverbial bullet. But how do we ensure that Justice Ginsberg’s prediction becomes reality? This is not an academic question; Trump’s recent speech at CPAC all but announced his desire to return in 2024. Only by recognizing the underlying reason he succeeded in the first place and by making the structural changes necessary to prevent someone like him from succeeding again can we head off this eventuality.

First, to understand what we must do to prevent the return of someone like Trump or even Trump himself, we first need to define what Trumpism really is and how it came to be. The seeds of Trumpism in America have been analyzed to exhaustion, but something specific emerged in 2016 that holds the key to Trump’s rise to power: Online disinformation.

Modern online disinformation exploits the attention-driven business model that powers most of the internet as we currently know it. Platforms like Google and Facebook make staggering amounts of money grabbing and capturing our attention so they can show us paid advertisements. That attention is gamed using algorithms that measure what content we engage with and automatically show us more content like it.

The problem, of course, emerges when these algorithms automatically recommend and amplify our worst tendencies. As humans, we evolved to respond more strongly to negative stimuli than positive ones. These algorithms detect that and reinforce it, selecting content that sends us down increasingly negative rabbit holes. Resentful about losing your job? Here’s a video someone made about how immigrants stole that job from you! Hesitant about the COVID-19 vaccine? Here’s a post from another user stoking a baseless anti-vaccine conspiracy theory. Notice, of course, that truth is nowhere in this calculus—the only metric the algorithm rewards is engagement, and it turns out that disinformation and conspiracy theory make the perfect fodder for this algorithmic amplification. more>

Disinformation and the efforts to counter its effects can undermine human rights

By Miroslava Sawiris – Disinformation is a phenomenon often thought of in relation to electoral interference, subversion of democratic processes or foreign state influence operations. While all of these examples receive deserved attention, the spread of disinformation also negatively impacts another hard-won pillar of the post-World War II era, that of human rights.

When the concept of universal humanity does not apply

It is no coincidence that with the rapid spread of disinformation as a tool of information warfare, both the concept of human rights itself, as well as its application, have come increasingly under attack.

This is because ‘disinformation’ – deliberate and systematic spread of lies that are aimed at confusing the recipient – undermines the very foundations of the idea that objective reality exists, a necessary condition upon which the notion of universal humanity is founded.

Such undermining opens up the possibility to claim, for example, that universal human rights do not exist, and are nothing but a form of ‘aggressive colonialism’ attempting to ‘impose Western values’ on different cultures, precisely the argument chief Kremlin ideologists, such as Vladislav Surkov, have developed. Dismissing human rights as a Western concept is very convenient when needing to suppress political opposition, as in the case of Alexey Navalny, who was recently sent to a Russian penal colony for violating a 2014 suspended sentence for embezzlement as he missed check-ins with Russia’s prison service due to his near-fatal poisoning.

Disinformation meets hate speech

Another way in which disinformation impacts human rights is its deployment in propaganda hate campaigns. These form a part of the 10 stages of genocide, which starts with portraying the target group as the ‘other’, demonizes it through de-humanizing labels and leads to persecution and even extermination.

While our modern history is filled with notorious examples such as the Holocaust or the genocide in Rwanda, Facebook-fueled hate campaign against Rohingya Muslims based on lies disseminated by the Myanmar military triggered ethnic cleansing and ‘the largest forced human migration in recent history’ as recently as 2016. more>

Why such an imperfect union?

US political dysfunctionality is put down to partisanship and polarization. But Sheri Berman argues, by a west-European comparison, it’s the issue agenda that counts.
By Sheri Berman – The 2020 election was the most traumatic and dangerous in modern American history. Its legitimacy was indefensibly questioned by Republican elites and voters, helping to motivate an insurrection designed to block its outcome.

What explains the diametrically opposed narratives of the 2020 election advanced by Republicans and Democrats and the broader democratic dysfunction of which this is a manifestation? One common explanation focuses on ‘hyper-partisanship’ and polarisation.

In the decades following World War II in the United States, party identification and voter loyalty were relatively weak, Democratic and Republican voters and elites relatively ideologically heterogenous, and vote-switching or split-ticket voting (choosing different parties in national and state-level elections) relatively common. By the early 21st century, however, the situation had changed dramatically: partisan identities had become deeply felt and entrenched, Democratic and Republican elites and voters had become more ideologically homogenous and distinct from each other, and vote-switching and split-ticketing voting had become relatively uncommon.

Scholars and commentators argue these trends have led Democratic and Republican partisans to view each other as dangerous or threatening, rather than simply people with different political views and preferences, caused anger and resentment to become the dominant features of political discourse and interactions, and turned politics into a zero-sum game where compromise is anathema. In such hyper-partisan, polarized contexts extremism can thrive and anti-democratic moves against opponents seem acceptable or even necessary. more>

Public Sees Black People, Women, Gays and Lesbians Gaining Influence in Biden Era

Half of Americans say evangelical Christians will lose influence
pewresearch.org – As Joe Biden navigates the first few weeks of his presidency, Americans have distinctly different views of which groups will gain influence – and which ones will lose influence – in Washington during his administration.

Nearly two-thirds of U.S. adults (65%) say Black people will gain influence in Washington with Joe Biden taking office. Just 14% say Black people will lose influence, while 20% say they will not be affected.

Large shares of adults also expect women (63%) and gay and lesbian people (60%) to gain influence over the next four years. Only about one-in-ten expect each of these groups to lose influence.

Other groups expected to gain influence include younger people (54%), Hispanic people (53%), poor people (50%) and unions (48%). Relatively small shares – no more than about quarter – say any of these groups will lose influence during Biden’s presidency.

By contrast, evangelical Christians are expected to lose influence with Biden as president: 50% say they will lose influence, while just 9% expect them to gain influence; 39% say they will be unaffected.

By sizable margins, more Americans also say business corporations and the military will lose than gain influence, though about a quarter (24%) say corporations will be unaffected and 32% say the same about the military. more>

Updates from Chicago Booth

Who is driving stock prices?
Some investors influence valuations more than others do, research suggests
By Emily Lambert – When stock prices fluctuate, commentators often attribute the moves to demand from certain groups of investors. A radio report might attribute a daily rise in the S&P 500 to sentiment-driven retail investors—or maybe hedge funds, pension funds, or sovereign-wealth funds.

But some investors drive valuations more than others do, suggests research by Chicago Booth’s Ralph S. J. Koijen, NYU’s Robert J. Richmond, and Princeton’s Motohiro Yogo. In traditional stock-valuation methods, it doesn’t matter who owns a stock. Indeed, someone valuing a company’s stock typically estimates the company’s expected profits, and then discounts these profits using an appropriate discount rate as implied by, for instance, the capital asset pricing model (CAPM). The demand of a particular group of investors matters only to the extent that it affects the market risk premium and therefore the discount rate, producing a typically small effect. But some research is starting to chip away at the gap between narratives about investor-driven market swings and traditional finance models.

The latter assume that markets are highly elastic, Koijen explains—if prices deviate slightly from their fair values, investors rush in to arbitrage such small mispricings away. But the market is far less elastic than thought, a growing literature demonstrates. In this case, differences in investor demand have a meaningful impact on prices.

If asset prices reflect differences in demand for the shares, who is driving that? Koijen, Richmond, and Yogo developed a framework to trace back differences in valuation ratios and expected returns to various investors. They assembled investors into eight groups, from passively managed behemoths such as the Vanguard Group, to smaller, actively managed investment advisers and hedge funds. They then modeled how valuations would shift if all the assets of one group were to be redistributed to other institutional investors in proportion to their assets—if all hedge fund assets, for example, were held instead by other institutions in the market. The effect of that would depend on an investor’s size and strategy compared with others in the market, the researchers show.

Overall, small, active investment advisers have the largest influence on valuations, according to the researchers. Controlling for size, they find that hedge funds tend to be the most influential. “Per dollar of capital, they are much more influential than pension funds and insurance companies,” says Koijen. more>

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How the Pandemic Stoked a Backlash to Multilevel Marketing

YouTube vigilantes are taking consumer advocacy into their own hands.
By Kaitlyn Tiffany – For decades, multilevel-marketing companies had it easy. Cutco knives, Tupperware containers, and Pampered Chef bread mixes were inoffensive products sold at weeknight wine parties and, later, in themed Facebook groups. For the most part, they were an unremarkable part of women’s lives.

Multilevel marketing—a form of direct selling in which a major chunk of a person’s income comes not from the sales they make themselves but from the sales made by people they recruit into the company—was often regarded as exploitative by consumer advocates, but it rarely encountered a serious threat. During the pandemic, distributors for many MLM companies have used this lack of pushback to their advantage: On Instagram and Facebook, women have tried to persuade their followers to use their stimulus checks to join a company that sells shampoo or weight-loss products. They have used economic collapse as a recruitment tool, offering MLMs as the solution to lost income and increased precarity.

For Heather Rainbow, a 20-year-old chemistry student, these appeals were a wake-up call. In May, she made her first anti-MLM TikTok video, green-screening herself in front of what she claims is the 2018 income-disclosure statement for the hair-care company Monat, which shows that 94 percent of its distributors had an average income of $183 that year. She now considers herself something of a consumer advocate and misinformation combatant, posting about companies such as Cutco, Younique, Arbonne, and Lipsense to her 113,00 followers. “That was my first TikTok to really get views,” she told me. “I had no idea that people on TikTok would be so receptive to the anti-MLM message.” (I reached out to several of the companies named in this article, and most, including Monat, did not respond to my requests for comment. A spokesperson for Arbonne told me in an email that regulators “have recognized the legitimacy of multi-level marketing for decades.”)

The same social networks that multilevel-marketing distributors are called upon to exploit—their friends, their family, their followers, their “mutuals”—are now the social networks through which women are pushing out a completely different message. (Though men participate in multilevel marketing as well, they do so in much smaller numbers.) On Reddit, Facebook, YouTube, and TikTok, a huge community has coalesced around the anti-MLM sentiment, bringing together disenchanted former salespeople, curious independent researchers, and thousands of women who are just tired of getting Facebook messages about selling essential oils. more>

Was it a coup? No, but siege on US Capitol was the election violence of a fragile democracy

By Clayton Besaw and Matthew Frank – Did the United States just have a coup attempt?

Supporters of President Donald Trump, following his encouragement, stormed the U.S. Capitol building on Jan. 6, disrupting the certification of Joe Biden’s election victory. Waving Trump banners, hundreds of people broke through barricades and smashed windows to enter the building where Congress convenes. One rioter died and several police officers were hospitalized in the clash. Congress went on lockdown.

While violent and shocking, what happened on Jan. 6 wasn’t a coup.

This Trumpist insurrection was election violence, much like the election violence that plagues many fragile democracies.

The uprising at the Capitol building does not meet all three criteria of a coup.

Trump’s rioting supporters targeted a branch of executive authority – Congress – and they did so illegally, through trespassing and property destruction. Categories #2 and #3, check.

As for category #1, the rioters appeared to be civilians operating of their own volition, not state actors. President Trump did incite his followers to march on the Capitol building less than an hour before the crowd invaded the grounds, insisting the election had been stolen and saying “We will not take it anymore.” This comes after months of spreading unfounded electoral lies and conspiracies that created a perception of government malfeasance in the mind of many Trump supporters.

Whether the president’s motivation in inflaming the anger of his supporters was to assault Congress is not clear, and he tepidly told them to go home as the violence escalated. For now it seems the riot in Washington, D.C., was enacted without the approval, aid or active leadership of government actors like the military, police or sympathetic GOP officials. more>