Tag Archives: Capital

How the market is betraying advanced economies

The idea that ‘the market’ must be the organizing principle for collective decision-making should be abandoned.
By Diane Coyle – Despite ever-improving conditions for millions of people around the world—documented by entities like the University of Oxford’s Our World in Data and highlighted by scholars like Steven Pinker—popular discontent is on the rise in many places.

The reason is simple: whereas the first trend is being driven by low- and middle-income countries, the second is concentrated in high-income countries.

Throughout the developed world, conditions for many workers are deteriorating, with no recovery in sight. Income inequality is near historic highs, wealth inequality is even higher and economic insecurity is widespread.

As the United Kingdom tears itself apart politically and constitutionally over Brexit, many of its citizens struggle with low-quality jobs, inadequate housing and poverty so severe that they rely on food banks.

France’s yellow-vest protests have been hijacked by violent extremists, but they reflect real grievances about the growing challenge of maintaining living standards.

In the United States, the Economic Report of the President touts the supposed elimination of poverty, but life expectancy does not decline in a prosperous country.

In short, the post-World War II social contract in many of today’s developed economies is breaking down. And even more uncertainty and insecurity are on the way, as new technologies such as artificial intelligence and robotics take root.

Given the depth of the transformation ahead, however, it is not just the policies themselves that must change, but the very framework on which they are based. This means abandoning the idea—which has shaped public policy for more than a generation—that the ‘market’ must be the organizing principle for collective decision-making. more>

Updates from Chicago Booth

Machine learning can help money managers time markets, build portfolios, and manage risk
By Michael Maiello – It’s been two decades since IBM’s Deep Blue beat chess champion Garry Kasparov, and computers have become even smarter. Machines can now understand text, recognize voices, classify images, and beat humans in Go, a board game more complicated than chess, and perhaps the most complicated in existence.

And research suggests today’s computers can also predict asset returns with an unprecedented accuracy.

Yale University’s Bryan T. Kelly, Chicago Booth’s Dacheng Xiu, and Booth PhD candidate Shihao Gu investigated 30,000 individual stocks that traded between 1957 and 2016, examining hundreds of possibly predictive signals using several techniques of machine learning, a form of artificial intelligence. They conclude that ML had significant advantages over conventional analysis in this challenging task.

ML uses statistical techniques to give computers abilities that mimic and sometimes exceed human learning. The idea is that computers will be able to build on solutions to previous problems to eventually tackle issues they weren’t explicitly programmed to take on.

“At the broadest level, we find that machine learning offers an improved description of asset price behavior relative to traditional methods,” the researchers write, suggesting that ML could become the engine of effective portfolio management, able to predict asset-price movements better than human managers. more>

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The new spirit of postcapitalism

Capitalism emerged in the interstices of feudalism and Paul Mason finds a prefiguring of postcapitalism in the lifeworld of the contemporary European city.
By Paul Mason – Raval, Barcelona, March 2019. The streets are full of young people (and not just students)—sitting, sipping drinks, gazing more at laptops than into each other’s eyes, talking quietly about politics, making art, looking cool.

A time traveler from their grandparents’ youth might ask: when is lunchtime over? But it’s never over because for many networked people it never really begins. In the developed world, large parts of urban reality look like Woodstock in permanent session—but what is really happening is the devalorization of capital.

But just 20 years after the roll-out of broadband and 3G telecoms, information resonates everywhere in social life: work and leisure have become blurred; the link between work and wages has been loosened; the connection between the production of goods and services and the accumulation of capital is less obvious.

The postcapitalist project is founded on the belief that, inherent in these technological effects lies a challenge to the existing social relations of a market economy, and in the long term, the possibility of a new kind of system that can function without the market, and beyond scarcity.

But during the past 20 years, as a survival mechanism, the market has reacted by creating semi-permanent distortions which—according to neoclassical economics—should be temporary.

In response to the price-collapsing effect of information goods, the most powerful monopolies ever seen have been constructed. Seven out of the top ten global corporations by market capitalization are tech monopolies; they avoid tax, stifle competition through the practice of buying rivals and build ‘walled gardens’ of interoperable technologies to maximize their own revenues at the expense of suppliers, customers and (through tax avoidance) the state. more>

Updates from Chicago Booth

How sales taxes could boost economic growth
By Dee Gill – The fight against sluggish global economic growth has been expensive, protracted, and unexpectedly vexing, leaving central bankers in developed economies with a laundry list of shared frustrations. Meager economic growth, flagging wages, and low inflation persist, in spite of bankers’ monetary stimuli, and threaten to quash upward mobility for young job seekers and midcareer employees in even the richest countries.

There’s a poster child for what countries do not want to become: Japan. The former economic powerhouse has been stuck in low-growth purgatory since 1991. And yet, as much as they’d like to avoid it, some countries have been sliding in that direction.

Many big economies are stagnating, and economists are running out of options to fix them. The conventional monetary policy for encouraging spending has been to drop short-term interest rates. But with rates already near, at, or below zero, that method is all but exhausted. Some economists have also started to empirically and theoretically question the power of forward guidance, in which central banks publicize plans for future interest-rate policies, at the zero lower bound.

Central banks and governments badly need a new stimulus tool, preferably one that doesn’t cost a lot of money. Some researchers are proposing a fix that might sound unappetizing: raising sales taxes as a means of jump-starting economic growth.

Francesco D’Acunto of the University of Maryland, Daniel Hoang of Germany’s Karlsruhe Institute of Technology, and Chicago Booth’s Michael Weber find evidence that a preannounced tax hike—a 3-percentage-point increase in Germany’s Value Added Tax enacted in 2007—provided just the kind of growth stimulus central banks desperately need today. more>

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How digital technology is destroying our freedom

“We’re being steamrolled by our devices” —Douglas Rushkoff
By Sean Illing – There’s a whole genre of literature called “technological utopianism.” It’s an old idea, but it reemerged in the early days of the internet. The core belief is that the world will become happier and freer as science and technology develops.

The role of the internet and social media in everything from the spread of terrorist propaganda to the rise of authoritarianism has dampened much of the enthusiasm about technology, but the spirit of techno-utopianism lives on, especially in places like Silicon Valley.

Douglas Rushkoff, a media theorist at Queens College in New York, is the latest to push back against the notion that technology is driving social progress. His new book, Team Human, argues that digital technology in particular is eroding human freedom and destroying communities.

We’re social creatures, Rushkoff writes in his book, yet we live in a consumer democracy that restricts human connection and stokes “whatever appetites guarantee the greatest profit.” If we want to reestablish a sense of community in this digital world, he argues, we’ll have to become conscious users of our technology — not “passive objects” as we are now.

But what does that mean in practical terms? Technology is everywhere, and we’re all more or less dependent upon it — so how do we escape the pitfalls? more>

How to govern a digitally networked world

Because the internet is a network of networks, its governing structures should be too. The world needs a digital co-governance order that engages public, civic and private leaders.
By Anne-Marie Slaughter and Fadi Chehadé – Governments built the current systems and institutions of international cooperation to address 19th- and 20th-century problems. But in today’s complex and fast-paced digital world, these structures cannot operate at ‘internet speed’.

Recognizing this, the United Nations secretary-general, António Guterres, last year assembled a high-level panel—co-chaired by Melinda Gates and the Alibaba co-founder Jack Ma—to propose ways to strengthen digital governance and cooperation. (Fadi Chehadé, co-author of this article, is also a member.) It is hoped that the panel’s final report, expected in June, will represent a significant step forward in managing the potential and risks of digital technologies.

Digital governance can mean many things, including the governance of everything in the physical world by digital means. We take it to mean the governance of the technology sector itself, and the specific issues raised by the collision of the digital and physical worlds (although digital technology and its close cousin, artificial intelligence, will soon permeate every sector).

Because the internet is a network of networks, its governing structures should be, too. Whereas we once imagined that a single institution could govern global security or the international monetary system, that is not practical in the digital world. No group of governments, and certainly no single government acting alone, can perform this task.

Instead, we need a digital co-governance order that engages public, civic and private leaders on the basis of three principles of participation.

First, governments must govern alongside the private and civic sectors in a more collaborative, dynamic and agile way.

Secondly, customers and users of digital technologies and platforms must learn how to embrace their responsibilities and assert their rights.

Thirdly, businesses must fulfill their responsibilities to all of their stakeholders, not just shareholders. more>

Why Some Counties Are Powerhouses For Innovation

By Christopher Boone – By my analysis of data from the U.S. Patent Office, Santa Clara County, California, is sprinting ahead of the country. Between 2000 and 2015, more than 140,000 patents were granted in Santa Clara County. That’s triple the number for second-ranked San Diego County.

Four other counties in California – Los Angeles, San Mateo, Alameda and Orange – make the top 10.

These counties are in large metropolitan areas that are known as technology and innovation centers, including San Francisco, San Diego, Boston and Seattle. The other metro areas in the top 10, not the usual tech-hub suspects, are Greater Los Angeles, Detroit and Phoenix.

Besides large concentrated populations, these metro areas share two other ingredients that support innovation. All of them have one or more leading research universities and a large proportion of college-educated people.

Santa Clara County is home to Stanford University, an institution that has become synonymous with the high-tech and innovation economy of Silicon Valley.

Stanford’s rise as a world-class research university coincided with a rapid increase in federal and military spending during the Cold War. The university’s suburban location gave it an advantage, too, by providing land for expansion and for burgeoning high-tech companies. Stanford’s leadership aggressively courted research opportunities aligned with the priorities of the military-industrial complex, including electronics, computing and aerospace.

Another common trait about most of these centers of innovation is the jaw-dropping cost of housing.

Competition for higher-wage talent pushes up housing and other costs in these innovation centers. Although housing prices increased in greater Boston, Phoenix and Detroit, they remained relative bargains compared to the West Coast.

In my view, one way to unleash innovation would be to tap into the rich diversity of students, faculty and communities at two- and four-year colleges beyond the typical top 100 research institutes. more>

The fundamental problem with Silicon Valley’s favorite growth strategy

By Tim O’Reilly – The pursuit of monopoly has led Silicon Valley astray.

Look no further than the race between Lyft and Uber to dominate the online ride-hailing market.

Most monopolies or duopolies develop over time, and have been considered dangerous to competitive markets; now they are sought after from the start and are the holy grail for investors. If LinkedIn co-founder Reid Hoffman and entrepreneur Chris Yeh’s new book Blitzscaling is to be believed, the Uber-style race to the top (or the bottom, depending on your point of view) is the secret of success for today’s technology businesses.

Many of these businesses depend on network effects, which means that the company that gets to scale first is likely to stay on top. So, for startups, this strategy typically involves raising lots of capital and moving quickly to dominate a new market, even when the company’s leaders may not know how they are going to make money in the long term.

This premise has become doctrine in Silicon Valley. But is it correct? And is it good for society? more>

Green money without inflation

Funding an ecological transition in Europe via ‘green money’ bonds would be economically justifiable.
By Paul De Grauwe – To what extent can the money created by the central bank be used to finance investments in the environment?

This is a question often asked today. The green activists respond with enthusiasm that the central bank—and, in particular, the European Central Bank (ECB)—should stimulate the financing of environmental investments through the printing of money.

The ECB has created €2,600 billion of new money since 2015 in the context of its quantitative easing (QE) program. All that money has gone to financial institutions which have done very little with it. Why can’t the ECB inject the money into environmental investments instead of pouring it into the financial sector?

Most traditional economists react with horror.

Who is right? It is good to recall the basics of money creation by the ECB (or any modern central bank). Money is created when that institution buys financial assets in the market. The suppliers of these assets are financial institutions. These then obtain a deposit in euro at the ECB, in exchange for relinquishing these financial assets. That is the moment when money is created. This money (deposits) can then be used as their reserve base by the financial institutions to extend loans to companies and households.

There is no limit to the amount of financial assets the ECB can buy.

In principle, it could purchase all existing financial assets (all bonds and shares, for example), but that would increase the money supply in such a way that inflation would increase dramatically. In other words, the value of the money issued by the ECB would fall sharply. To avoid this, the bank has set a limit: it promises not to let inflation rise above 2 per cent. That imposes a constraint on the amount of money which the ECB can create. So far, it has been successful in remaining within the 2 per cent inflation target. more>

Updates from Chicago Booth

Given an out, people still fall back into debt
Research finds that keeping people out of debt traps isn’t as simple as paying off their loans
By Dee Gill – To the frustration of financial counselors everywhere, millions of people doom themselves to perpetual debt by repeatedly taking out small but expensive short-term loans they can barely afford. In the United States, these typically come from payday or car title lenders and go to financially strapped individuals.

In developing countries, small-scale entrepreneurs rely on daily or weekly loans for working capital. In both cases, borrowers pay exorbitant interest rates and, often, additional fees to extend a loan over and over. Interest payments can quickly add up to more than the loan amount.

Understanding how people get sucked into these debt traps is an important public-policy issue, according to Northwestern’s Dean Karlan, Chicago Booth’s Sendhil Mullainathan, and Harvard’s Benjamin N. Roth.

They conducted a series of experiments with indebted entrepreneurs in India and the Philippines and find that having their short-term loans paid off took the participants out of debt only temporarily. The entrepreneurs in question quickly took out new, profit-sapping loans. more>

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