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Book: This Changes Everything

mercredi 17 mai 2017

This Changes Everything, by Naomi Klein, is a book about climate change, and specifically how having a habitable planet is directly at odds with the fundamental tenets of capitalism.

Capitalism is like a shark - it needs to keep moving forward or it dies. Except for capitalism moving forward means constant growth. If there is a year where the economy does not grow it is usually cause for panic. This is kind of a crazy concept to begin with - if there was a company that made the absolute best widgets in the world, and it made a billion dollars a year every year selling these widgets - it would still go out of business because it is not growing. I have thought much about why this is and my best guess is that it has to do with the stock market. Back in the old days most stocks paid dividends and when you bought a stock you were buying the future earning stream of dividends from that stock. This gave an easy and accurate way to price stocks - the present value of the dividends over however long you planned to keep the stock. However speculation has radically changed that. Most people today do not buy stock for the future dividends, they buy it because they hope the price will go up and they can sell if to someone else for more money. The reason the stock price would go up is if the company increases its earnings in the future and pays more dividends. The end result of this is that most stock trading these days is basically speculation - or gambling - that the price of the stock will go up. If the price will not go up there is no reason to buy it, most stocks don't pay even close to enough in dividends to justify their prices. 

But I digress, the point was that capitalism requires infinite growth. This is why companies would rather make poor quality products that will fall apart in a few years than make good quality long-lasting products. They want their customers to have to keep buying new ones, and who cares about all of the raw materials that are used to produce them, and all of the waste generated by people throwing away disposable crap. An example from the book is oil companies, who generally want to have unused oil reserves equal to the amount they are currently extracting. If they don't, it means that they are using up their oil and will eventually run out. This thought process assumes that there is an infinite supply of oil in the ground, and if they can just keep finding it it will never run out. Of course, this assumption is at odds with the fundamental nature of the universe.

This cartoon pretty well sums up my thoughts about people who are against environmental reforms. The most common argument these days seems to be that human carbon dioxide emissions are not the cause of climate change, or don't contribute to it in a meaningful way, so we should go ahead and pollute as much as possible. While to me the thought processes that lead to this conclusion are completely insane, one should never underestimate the power of cognitive dissonance. If someone makes money for something, no matter how horrible it is, they will find a way to convince themselves that it is good, or at least tolerable. No one thinks they are evil, the really evil people think everyone else is evil.

The most common argument for continued use of fossil fuels is that the short term economic benefit outweighs the long term harm to the planet. In an economy like ours, based on massive overconsumption, anything that threatens to reduce consumption is anathema. In today's political climate, where most of the power belongs to huge multinational corporations who would be directly effected by any reduction in consumption, such thoughts are unthinkable to any politican who wants to continue to get the corporate money that funds American politics. 

Fossil fuels are very similiar to addictive drugs like heroin. They may be ruining your life and leading to your eventual death, but the quick fix is still preferable to having to go through withdrawal and detox. And now that they have medication to counteract the main side effect of prescription opiates - constipation - you can just add another pill and continue to be addicted. If that pill gives you more side effects at some point someone will invent another pill for those side effects. So instead of solving the problem you just slapping bandaids on it. Getting off of fossil fuels won't be easy, it will be extremely painful and uncomfortable for a while, but in the end it will allow the world to survive and be a better place. 

Libellés: books, politics
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Book: The Botany of Desire

dimanche 07 mai 2017

I have read and enjoyed a couple other books by Michael Pollan, but was not expecting this one to be as enjoyable as it was. Humans tend to see ourselves as separate from nature, and mostly above nature. This book puts a little spin on that point of view by describing things from the perspective of plants. The book focuses on four plants: apples, tulips, marijuana and potatoes - and describes how those plants have taken advantage of human beings to further their own self-interest.

The biggest surprise for me in reading this book was the chapter about apples. It turns out that naturally apples are quite different from the apples we eat. They are small and apparently don't taste very good. It turns out that most farmed apples are grafts of a very small number of trees. This means that when a tree naturally occurs which has palatable fruit, the tree is essentially cloned. So out of all the millions of apple trees in the world there are really only a handful of genetically distinct trees.

Apple trees are not native to North America and were brought over by European settlers. Back then apples were mainly used to make alcoholic apple cider as they didn't taste good or sweet enough to be eaten off the tree. Apple trees were not adapted to survival in North America, but as the seeds were spread around by settlers they quickly evolved to be able to survive. This was aided by people like John Chapman, better known in the US as Johnny Appleseed, who seeded apple orchards in various areas as the European settlers spread west through North America, and who serves as the thread tying the chapter together.

While humans tend to think that we control everything, in fact humans and plants coevolve, as every chapter in the book explains. Potatoes originate from South America and their spread to Europe enabled humans to multiply far beyond the restrictions of the grains which served as the primary source of calories for Europeans before the potato was introduced. Apparently there was a backlash against the potato in places like Ireland, where it allowed families to grow enough food to feed themselves and not have to participate in the economy to make money to buy food to feed themselves. It also allowed the population to grow rapidly, but since there was basically a monoculture of potatoes, when a disease arose which infected that one species of potato that predominated, it caused the potato famine which affected millions of Irish.

The potato chapter is largely about a new GMO potato which produces its own pesticide. While reading this chapter my views on GMO swung from one extreme to the other. At first I thought GMOs were not safe, but after reading about how much pesticides and herbicides potato farmers must spray onto non-GMA potatos (enough that they won't even eat their own potatoes) I started to think maybe it wasn't such a bad thing. In the end, Pollan neither eats his own garden-grown GMO potatoes nor does he feed them to anyone else, not wanting to take the chance of exposing them to unknown risks.

This was a delightful and very interesting book, and I highly recommend it.


Libellés: books
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Book: Who Stole the American Dream?

dimanche 16 avril 2017

Who Stole the American Dream, by Hedrick Smith, is about exactly what you would expect. It explains how and why the wealth in the United States has become so concentrated in the hands of the few. Back in the 1950s and 60s, in what is considered by many to be the height of American prosperity, corporations would act for the benefit of all their stakeholders - their employees, their consumers, society in general. At some point the focus shifted to be on maximizing shareholder value - which means trying to maximize stock price at the expense of everything else. 

The idea of maximizing shareholder value was promoted by Milton Friedman and the Chicago School of Economics, and like most of their ideas, is a lot better in theory than in practice. The stock market today focuses only on the most recent news and earnings and will punish a small drop in earnings dramatically. This leads corporations to try to maximize their quarterly earnings and ignore any long term considerations. The fact that CEOs get a large portion of their compensation as stock options only increases the incentive for management to focus exclusively on the short term. In the past corporations would regard their employees as long-term assets, and would provide pensions and job security. Today they are more likely to hire the least expensive employees they can find, often in third world countries, and they will offer 401(k)s which require the employees to fund their own retirements. So the working class loses their jobs to offshoring and who benefits? The CEOs who receive massive compensation packages - and the stockholders, who tend to be wealthy individuals.

The book covers a lot of different issues, far too many for me to recount here. The rise of the 401(k) is just one example of how the government has been corrupted by the corporations and the super-rich. Starting in the 1970s, corporations started to take more of an interest in politics, and that influence has grown steadily since. First loopholes in campaign finance laws were used for the wealthy to buy influence with politicians, and then Citizens United basically blew the doors wide open for the wealthy to control the government. 

Thomas Picketty, a French economist, wrote a book about why wealth inequality keeps growing, and it basically boils down to one simple equation: r > g, which means that the return on capital is greater than economic growth. What this means is that those who have money and invest it will make more return on their income (r) than those who works for a living and are dependent on rising wages for greater income. This depends on economic growth (g). This will inevitably lead to wealth concentration, as those who have money can invest it and make more money, while the incomes of those who work for a living are tied to economic growth. 

The book was very comprehensive in addressing the numerous economic and political aspects of this issue. It covers so many different topics one could almost say it was a bit rambling at times. However it was well written enough that the flood of information was never overwhelming. I highly recommend it.

Libellés: books, politics, economics
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Book: The Divide

samedi 01 avril 2017

I picked up The Divide: American Injustice in the Age of the Wealth Gap, by Matt Taibbi because I was looking for another book of his, Griftopia, but I couldn't find it in English here in Switzerland. The book was about how income inequality is tied to inequality in the American justice system - specifically how the poor are jailed in huge numbers for ridiculously silly things, while the rich can literally steal billions of dollars and only get a slap on the wrist. 

This is a subject with which I am intimately familiar, so there wasn't really anything new to me in this book. However, Taibbi really points out just how unjust the justice system is with detailed examples of how different types of people are treated completely differently. At one end of the spectrum in welfare fraud, which is aggressively prosecuted by states, and often incorrectly prosecuted. The welfare system is a vast bureaucracy where people are often charged with fraud where none exists - and without money to hire lawyers the defendants have absolutely no chance to beat the cases. So a poor single mother can be charged with fraud for basically any or no reason, and if she can't pay the money the state asks of her she risks facing felony fraud charges and jail time.

An example on the other end of the spectrum is HSBC, a massive multinational bank which was accused of working with drug cartels and terrorists to launder billions of dollars. In a deal typical of these types of white collar crimes, HSBC paid a fine of $1.9 bn, and faced no criminal charges. The US government felt that HSBC was "too big to fail" and feared that filing criminal charges could crash the world banking system. 

Personally, I don't think it makes sense for corporations to face criminal charges. Despite what the Supreme Court says, a corporation is not a person and can't make it's own decisions to engage in criminal behavior. An actual person had to make those decisions, and they should face the criminal charges. However no one at HSBC was charged with any crimes, nor were any of the banks whose actions led to the 2008 crisis charged with any crimes. The only bank charged with crimes related to the sub-prime mortgage crisis was a small bank in Chinatown, NY - which had no issues with subprime mortgages and thus no relation to the crisis, but which was scapegoated so that the government could say that they had prosecuted at least one bank.

American schools teach the propaganda that the US is a class-less society, where by hard-work and grit anyone can become rich. While this is a completely false statement - the US ranks near the bottom of developed countries as far as social mobility, it is perhaps considered a little white lie, encouraging people to work hard. The damage comes from the fact that this belief implies that if someone is not wealthy it is because they are lazy or unintelligent. So anyone who needs any kind of financial assistance is a priori assumed to be deficient in some manner. On the other hand someone who has money is considered to be superior, regardless of the facts or circumstances which led to them having the money. While there are some notable examples, such as Bernie Madoff, there are numerous other cases of wealthy hedge fund managers basically raping and pillaging the lower classes for a few extra bucks who are never even charged with a crime.

According to John Erlichman, who was an advisor to President Nixon, Nixon's motivation for launching the "war on drugs" was to politically target two groups of people who he disliked - the blacks and the anti-war movement. He couldn't overtly target those groups, so he instead decided to criminalize and focus on two drugs he felt were associated with those groups - heroin and marijuana, respectively. This has led directly to the huge incarceration rates in the US. The fact that different types of crimes are treated so differently is basically a continuation of this policy, except now anyone who is not a corporation and not fantastically wealthy is being targeted, with the crimes associated with poorer people being treated far more harshly than others. In this case, it is not a personal vendetta that is driving the laws, but the vast political influence the wealthy and corporations have over the government. 

Libellés: books, politics
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The End of AlchemyMervyn King was the governor of the Bank of England during the 2008 financial crisis. Unlike other books about the crisis, this one does not set out to describe Mr. King as the hero who single-handedly saved the world from economic doom, and does not seek to find someone to blamde for the crisis, but instead points out inherent flaws in the banking system which led to the crisis. While Mr. King goes far beyond what one would expect from someone who held his position, for me, the conclusions he did not reach were far more telling.

Mr. King blames the financial crisis on the banking sector, which he sees as the weakest link in capitalism. Specifically, he lays the blame on what he calls "alchemy" - how banks transform long-term stable assets into short-term risky assets. After the bank runs at the onset of the Great Depression, the US Federal Reserve started the FDIC to guarantee bank deposits. The thinking was that by reassuring people that they could get their money out of the bank, the government could forestall future bank runs. In practice, however, this ended up giving the banks leeway to use the deposits of their customers for high-risk, high-yield investments or loans - as they know that the government will bail out their customers should the investments or loans go bad. What this leads to is the banks making riskier and riskier investments in search of high yields, with the knowledge that they aren't really risking anything. As one bank starts to make higher and higher risk investments, others must do the same to remain competitive. This directly led to the sub-prime mortgage crisis.

Mr. King points out many flaws in the banking system, but doesn't suggest many solutions. One solution he does make is to force banks to have assets to back their liabilities. The Reserve Rate, set by the Federal Reserve, says how much money banks must keep on their books to back their liabilities. Currently it is a very small percentage, between 3% and 10% based on the size of the bank. This means that if I deposit $100 in the bank, the bank only needs to keep between $3 and $10 of that, the rest they can lend out. If I go to the bank and ask for my money, and the bank doesn't have it, the FDIC will guarantee the rest. Lending out deposits is how banks create money - if I put $100 in the bank, theoretically I still have the $100 dollars, but so does the person the bank lent the money to. A 100% reserve rate would mean that the bank would be gambling with its own money, instead of with the tax payers money as the tax payers are currently guaranteeing the bank. Mr. King admits that this is very unlikely to ever happen.

Mr. King says that one of the flaws with economic theory is that it does not account for "radical uncertainty." The Chicago School of economics basically says that a completely free market is completely efficient - meaning that all available information is factored into all prices and the economy will tend towards equilibrium. However this model leaves no room for "radical uncertainty," which refers to how no one can ever know what the future holds. This is the reason we need money at all - to store purchasing power for an unknown future. Mr. King is clearly no fan of this school of economic theory, which advocates that the government should not be involved in the economy at all, and should let the market sort itself out.

When I was in business school we were taught economics as if it was a hard science. Reading this book made me aware of how much what we accept as axioms influence our thinking. While Mr. King goes far beyond what one would expect of a government official as far as the flaws he identifies in the political and economic system, he never questions some basic assumptions of economics which probably should be questioned.

In the United States, in my opinion, one of the government's top priorities is protecting the financial interests of large corporations. This is something that very few elected officials would ever question as doing so would result in them losing millions of dollars in campaign contributions from said corporations. Mr. King does question this, and for that I give him a lot of credit. However, Mr. King is still under the assumption that capitalism as an economic system can and does work, and that the flaws in it can be corrected. While I disagree with this, reading this book almost convinced me otherwise. Not because he argued that point, but because his arguments are based on assumptions which he sees no need to question, and his arguments are well reasoned enough that it almost makes one forget that the bases on which they rest are far from as sure as they are assumed to be. 

While a myriad of other books have been written about the crisis, I have not read one that goes beyond the superficial causes to try to analyze the deeper root causes. It was also very refreshing to read a book written by someone intimately involved in the response to the meltdown who does not set himself as a hero fighting to save the world economy from certain disaster. When I started reading this book I was not expecting Mr. King to offer as deep an evaluation and critique of the world economic and banking system as the book does. While the book was at times rather technical, I still highly recommend it.

Libellés: books, economics
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