My wife has been watching a TV show from the UK called "Can't Pay We'll Take It Away" which is about people who go to collect debts from people, and if they can't pay they take their stuff. They are similar to repo men, but they work for the court rather than the lender and they won't just repossess the item the debt is against - they'll take anything at all to sell for pennies on the dollar and use the money against the debt.

My first reaction to hearing about this was that this didn't really make sense. I thought that interest was supposed to be compensation for the risk of not being re-paid, and that this did not make sense. If you can go and take any possessions of a debtor and sell them to repay yourself there is no reason to not loan money to anybody and everybody. Then I thought about how the current debt system reinforces the inequality inherent in capitalism in that people who have to borrow money often end up re-paying it forever, making the lender or credit cards or whoever a huge amount of interest.

My next reaction was to go out and get this book, which had been lingering in my "To Read" list for quite a long time. The book, written by an anthropologist, examines human societies in terms of debt and, more broadly, the concept of money in general. The book presents exactly the type of arguments I like - it takes common assumptions of the type we are taught in school as unquestionable facts, dissects them, applies facts to them, and finds the assumptions lacking. The first such assumption is the origin of money. In business school I was taught that before money people had to barter. Say I have a chicken and I need new shoes - I would have to find someone who has shoes and needs a chicken. If the people who have shoes don't need chickens I am out of luck. Money was the solution to this problem - by acting as a common denominator for everything I can sell my chicken to someone who needs a chicken and use the money to buy shoes from someone who has shoes. Graeber says that this is not supported by any facts - the evidence indicates that people dealt with such situations with a crude system of IOUs. At the time communities were much smaller and people probably knew everyone in their village, so someone who had shoes would give them to me, and then later I might give them a chicken when they needed it. 

Imagine that your neighbor comes over to ask to borrow an egg. Do you ask for money for it, do you ask for something of equal value in return? You will probably give him the egg and expect that if you ever need an egg in the future he will do the same for you. Now imagine that you know everyone in your town as well as you know your neighbor, and that your town is largely self-contained. According to Graeber this is how commerce worked for a large portion of history - he refers to it as "everyday communism." 

While neoliberal capitalism is based on the assumption that everyone is out for themselves, specifically to get as much money as possible, everyday communism is based on the assumption that people will help each other without being forced to. While this would never work in today's world, according to Graeber it was the dominant system of commerce for most of history.

Most economics textbooks assert that the first system was barter, which led to money, which led to the creation of debt and credit. Graeber claims that this is not supported by any evidence and believes that debt and credit of type described above variety predated money and barter. While his theory seems more likely to me than the standard economic theory, it seems there is no conclusive evidence supporting either version, so who can say? 

The book also covers a variety of other topics such as the origins of coinage and paper money, the origins of credit, the role of precious metals and slavery, and the effect of warfare and government on all of these things. Graeber's theories are a bit more complicated than the standard assumptions, but at least to me they ring truer than the accepted wisdom. Especially interesting to me where the explorations of "human economies," in which the common denominator was people rather than money, viz the thing in which everything else was measured was human lives, not dollars. 

The big takeaway from this book is that civilizations have struggled with debt for thousands of years, with the pattern being that the poorer people have to borrow money from the wealthy to live, when they can't pay it back they have to work or become slaves for the wealthy, and this continues until something major happens - either a revolt, a crisis, the cancellation of the debts or some other cataclysmic event. I believe that today we are nearing the end of such a cycle. As inequality grows we are starting to see some unrest on the part of those who do not have capital, where this leads only time will tell.

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I have always been fascinated by the various ways in which our minds fail us. While we think we are very good at making decisions based on data and evidence, in fact we tend to use heuristics, or rules of thumbs, to come to quick and easy decisions when there is uncertainty involved. Daniel Kahneman and Amos Tversky pioneered research into this field and discovered what they call "cognitive biases" which are systematic deviations from making rational decisions and judgments. I first heard about these many years ago, specifically about how the anchoring bias was used in marketing. As the years have gone by I've become more and more interested in the subject.

One cognitive bias you may have heard of is the "confirmation bias" which is where you interpret new information in such a way as to uphold your existing beliefs. This is why it is so hard to convince anyone that their opinion is wrong. When we hear information that contradicts our beliefs we tend to either dismiss it or rationalize it away. This is how Trump supporters can dismiss negative news as "fake news" and Clinton supporters can dismiss any of her scandals as "right wing conspiracy theories." There are many other biases, such as the aforementioned "anchoring bias" which is where you tend to evaluate numbers in relation to other numbers. This is why gas stations in America have three octanes at three prices. People tend to see the cheapest one at the lowest price and the premium at the highest price and think that the one in the middle is the best deal, even though it would be cheaper to mix the cheapest and most expensive octanes. You don't just the price by itself - you judge it in relation to other prices.

The list of biases and heuristics goes on and on - and they apply to PhD level statisticians as well as everyone else. Our brains are just not designed to process lots of information, so we instead use shortcuts to make judgments. Why are people scared of sharks when the chances of being attacked by a shark are less than that of being hit by lightning? Because shark attacks are dramatic and memorable, and whenever there is one it is shown all over the TV news, and we tend to remember it more. This is called the "availability heuristic" and this explains why people are more worried about terrorism than about heart attacks. 

This book is the story of how Kahneman and Tversky met and conducted their research. Like many of Lewis's books, it provides a good summary for the layperson of very complicated subjects, while not going into too much technical detail. The subject is personal for me because the deficits of human ability to analyze and process data have led me to go into data science. However this book should be an enjoyable read for anyone.

Libellés: books, economics, psychology
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After having written that last post about the Bilag, I just read yesterday that there is a referendum coming up in March to get rid of the Bilag. While it is possible that the small size of the Suisse Romand market would place constraints on the lengths to which media will go to compete for viewers, I still think that getting rid of the Bilag would be completely disastrous. 

I assume the main driver behind the movement to get rid of the Bilag is the CHF 450 that people would save every year. Unfortunately, the Swiss citizens have no idea what they would be trading in exchange for that sum, having never witnessed American television and it's endless advertisements. Getting rid of the Bilag would put the media in the hands of corporate advertisers who have no cares at all about the quality of information or programming available - their concern is to make as much money as possible, and this pertains to media as far as getting the widest reach for their advertisements. 

Some things are too important to be left to free markets - notably healthcare and information. The theories of free markets depend on consumers having valid and comprehensive information with which to make their decisions, and putting information in the hands of the corporations will completely destroy any semblance of efficient markets. 

To date, Switzerland seems to have isolated itself from many of the drawbacks of neoliberalism. Getting rid of the Bilag would be a huge disaster and, in my opinion, would be a big step to Switzerland's losing much of the character that makes it unique and makes it a great place to live.

Libellés: politics, economics, switzerland
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“If we can’t sell this to the American people we ought to go into another line of work." Mitch McConnell said this after the Senate passed the unpopular tax plan. Isn't that backwards from how democracy is supposed to work? In a democracy isn't the government supposed to implement the will of the people, not convince the people to want what the government has already done? In today's world both the way politics and the marketplace are supposed to work have been flipped upside down by advertising, which is really just propaganda. 

The theory behind free markets is that the consumers will choose winners based on who delivers the best product at the best price. The theory assumes that consumers make rational choices, incorporating all available information into their decision. This is already a very unrealistic assumption for anyone who is familiar with cognitive biases and the way decisions are actually made. It becomes an absurd assumption when we consider that most of the information consumers have comes from the media and advertising. As discussed in No Logo, by Naomi Klein, corporations now realize that it is more effective for them to focus on marketing and branding than on R&D or actually producing high quality products. Many "brands" sell what are essentially commodities and the only value they add is in creating a brand image and brand awareness and convincing people that their products are better than their competitors' when in reality there is negligible difference. Why spend money improving your products when it is far cheaper and more effective to just convince people that your products are better?

A similar thing has been happening in politics, especially after Citizens United opened the floodgate of money. Rather than politicians responding to the will of the people, the politicians use their corporate money to convince the people to do whatever the donors want. The rise of partisan cable news networks, which parrot the official party lines non-stop all day every day, ensure that the viewers will only have the information which support the views and are constantly bombarded with rhetoric about how bad the other party is. In this post-truth era, any facts or data that contradict one's viewpoint are just dismissed as incorrect or "fake news." The confirmation bias predisposes us to reject information which is contrary to our opinions and the availability heuristic ensures that we will tend to believe information that we are exposed to more often, so can remember better. Combined with today's technology and the media saturated environment we live in, these biases basically ensure that people can very easily be manipulated into believing most anything.

I had just finished reading "Manufacturing Consent" by Edward Herman and Noam Chomsky when the McConnell made the statement quoted in the first line of this article. The book was written in 1988 and focuses on how the government and the mass media conspire to make sure that the public supports the actions of the government. This is not a typical conspiracy in the sense that the government and the media don't collaborate to come up with these plans, it is baked into the system - the media gets its information from the government and reports it as facts. The examples described in the book are all cold war influenced incidences where the media supported the US government doing things in the name of anti-communism that they would have raised hell over had the Soviet Union done the exact same thing.

What is surprising about the book is not that these things happen at all, but how much these things have become normalized over the three decades since the book was first publlshed. In fact, I would say that the types of propaganda described in the book are no longer exceptions, but now are the rule. The most recent foreign policy example of such things would be the justification for the Iraq invasion based on non-existent WMDs, which had almost all major US media clamoring for war. But domestically, propaganda has basically taken over politics. The recent US presidential elections featured little to no discussion of issues of any sort. The focus was on personal foibles and defects of the candidates. Rather than offering policy proposals, advertisements focused on attacking the other candidates. In the end the election was solely about which candidate you personally felt greater animus for. This is a far cry from how democracy is supposed to work.

The rise of the internet and big data is only going to exacerbate the problems. The ability to target messages to individual people is just taking advantage of cognitive biases to further deteriorate the state of politics and the economy. Technology and automation is going to concentrate greater and greater wealth in the hands of fewer and fewer people who can use that wealth to either persuade the politicians to do their bidding, or in a worst case scenario just convince the people that what the wealthy want is good for everyone, such as how McConnell was talking about trying to convince people that the tax bill is good for everyone, when it in fact seems to mainly be good for corporations and holders of capital. The influx of money into American politics combined with technology promises to make it easier to manufacture consent for whatever is already done rather than doing what the people want.

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An interesting article from the Atlantic on how money became the measure of everything.

Libellés: economics
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