politics Archives - Page 2 of 2 - The Automatic Earth

The Value of Wealth

Jan 112015

January 11, 2015 Posted by Raúl Ilargi Meijer at 9:22 pm Finance Tagged with: Charlie Hebdo, empathy, France, money, politics, Uruguay, wealth 6 Responses »

Ann Rosener Reconditioning spark plugs, Melrose Park Buick plant, Chicago 1942

We need to do a lot more thinking, and take a far more critical look at ourselves, than we do at present. We’re not even playing it safe, we’re only playing it easy. And that’s just not enough. The marches in Paris and numerous other cities today were attended by people who mean well, but who should ask themselves if they want to be part of what was predictably turned into a propaganda event by ‘world leaders’. One thing is for sure; the murdered Charlie Hebdo staff would not have approved of it.

The leaders hark back to usual suspect slogans like we defend ‘Liberty’, ‘Freedom of Expression’ and ‘Our Values’. But we can’t turn our backs on the fact that ‘our values’ these days include torture and other fine ‘tactics’ that make people in other parts of the world turn their backs on us. We might want – need – to march to express our feelings about torture executed in our name, as much as to express our horror at cartoonists we never heard of being the target of automatic weapons.

There are major armed conflicts going on in 6 different Arab countries, and ‘we’ play a part in all of them. We get up in the morning and prepare to march against violence in our own streets, but we should perhaps – also – protest the violence committed in our name on other people’s streets just as much. We may feel innocent as we’re marching, but that’s simply because we refuse to look at ourselves in the mirror. And we must be able to do better than that. Both to be the best we can be (which is still a valid goal), and to prevent future attacks.

And that’s not nearly the entire story. Our governments play ‘divide and rule’ both domestically and abroad. They play nations against each other in far away parts of the globe, and poor vs rich and generation vs generation at home. If you want a better world, don’t look at your leaders to make that happen. They like the world the way it is; it got them where they are. Moreover, they’re all beholden to numerous supra-national organizations that are the real power behind the throne across the globe; NATO, IMF, EU, World Bank et al.

If you want a better world, and one in which the risk of attacks like the one this week goes down, you’ll have to look at yourself first, and take it from there. Marching in a mostly self-righteous parade in which the wrong people form the first line is not going to do it. You’re not going to solve this sitting on your couch. Our world is not just financially bankrupt, and in deep debt to boot, it’s also about as morally broke as can be.

We therefore have to rethink our world just about from scratch. Or else. We’ve lived chasing the recovery carrot for years now, but the economy won’t recover; it can’t. There hasn’t been any real growth since at least the 1980s, the only thing there’s been is increasing debt levels that we mistook for growth.

A great first example of how to do this rethinking was provided late last year, and I referred to it before, by UofM Amherst economics professor James K. Boyce:

Protecting Money or People?

Imagine that without major new investments in adaptation, climate change will cause world incomes to fall in the next two decades by 25% across the board, with everyone’s income going down, from the poorest farmworker in Bangladesh to the wealthiest real estate baron in Manhattan. Adaptation can cushion some but not all of these losses. What should be our priority: reduce losses for the farmworker or the baron? For the farmworker, and a billion others in the world who live on about $1 a day, this 25% income loss will be a disaster, perhaps the difference between life and death.

Yet in dollars, the loss is just 25 cents a day. For the land baron and other “one-percenters” in the U.S. with average incomes of about $2,000 a day, the 25% income loss would be a matter of regret, not survival. He’ll find a way to get by on $1,500 a day. In human terms, the baron’s loss pales compared with that of the farmworker. But in dollar terms, it’s 2,000 times larger. Conventional economic models would prescribe spending more to protect the barons than the farmworkers of the world.

It’s how we think. Boyce describes it perfectly. We chase money, no questions asked, and even call it no. 1. And unless we change the way we think, one Manhattan land baron will be saved, and 1000 Bangla Deshi farmers and their entire families will either drown or be forced higher inland, where there are already too many people just like them. A dollar or a person. Our present economic models know which one to choose. But we should have more than mere economic models guide us.

Michael Lewis – yes, him – provides another wonderful example in the New Republic. I tried to make the quote as short as I could, but, hey, Lewis is .. Lewis. The original title was ‘Extreme Wealth Is Bad for Everyone – Especially the Wealthy’ (Getting rich won’t make you happy. But it will make you more selfish and dishonest). The Week turned in into this:

What Wealth Does To Your Soul

When I was 14, I met a man with a talent for restoring a sense of fairness to a society with vast and growing inequalities in wealth. His name was Jack Kenney, and he’d created a tennis camp, called Tamarack, in the mountains of northern New Hampshire. The kids who went to the Tamarack Tennis Camp mostly came from well-to-do East Coast families, but the camp itself didn’t feel like a rich person’s place: It wasn’t unusual for the local health inspectors to warn the camp about its conditions, or for the mother of some Boston Brahmin dropping her child off, and seeing where he would sleep and eat for the next month, to burst into tears.

Kenney himself had enjoyed a brief, exotic career as a professional tennis player — he’d even played a doubles match on ice with Fred Perry – but he was pushing 60 and had long since abandoned whatever interest he’d had in fame and fortune. He ran his tennis camp less as a factory for future champions than as an antidote to American materialism – and also to the idea that a person could be at once successful and selfish.

Jack Kenney’s assault on teenaged American inequality began at breakfast the first morning. The bell clanged early, and the kids all rolled out of their old stained bunk beds, scratched their fresh mosquito bites, and crawled to the dining hall. On each table were small boxes of cereal, enough for each kid to have one box, but not enough that everyone could have the brand of cereal he wanted. There were Froot Loops and Cheerios, but also more than a few boxes of the deadly dark bran stuff consumed willingly only by old people suffering from constipation.

On the second morning, when the breakfast bell clanged, a mad footrace ensued. Kids sprung from their bunks and shot from cabins in the New Hampshire woods to the dining hall. The winners got the Froot Loops, the losers a laxative. By the third morning, it was clear that, in the race to the Froot Loops, some kids had a natural advantage. They were bigger and faster; or their cabins were closer to the dining hall; or they just had that special knack some people have for getting whatever they want. Some kids would always get the Froot Loops, and others would always get the laxative. Life was now officially unfair.

After that third breakfast, Kenney called an assembly on a hill overlooking a tennis court. He was unkempt and a bit odd; wisps of gray hair crossed his forehead, and he looked as if he hadn’t bathed in a week. He was also kind and gentle and funny, and kids instantly sensed that he was worth listening to and wanted to hear what he had to say.

“You all live in important places surrounded by important people,” he’d begin. “When I’m in the big city, I never understand the faces of the people, especially the people who want to be successful. They look so worried! So unsatisfied!” Here his eyes closed shut and his hands became lobster claws, pinching and grasping the air in front of him. “In the city you see people grasping, grasping, grasping. Taking, taking, taking. And it must be so hard! To be always grasping-grasping, and taking-taking. But no matter how much they have, they never have enough. They’re still worried. About what they don’t have. They’re always empty.”

“You have a choice. You don’t realize it, but you have a choice. You can be a giver or you can be a taker. You can get filled up or empty. You make that choice every day. You make that choice at breakfast when you rush to grab the cereal you want so others can’t have what they want.”

On the fourth morning, no one ate the Froot Loops. Kids were thrusting the colorful boxes at each other and leaping on the constipation cereal like war heroes jumping on hand grenades. In a stroke, the texture of life in this tennis camp had changed, from a chapter out of Lord of the Flies to the feeling between the lines of Walden. Even the most fantastically selfish kids did what they could to contribute to the general welfare of the place, and there was not a shred of doubt that everyone felt happier for it. The distinction between haves and have-nots, winners and losers, wasn’t entirely gone, of course. But it became less important than this other distinction, between the givers and the takers.

So far for the Jack Kenney story. Michael Lewis continues:

What is clear about rich people and their money — and becoming ever clearer — is how it changes them. A body of quirky but persuasive research has sought to understand the effects of wealth and privilege on human behavior — and any future book about the nature of billionaires would do well to consult it.

One especially fertile source is the University of California at Berkeley psychology department lab overseen by a professor named Dacher Keltner. In one study, Keltner and his colleague Paul Piff installed note takers and cameras at city street intersections with four-way Stop signs. The people driving expensive cars were four times more likely to cut in front of other drivers than drivers of cheap cars.

The researchers then followed the drivers to the city’s crosswalks and positioned themselves as pedestrians, waiting to cross the street. The drivers in the cheap cars all respected the pedestrians’ right of way. The drivers in the expensive cars ignored the pedestrians 46.2% of the time – a finding that was replicated in spirit by another team of researchers in Manhattan, who found drivers of expensive cars were far more likely to double-park.

In yet another study, the Berkeley researchers invited a cross section of the population into their lab and marched them through a series of tasks. Upon leaving the laboratory testing room, the subjects passed a big jar of candy. The richer the person, the more likely he was to reach in and take candy from the jar — and ignore the big sign on the jar that said the candy was for the children who passed through the department.

Maybe my favorite study done by the Berkeley team rigged a game with cash prizes in favor of one of the players, and then showed how that person, as he grows richer, becomes more likely to cheat. In his forthcoming book on power, Keltner contemplates his findings:

If I have $100,000 in my bank account, winning $50 alters my personal wealth in trivial fashion. It just isn’t that big of a deal. If I have $84 in my bank account, winning $50 not only changes my personal wealth significantly, it matters in terms of the quality of my life — the extra $50 changes what bill I might be able to pay, what I might put in my refrigerator at the end of the month, the kind of date I would go out on, or whether or not I could buy a beer for a friend. The value of winning $50 is greater for the poor, and, by implication, the incentive for lying in our study greater. Yet it was our wealthy participants who were far more likely to lie for the chance of winning fifty bucks.

There is plenty more like this to be found, if you look for it. A team of researchers at the New York State Psychiatric Institute surveyed 43,000 Americans and found that, by some wide margin, the rich were more likely to shoplift than the poor. Another study, by a coalition of nonprofits called the Independent Sector, revealed that people with incomes below 25 grand give away, on average, 4.2% of their income, while those earning more than 150 grand a year give away only 2.7%. A UCLA neuroscientist named Keely Muscatell has published an interesting paper showing that wealth quiets the nerves in the brain associated with empathy.

If you show rich people and poor people pictures of kids with cancer, the poor people’s brains exhibit a great deal more activity than the rich people’s. “As you move up the class ladder,” says Keltner, “you are more likely to violate the rules of the road, to lie, to cheat, to take candy from kids, to shoplift, and to be tightfisted in giving to others. Straightforward economic analyses have trouble making sense of this pattern of results.”

But that wouldn’t work, you think? Not for you, not in today’s world, and certainly not for the political class? Well, we happen to have the example of a real life president of a nation who questions all we tend to think is ‘normal’. Back in October, HuffPo had this portrait of Uruguayan President José Mujica. And please see this against the backdrop of US presidential candidates raising hundreds of millions of dollars even just for their preliminary campaigns.

Mujica says what I often have, that money should be kept out of a political system, because if it isn’t it will end up buying and eating that system whole. Too late for the US and Europe, but perhaps not for Uruguay.

‘World’s Poorest President’ Explains Why We Should Kick Rich People Out Of Politics

People who like money too much ought to be kicked out of politics, Uruguayan President José Mujica told CNN en Español [..] “We invented this thing called representative democracy, where we say the majority is who decides,” Mujica said in the interview. “So it seems to me that we [heads of state] should live like the majority and not like the minority.” Dubbed the “World’s Poorest President” in a widely circulated BBC piece from 2012, Mujica reportedly donates 90% of his salary to charity.

Mujica’s example offers a strong contrast to the United States, where in politics the median member of Congress is worth more than $1 million and corporations have many of the same rights as individuals when it comes to donating to political campaigns. “The red carpet, people who play – those things,” Mujica said, mimicking a person playing a cornet. “All those things are feudal leftovers. And the staff that surrounds the president are like the old court.”

“I’m not against people who have money, who like money, who go crazy for money,” Mujica said. “But in politics we have to separate them. We have to run people who love money too much out of politics, they’re a danger in politics… People who love money should dedicate themselves to industry, to commerce, to multiply wealth. But politics is the struggle for the happiness of all.”

Asked why rich people make bad representatives of poor people, Mujica said: “They tend to view the world through their perspective, which is the perspective of money. Even when operating with good intentions, the perspective they have of the world, of life, of their decisions, is informed by wealth. If we live in a world where the majority is supposed to govern, we have to try to root our perspective in that of the majority, not the minority.”

“I’m an enemy of consumerism. Because of this hyperconsumerism, we’re forgetting about fundamental things and wasting human strength on frivolities that have little to do with human happiness.”

He lives on a small farm on the outskirts of the capital of Montevideo with his wife, Uruguayan Sen. Lucia Topolansky and their three-legged dog Manuela. He says he rejects materialism because it would rob him of the time he uses to enjoy his passions, like tending to his flower farm and working outside. “I don’t have the hands of a president,” Mujica told CNN. “They’re kind of mangled.”

Mujica is the kind of man, make that human being, who should be in charge of all countries. Money and politics don’t mix, or at least not in a democracy. And I don’t see any exceptions to that rule. Mujica is right: if and when the majority of people in a country are poor, which is true just about everywhere, and certainly in the Anglo world and most EU countries, then their president should be poor too.

And inevitably, if you would follow the example of your president, so should his people. Not dirt poor, not starving, just being content with basic necessities for you and your family. And then tend to your flower farm, or your vegetable farm, your kids.

Sounds stupid. I know. But we haven’t had any real growth in decades, and the wizard’s curtain is being lifted on the fake growth we did have since too. So maybe the economy’s not all that cyclical after all, or maybe the cycles are longer than we would like, Kondratieff 70 year like. Or even longer.

Ask anyone if they would like to have $1000, or $10,000 or $1 million or more, and you know that the answer would be. But Michael Lewis shows that none of it would make you any happier, if you already have – or make – enough to survive on. Still, it’s generally accepted that more is always good.

And then you have the president of Uruguay, admittedly a small country and in South America to boot, who says that only poor people can truly represent poor people, who will always be in the majority in whichever country you may live in, and that that is the core of democracy.

Here’s thinking we are absolutely clueless when it comes to the value of wealth, and that we keep chasing more of it because we’re not smart enough to recognize that value. And that that’s why we have torture and wars and all the other things that make us so ugly. We have absolutely no clue what the value of wealth is. And as long as we don’t, we shouldn’t have any.

Debt Rattle Aug 15 2014: Conditioned To Catch The Falling Knife

Aug 152014

August 15, 2014 Posted by Raúl Ilargi Meijer at 6:48 pm Finance Tagged with: conditioning, Freud, Jung, media, politics 5 Responses »

DPC The shores of Biscayne Bay, Miami, Florida 1910

That’s not a bad metaphor to work with. “Conditioned to catch the falling knife”. The expression comes from the investment world, but it describes a much larger world today pretty accurately.

Investors use it to describe people who see a stock fall, rapidly, from for instance $50 to $20, call the low, and decide it’s a good buy, only to be stuck with huge losses (the knife that cuts their hand) as it goes down all the way to 25 cents.

Tyler Durden quotes Bloomberg’s Richard Breslow as saying this about financial markets:

Conditioned To Catch The Falling Knife

“ … there is this enormous consensus in all ideas and positions, everyone knows that central banks are there and driving everyone’s positioning“; my friend Bob Savage said yesterday:

“We’ve been trained to catch the falling knife by the central banks, one of those trading strategies that will work until it doesn’t and when the knife slips you will really have a taper tantrum.

It’s becoming harder and harder to look at the news and then guess what markets did in response [..] the expectation tends to be much more logical than the reaction.

If you look at how markets are trading, they move ahead of a central bank meeting, or a strong or weak number, then everyone is caught with the same position and you end up being right but proven wrong.”

Just like most of today’s investors are Pavlovians potty trained by central banks, most people don’t have opinions of their own on most other issues either; some never did, some recently lost them, but all of them are shaped by media and politics, not innate critical thinking.

It may seem that this is something of all times, but there is a difference, since as one’s exposure to media rapidly increases, so does the influence they have, or the way in which they have it.

In earlier days, most people’s opinions were formed by the communities they lived in, the churches they visited, the schools they attended – if any -, albeit admittedly in ways no less nefarious than the present ones.

But in those days far fewer people were even under the impression that they indeed did form their own opinions – who could read and write? – and were capable of critical thinking.

Now, just about everyone does, and that makes for a different view of the world of the individual. And a different approach to manipulation for opinion makers, of both the individual and the masses.

I’ve often talked with friends about how and why 100 years ago people went into World War 1 in Europe’s battlefields from all over the world. How all those Canadian boys got to be killed over in Belgium and France. And how none of us could imagine doing anything like that in this day and age.

But people then did, partly because the risk of dying wasn’t perceived as being as high as it turned out to be, but certainly also because of community pressure, shaped by schools and churches. If all boys in town go, who are you to stay behind?

Things have changed. We are to a much larger extent individuals now. We live in smaller family units, with much more space per capita and therefore much less direct interaction with others.

We also have had a lot more education, and feel that entitles us to pass judgments. We think school has provided us with objective ideas about the world.

But that’s where the pinch is. We are being fed preconceived ideas from day one – though that’s never what they’re called – and few of us can shake them.

To name an example, there are very few people who will tell you a particular TV ad for a detergent makes them buy the product, but that ad wouldn’t be there if it didn’t work, ergo: who buys the stuff? We have Freud and Jung and their findings of the sub- and unconscious to thank for that.

So how does a government today go about justifying going to war? How does it create an “enormous consensus in all ideas and positions”? It’s not that hard, when you think about it.

Political ideas and ideologies, and politicians themselves, can all be sold to the individual, and the masses, the same way detergent is. By appealing to the unconscious. The means through which ideas are transferred may have changed, but the “pillars” they are based on have not. Jung spent a lot of time working on archetypes, and the bogeyman stands out as a prime example of that. If you give the enemy a name and a face, the job’s half done.

Add to that that the enemy and his people do terrible things to babies, eat them, bury them alive, the image has always worked wonders, and still does. Throw in horrid abuse of women and it’s clear sailing. Rinse and repeat. Lots of rapid repetition, something our present media are ideally suited for. Repetition works miracles, in politics as it does in advertizing. It’s not a huge stretch to say that repetition outweighs evidence.

That’s how Saddam Hussein, Gadaffi and Osama Bin Laden, and today Vladimir V. Putin, have become household names in the US and Europe. And everyone recognizes their portraits too. Though Saddam was never proven to have had WMD, there’s no evidence for Bin Laden’s involvement in 9/11, and Putin so far is merely an unsubstantiated evil media figurehead as well.

People at a certain point simply feel sure that they “know”. Because they’ve seen the names and faces so many times a day, confirming their earlier preconceptions. It has precious little to do with critical thinking. It has to do with what everyone around them says.

To get back to the falling knife, investors – potty trained as they are – all think they’re going to come out winners, even though they know they can’t all win, and even though they know all of their friends and competitors think the exact same way they do, and make the same decisions.

That is the herd mentality. Perhaps not an archetype as such, but, if anything, something even older and more deeply engrained in our brains. What Richard Breslow says is that the vast majority of investors will end up catching the knife in their bare hands, and it’s going to hurt something bad. ” … everyone is caught with the same position and you end up being right but proven wrong”

That is, but of course, exactly what will happen to all of us who blindly follow our politicians and their cleverly disguised media messages on our bogeyman enemies and the wars we have to wage against them.

All we want is to be right in the end, that is to say, we want to conform to the meme common to our herd, and whether or not that will prove us wrong is not on our radar.

Still, just as investors will get burned by blindly following every single move and every single word that comes out of the Fed, we will all get burned and cut and hurt by following every word our politicians and media rinse and repeat. We risk doing quasi irreparable damage to our relations with various people in Russia and Iraq and many other places around the world, who don’t want us as their enemies anymore than we want them, just because our “leaders” seek to advance their agenda’s by demonizing these people.

It’s a dangerous sort of deceit, which doesn’t start when war, be it physical or trade or any other kind, is declared, it starts with how and why we elect the people who have the power to declare it in our name.

And then “when the knife slips you will really have a taper tantrum.”, or in other words, when you find out your Pavlovian preconceptions (yes, you!) have been awfully off the mark, you still have to deal with the consequences, and they may hurt. Whether it’s oil that’s no longer delivered, so you’re cold and miserable and stuck where you are and everything runs to a standstill, or it’s someone attacking your communities because the leaders you elected chose to attack theirs halfway around the world, you may find you’re the one who ends up catching that knife.

And then, inevitably, maybe someday you’ll realize that what you’ve caught, and got cut by, and have fallen into, is your own knife. You threw it up into the air. And you were conditioned to catch it.

• Conditioned To Catch The Falling Knife (Zero Hedge)

The numbers out last night were once again largely on the weak side of disappointing, with very little reaction and even less of an intuitive reaction. As Bloomberg’s Richard Breslow writes, this is the downside of everyone having the same positions. Simply put, we’ve been trained to catch the falling knife by the CBs, one of those trading strategies that will work until it doesn’t and when the knife slips you will really have a taper tantrum. Via Bloomberg’s Trader’s Notes…

Some strategists are even finding good news in the euro area growth data, noting that it is impressive there is any growth at all when none was expected, unlike U.S. where 1H numbers disappointed — some people just don’t like black and white analysis. As we have mentioned before, it seems there is this enormous consensus in all ideas and positions, everyone knows that central banks are there and driving everyone’s positioning, my friend Bob Savage said yesterday: “we’ve been trained to catch the falling knife by the central banks, one of those trading strategies that will work until it doesn’t and when the knife slips you will really have a taper tantrum.”

It’s becoming harder and harder to look at the news and then guess what market did in response – although it’s a fun game to play at 3 in the morning when you can’t sleep. May perhaps be better to consider not so much trading the reaction to events, instead trade movements in anticipation thereof, trade the expectation, then go into the number flat, the expectation tends to be much more logical than the reaction. If you look at how markets are trading, they move ahead of a central bank meeting, or a strong or weak number, then everyone is caught with same position and you end up being right but proven wrong.

Welcome to the new normal.