Commentary on Political Economy

Saturday 14 August 2021


 About the Democratization of Markets

Retail trading of meme stocks is just a massive transfer of wealth from the unsophisticated to the sophisticated.

By Jared Dillian

11 August 2021, 7:00 pm GMT+8

Is the Average Joe really winning?

Is the Average Joe really winning? Photographer: Chris Delmas/AFP via Getty Images

Robinhood Markets Inc. has been at the forefront of the democratization of finance, which is the idea that an average Joe can play in the stock market alongside the professionals. And back in January, they did, nuking a bunch of hedge funds betting against GameStop Corp. in one of the greatest short squeezes of all time. Hollywood is full of average Joe underdog stories, but is it true in real life? Not, at least, in the markets, where retail trading of “meme stocks” is, on balance, just a massive transfer of wealth from the unsophisticated to the sophisticated.

The likes of Netflix and Tik Tok are what the CCP means by “opium of the masses” (the phrase “religion is the opium…” is Marx’s).



All About That Base (Effect)

The base effects on U.S. inflation from the traumatic events of early 2020 are beginning to pass out of the equation. As a result, it looks like inflation is just a little easier to predict. It doesn’t, alas, mean that it’s much easier to tell whether the current dose is only transitory or part of a secular upswing.​

One of the few benefits of the inflation scare of the last few months is that we are all far more familiar with the ingredients that go into the Bureau of Labor Statistics’ consumer price sausage. Here then is my attempt to give you a swift and impartial guided tour of the welter of information that the BLS publishes (and which you can play with to your heart’s content on the Bloomberg terminal).​

Most readers will already know the headlines. The most positive news is that core inflation (excluding food and fuel), was only 0.3% in the month of July, compared with 0.9% in June. That sounds good. Further, the headline number, including the hugely inflated fuel products, avoided a rise. It is still 5.4% year-on-year, as it was a month earlier. And the greatest relief for all concerned is that after three months of being blindsided by inflation numbers far higher than forecast, July’s​ was bang​ in line with average expectations.​

Note also that the gap between the highest and lowest estimates reported to Bloomberg has been growing wider. There is a big and confused spectrum of opinion. And while core inflation did dip slightly, it is still far above anything the Federal Reserve​ can accept for any extended period of time. This had better be transitory.​

Now, though, there are some more negative angles to take. After the last few months, we know far more about the different ways to slice and dice the inflation numbers. The Cleveland Fed produces a “trimmed mean” in which the biggest outlying​ components in both directions are excluded. It takes an average of the rest, and a median — the component in the middle of the distribution. Both are statistically legitimate ways to handle the fact that much of the rise in the headline number is concentrated in a few sectors that have obviously been badly affected by the pandemic, such as rental cars.

The bad news that both the median and the trimmed mean rose last month. To add to the confusion, they are sending contradictory messages. The median is still toward​ the lower end of its typical range for the last decade; the trimmed mean is its highest since the brief oil-driven price spike in the crisis year of 2008:

For further guarded good news, the BLS now publishes a measure for what might be called “core core” inflation, excluding not only food and fuel, but also shelter and used cars. The reason for excluding the last is that it has suffered eye-popping inflation since the pandemic started. Here again, the news is mixed. This measure​ strips out a lot that matters, but it does give some idea of underlying inflation. This measure has ticked down (good news), but it’s still sitting at a level never previously seen this century:

Going further into the guts of the report, we find that recreation, another sector that might be expected to see greater demand as reopening continues, has climbed to its highest level in decades. Maybe this is transitory, but it’s a new development:

Other transitory effects are still working to keep inflation lower. The persistent rise in college tuition fees, putting higher education further and further out of the reach of many Americans, has been a quiet, ongoing scandal. But colleges are having difficulty dealing with the pandemic, and many are discounting to try to fill campuses next month. As a result, inflation in this​ huge part of the household budget (for anyone who has to pay it, like me) has dropped to only 0.2%, its lowest since the series began 40 years ago:

Perhaps most important is shelter, which accounts for about a third of the entire index. The bad news is that it’s rising, as many had predicted. The good news is that it’s still not at any kind of alarming level. On this crucial measure, with many rental leases still not renewed since the start of the pandemic, it is quite possible that we will see significant increases​ ahead. But that remains a matter of conjecture, as does any suggestion that shelter costs will stay under control. It’s simply too early to say:

My main conclusion from this exercise is that compiling inflation statistics is a heroic endeavor. For all those who insist that inflation is being deliberately understated, or that the selection of products and services in the basket is unrepresentative, the BLS gives you all the data broken down so you can reconstitute it however you like. And going through the numbers reveals just how many different contradictory factors in different sectors of the economy are smooshed into one number.

For one favorite example, two sectors have suffered a sharp post-pandemic rise, and last month fell back slightly to 18% and 19% respectively. The two products in question: washing machines and airline tickets. Both have endured periods of outright deflation within the last year. And both have been rocked by (differing) transitory effects caused by the pandemic:

Reality is messy and resisting the attempts of bulls and bears to impose a pattern on it. Some extreme transitory effects appear to have peaked, but the fact that median and trimmed measures are still rising, and that the headline level is unchanged, suggest that inflation pressure is still growing, albeit at a much less startling rate than the headline number. We don’t yet know whether this is transitory or a secular shift.

Markets and Inflation

As for market reactions, they have calmed down somewhat. The dollar weakened slightly, and inflation breakevens barely moved, so investors don’t see this report as clarifying much. Intriguingly, the 50 U.S. stocks that are most strongly correlated with 5-year breakevens (in other words, that benefit from rising inflation), have started to pick up in the last couple of weeks, after lagging badly behind the broader market as the inflation scare abated:

Given some of the extreme trends afoot within the data, it remains fair to say that you are being offered a much more generous price for protecting against inflation than for protecting against deflation. And with inflationary pressure not abating, it is fair to expect the dollar to strengthen further in the weeks ahead.

The Post-Golden Age

There will be no Points of Return tomorrow, and instead there will be a special one on Sunday morning, to celebrate the 50th anniversary of Richard Nixon’s announcement in 1971 that he was unpegging the dollar from gold. It turned out to be the most consequential economic decision of the post-war era, and arguably one of the most crucial turning points.

One interesting question that comes up is whether it really mattered that much. Growth was much the same before and after the Nixon shock, and the U.S. remains firmly at the center of the global financial system. But one point made to me by Edin Mujagic economist at Dutch fund manager OHV who has just published a book (in Dutch) on the Nixon shock, is that the removal of gold discipline had a massive and immediate effect on government debt.​

He certainly has a point. This is federal debt as a proportion of gross domestic product, going back to 1945. You can indeed tell that something happened in the early 1970s:

Under the Bretton Woods system, the U.S. took the opportunity to gain control of the debt it took on to finance the war. In the 1970s, debt stayed roughly constant, as the lack of the limiting factor of gold was counteracted by the highest inflation in decades. But after 1981, when Treasury yields peaked (and the stock market troughed) as the sentiment took hold that inflation was at last under control, the buildup in debt was inexorable.​

As Mujagic says, it is hard to see how this would have been possible with the dollar pinned to gold. Even before projections for the debt taken on during the pandemic, by the end of 2019 gross federal debt was already bigger than GDP once more. The lack of the gold straitjacket, combined with confidence that inflation and bond yields can never rise, has helped a massive increase. While yields and inflation stay so low, that isn’t a problem. Should they start to move up, the world economy might be in need of another shock.

 Angelo Panebianco, teaches politics in Bologna, hàs an interesting view that I share. Without the formation of a resolute and uncompromising will to power in Europe which is hampered by the idiotic powerlessness of both Christian religion and Enlightenment philosophy, there can be no doubt that this nightmarish scenario will become reality.

L’avanzata dei talebani e le mire della Cina

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Angelo Panebianco

Dal ruolo assunto da Pechino potrebbero derivare una minaccia e una sfida permanente per l’Occidente

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Soldati afghani a Herat

Nel 1993 molti pensarono che fosse solo fantapolitica. Sta diventando politica vera nel 2021. Nell’articolo del 1993 apparso sulla rivista Foreign Affairs che anticipa il suo celebre e discusso libro sullo «scontro fra le civiltà», il politologo americano Samuel Huntington ipotizzò una futura alleanza fra l’emergente potenza cinese e le forze più radicali dell’islam, generate dall’attuale «risveglio islamico». Mentre i talebani continuano la loro travolgente avanzata militare e sono a pochi passi dal conquistare Kabul e l’intero Afghanistan, l’ipotesi/profezia di Huntington sta diventando realtà. Nel luglio di quest’anno i cinesi hanno ricevuto, con tutti gli onori, una delegazione talebana. È diventato chiaro a tutti che Pechino appoggia la loro rimonta armata in Afghanistan. Ha diverse e solide ragioni geopolitiche per farlo.

Se, fidando anche nell’aiuto cinese i talebani vinceranno la partita, allora l’alleanza (in funzione anti-indiana, oltre che per altri scopi) che già esiste fra Pakistan e Cina, si trasformerà in un triangolo Cina-Pakistan-Afghanistan, con la Cina, ovviamente, in posizione egemone.

Nella parte orientale del continente euro-asiatico potrebbe allora entrare in funzione una grande calamita in grado di esercitare una forte attrazione sulle forze dell’estremismo islamico ovunque collocate. È naturalmente possibile che questa convergenza fra cinesi e talebani mantenga un carattere e una dimensione solo regionali. Ma è anche possibile che sia la prova generale, l’anticipazione, di qualcosa di ben più ampio, secondo l’ipotesi di Huntington.

«Parigi val bene una messa»: una simile alleanza imporrebbe alle forze islamiste di abbandonare al suo destino la minoranza musulmana perseguitata dai cinesi, gli uiguri del Xinjang. Verrebbero sacrificati sull’altare di un «bene» più alto, non essendo la realpolitik un’invenzione occidentale ma un elemento costitutivo della politica in ogni tempo e luogo.

Il comune interesse cementerebbe l’alleanza. La Cina, offrendo sostegno all’estremismo islamico, potrebbe favorire forze in grado di indebolire le istituzioni di Paesi, musulmani o con forti minoranze musulmane al loro interno (dal Caucaso al Medio Oriente, all’Africa), ove l’influenza cinese è ancora assente, debole o non consolidata. L’estremismo islamico godrebbe del sostegno di una grande potenza.

È bene che gli occidentali, americani ed europei, a questo punto, si preoccupino. Perché dalla vicenda afghana e dal ruolo che vi ha assunto la Cina potrebbero derivare una minaccia e una sfida permanente per l’Occidente. Un’alleanza cino-islamica logorerebbe (o tenterebbe di farlo) i legami occidentali con i Paesi dell’Asia, del Medio e Vicino Oriente. E minaccerebbe la stessa Europa. L’unica conseguenza positiva potrebbe consistere, nel medio termine, per contraccolpo, in un’alleanza fra Russia, Stati Uniti ed Europa. Ma la Russia dovrebbe riuscire a tenere a bada il suo antico e tenace antioccidentalismo. La parabola politica, e il fallimento finale, dell’unico leader, in tutta la storia della Russia moderna, che abbia tentato, in tempo di pace, un’alleanza simile, Michail Gorbaciov, non sono di buon auspicio.

Noi europei possiamo anche fingere, ancora per un po’, che tutto ciò non ci riguardi ma siamo un evidente bersaglio, siamo allo scoperto e con poche difese. Se i talebani (ma forse è meglio dire «quando») prenderanno Kabul, l’impatto propagandistico di quella vittoria sugli infedeli sarà fortissimo, genererà un’onda d’urto che arriverà ovunque. Il terrorismo tonerà a minacciare anche l’Europa. Si noti inoltre che l’insidia per le società libere europee non dipende solo dal terrorismo in sé ma anche dagli effetti politici che il terrorismo può innescare. Operano in Europa forze fondamentaliste, culturalmente e ideologicamente incompatibili con i principi di una società libera, che però, a differenza dei jihadisti, non ricorrono o non ricorrono più alla violenza. Sarà facile per queste forze, in presenza di minacce terroriste, di proporsi agli europei come alfieri della «moderazione» ottenendo così concessioni e vantaggi incompatibili con le regole politiche e giuridiche su cui si reggono o si sono fin qui rette le società occidentali. Per chi sta allo scoperto le minacce sono molte e non tutte immediatamente riconoscibili.

Ne uscirebbe comunque un’Europa indebolita, culturalmente e politicamente. Questa sarebbe una buona notizia per Pechino e i suoi disegni neo-imperali, un asset, con grandi ricadute e vantaggi economici e politici, nella competizione per il primato internazionale con gli Stati Uniti. In ogni caso, la possibile alleanza cino-islamica metterebbe in atto una manovra, di medio termine, «a tenaglia»: la potenza economica cinese che si coordina, per soddisfare le reciproche convenienze, con il fanatismo religioso.

Quando l’Europa si sveglierà, se si sveglierà, dovrà dedicare molti vertici al che fare nella nuova situazione internazionale. Nel frattempo, il forse troppo serafico Joe Biden dovrebbe dare a tutti noi la sensazione che si possa ancora contare sugli Stati Uniti. Gli americani completeranno il ritiro delle truppe in Afghanistan entro la fine di questo mese. La loro intelligence stima che i talebani entreranno a Kabul nel giro di tre mesi. Prima, con Trump, i curdi, ora, con Biden, gli afghani: dapprima illusi, usati, e poi abbandonati al loro destino. Una doppietta micidiale: chi, e in quale parte del mondo, si fiderà ancora delle promesse degli americani?

Non si capisce se il presidente degli Stati Uniti pensi davvero oppure no che sia ancora nella convenienza del suo Paese conservare la leadership del mondo occidentale, con i privilegi ma anche con gli oneri che quella posizione comporta. Può essere, come molti sostengono, che le ultime tre amministrazioni, di Obama, di Trump e di Biden, rappresentino, con stili diversi, e anche molto diversi, un’America, retorica a parte, ormai stanca di quel ruolo che non può, non sa o non vuole più esercitare. Se le cose stanno davvero così noi europei ne pagheremo il prezzo. Ma il conto sarà alla fine salato anche per l’America.

Limitiamoci a dire che il mondo che ci aspetta e ci si prospetta sarà comunque meno amichevole e ospitale per quelle istituzioni, forgiate attraverso i secoli in Europa, da cui dipende la società aperta e che ci hanno assicurato benessere e libertà. Nella padella Trump ci siamo tutti un po’ ustionati. Speriamo di non dover scoprire tra qualche tempo di essere finiti nella brace.

This passage is pivotal:

Non si capisce se il presidente degli Stati Uniti pensi davvero oppure no che sia ancora nella convenienza del suo Paese conservare la leadership del mondo occidentale, con i privilegi ma anche con gli oneri che quella posizione comporta. Può essere, come molti sostengono, che le ultime tre amministrazioni, di Obama, di Trump e di Biden, rappresentino, con stili diversi, e anche molto diversi, un’America, retorica a parte, ormai stanca di quel ruolo che non può, non sa o non vuole più esercitare. Se le cose stanno davvero così noi europei ne pagheremo il prezzo. Ma il conto sarà alla fine salato anche per l’America.

Unless Europe wakes up to the indispensable need for a Machtpolitik, a politics of imposing our will and values by force, the West will cease to lead the future.

Good luck with that!

Governments must help manage the risks of fintech

Even the relatively low cost of entry into new digital markets does not guarantee fair competition

The Alipay service is displayed on a food stall in Hangzhou, China. Fintech is putting banking and other services literally in the hands of consumers

The Alipay service is displayed on a food stall in Hangzhou, China. Fintech is putting banking and other services literally in the hands of consumers © Qilai Shen/Bloomberg


August 12, 2021 11:55 am by Eswar Prasad

The writer’s next book is ‘The Future of Money: How the Digital Revolution is Transforming Currencies and Finance’

Financial innovation sometimes brings great rewards. It can make the financial system more accessible to underserved segments of the population and improve lives. But some innovations can lead to disaster, which usually hurts the poor more than others. 

Governments must find the right balance between promoting innovation and managing risks. As the world economy recovers from the Covid recession, which has exacerbated inequalities, the stakes could hardly be higher. The pace of innovations, including some truly groundbreaking ones, has picked up, heightening the urgency of addressing this question. 

In the early 2000s, financial innovations took the form of new products that ostensibly made it easier for consumers to get credit and for investors to generate higher returns and better manage risk. The hubristic notions that financial engineering could itself create value, and that the private sector could adequately manage risks on its own, culminated in a spectacular collapse. 

The latest wave of innovation is underpinned by new technologies that are encapsulated by the term “fintech”. Fintech is putting banking and other services literally in the hands of consumers. We can now make payments, do basic banking and even trade stocks with apps on our mobile phones. 

The fintech revolution has the potential to democratise finance. Digital banks, robo-advisers and online platforms that directly connect savers and borrowers are transforming financial intermediation. They have made saving and credit products easily available even to low-income households as well as those in rural and remote areas, while encouraging entrepreneurial activity. 

Digital payments that are cheap, quick and efficient are proving a boon for consumers and businesses. Disruptive change is coming to international payments, which have long been expensive and time-consuming. For economic migrants sending remittances to their home countries and many low-income countries that rely heavily on such flows, this is a blessing. Better payment systems will benefit domestic and international commerce. 

Technology is not an unqualified blessing, however. Computer algorithms that dispassionately render verdicts on creditworthiness and loan qualifications in principle reduce overt racial and other forms of bias. But algorithms built by humans and benchmarked against historical data can end up reinforcing existing biases. 

Digital access and financial literacy are still unevenly distributed. As the Gamestop saga showed, naive retail investors are often the last to join the party when speculative frenzies erupt, and they are left nursing losses when the frenzies end. Governments must still work to protect investors and ensure basic financial literacy, so that investors understand the products on offer and risks involved. 

Moreover, even the relatively low cost of entry into digital markets does not ensure an easy path for new entrants and fair competition. Network effects that benefit incumbents can lead to even greater concentration in the digital realm. China’s government gave Alipay and WeChat Pay free rein, which they used to create innovations that expanded financial access to the masses and helped in the fight against poverty. But these two platforms now dominate the payments landscape, acquiring so much power that the Chinese authorities recently cracked down on them. 

India’s Unified Payments Interface provides a model for how a government can foster private sector innovation and competition in financial services, without directly intruding in this sector. The Indian government created a public digital infrastructure with open access that provides easy entry for payment providers, ensuring a level playing field for established operators and new entrants.

Aadhaar, a biometric identification scheme, makes it easy for even illiterate and poor individuals to establish their identity, facilitating access to the financial system. The government has proposed regulations to give consumers control over use of their data.

Fintech regulatory “sandboxes” that allow new products and services to be tested in a controlled environment and in a limited scope can also help balance regulators’ concerns with the inherent riskiness of innovations. 

Fintech can play a powerful role in democratising finance in advanced and developing economies, but its perils must not be discounted. While the private sector should be left mostly unshackled to do the heavy lifting, governments have an indispensable role in securing the benefits and managing the risks.

Unless Europe wakes up to the indispensable need for a Machtpolitik, a politics of imposing our will and values by force, the West will cease to lead the future.

An intriguing example of how scientific discovery and technological application actually work and are impossible to attribute and to evaluate financially! What passes for "science" now is really "technology"; and what is called technology is what the ancient Greek philosophers knew as techné or "technique" - the artisanal modification of widely known practices - which is then abused as giving rise to intellectual property with extravagant astronomic claimson social wealth that are politically and economically unsustainable!

You only need to take a quick look at Apple or Samsung presentations to have a clear idea of what "the tech scam" is about.

It seems there's a lot of sandpaper to be discovered... One of the most unsavoury byproducts of financial manias is that most people entranced by them... take leave of their senses, either unwittingly or, too often, for personal interest. Such is the calamity afflicting the capitalist West now. The Taliban of this world are coming for us. They don't believe in bullshit. They believe in bull...ets...

Any rational human being MUST know that working from home could NEVER replace what Marx called "the concentration of capital" - bringing workers together under one roof, as against the original"putting out" system of early capitalism. (Paul Krugman got a Nobel for this! would you believe?)

Another example of how bullshit baffles brains... Afghanistan is teaching us as I write...

George Soros believes that (a) the West is democratic and (b) therefore more cohesive than China... He also believes that (C) Xi is "undemocratic" because he is reining in billionaires (like him) who (d) are "creating wealth".... and therefore (E) the West is bound to triumph...

Now, if you believe any of these propositions, I have a farm on Venus to sell you...

The humanitarian, rationalist, universalist West always chooses to fight with its hands tied behind its back. When the Romans fought, they fought to annihilate the enemy. No prisoners were taken. Subject populations were reduced to slavery and gradually annihilated. Cato the Elder used to end his Senate speeches, no matter what the topic at hand, with the phrase, “Credo enim ut Carthago delenda est!”…. I also believe that Carthage must be obliterated. At the end of the Third (the third!) Punic War, the Romans massacred the male population, enslaved women and children, burned down the city and its surrounds…

Paul Kelly lacks ambition. He could easily have magnified the careful political analysis in this piece to the entire West. But then, he would have had to confront “the other side of the moon” - the growing overwhelming antagonism taking root in the Third World, now glorified by the same “progressive” heap of sybaritic dotards as “emerging markets”. What they mean is, “markets in dire emergency”! These are entire billions of people who will not “buy” the technocrat Bezos and Gates and Soros try to sell them: they will not accept the invitation of these monkeys to the Great City: THEY WANT THE CITY! They will take it over, overrun it, just as the Talibans are doing with Kabul, regardless of Biden’s diplomatic invitation!

The internet introduced a measure of “unreality” or ir-reality, the deadly mistake that you can substitute cyber-space for real territorial space. Now these self-same illusionists are trying to sell us, if not the universe (Bezos, Branson, Musk), then at least “the meta verse” (Zuckerberg and assorted fools). Pretty soon they’ll find out, when an Islamist bomb explodes in Manhattan, that even the Appalachians is no place to hide!

The biggest artistic movements in Europe just before Fascism took over the continent, were surrealism and expressionism… and cubism, the “transfiguration” of the world. Many of the artists ended up in concentration camps…

The Nazis called it “entartete Kunst”… degenerate art… they won!

Governments (includes central banks) and Western capital are now left with two impossible options: continue supporting the fictitious capital that is holding up our societies, or pull the plug and watch whole societies implode… They are not prepared for the second option.

Greenies and “progressives” alike will soon find out what it means to have global warming…. AND NO AIR CONDITIONING (because of blackouts that they foisted on everyone). Reminds me of Berlusconi’s “Bunga Bunga” joke… when the tribal king asks two prisoners whether they prefer an indignity (bunga Bunga)or death, the first opts for the indignity. The second says, “No! Meglio morire.” And then the king says, “No! Prima bunga Bunga, DOPO morire!”

La morale: greenies and progressives will have everybody be “fottuti e bastonati”…

Italians are calling Afghanistan another Caporetto… if that appellation includes European verminous vigliaccheria, they are entirely right… Western energy policy will be another Caporetto to add to the long list (reference exhibit: Nazi Merkel, Putin and Nord Stream 2).

Of course, it hurts to say this, the Afghanis deserve what they are getting: if vigliaccheria is the word, it applies to them as much as to Europeans.

Don’t know if I sent you this… interesting to peruse… note the mention to Ross Douthat, “my man” at the NYT, credited with coining the phrase “woke capitalism”…

This final paragraph is something I used to remind all my fellow lefties at Uni about:

“Remember the iron law of woke institutions: For those looking to preserve their power, it makes sense to do the minimum amount of social radicalism necessary to survive … and no economic radicalism at all. The latter is where activists need to apply their pressure.”

That’s the exact reason why I went on to study economics, of course… but that’s another story…

That’s the exact reason why I went on to study economics, of course… but that’s another story…

You may recall my reference to “Les Trente Glorieuses”, the thirty glorious years of Western postwar economic expansion, 1945 to 1975. Louis Menand of The New Yorker makes the sensible argument that people’s trust in government depends on how their share of national income is doing. By that measure, the 50s and 60s were the apogee, and it’s been one long decline since, throughout the West.

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