Democracy and Equality

I just saw a following header in an article at the website of Carnegie Endowment for International Peace:

DEMOCRACY IS IMPOSSIBLE WITHOUT EQUALITY [Link]

I think the author got the idea wrong totally. Democracy is incompatible with equality simply because humans are not born equal.

One can only force-fit them to be equal and that is not democracy. The State can attempt to level the playing field – opportunities – for all, unprivileged by wealth, birth, power, etc. But, force-fitting equality of outcomes and material status will be incompatible with democracy. Only autocracies can achieve that – for a while.

That is, put differently, autocracies have a better chance of achieving equality, assuming they are sincere about it. Even then, it is unlikely to last long.

One of the reasons is that equality is inconsistent with evolutionary logic.

The ‘Enlightened’ West

Now, of course, all the 12 disciples, like Jesus himself, were Jews – yet, as this new exhibition shows, it was Judas who western art chose to depict as the Jew, often with the red hair that marked him out as a betrayer, alongside his mysteriously fair-haired, fair-skinned fellow apostles. The power of the Judas story lives on: Judas a byword for traitor, the word Jew and Judas almost indistinguishable in several languages, including German. [Link]

I am glad that this article appeared in ‘The Guardian’ (ht: Rohit Rajendran). The important thing to note for readers is how optics is used to influence us and manipulate us, without us being conscious of it – Judas with red hair and other jews are ‘fair-haired’ and ‘fair-skinned’!

So much for Western openness, tolerance, reason, racial harmony vs. Eastern (Indian) prejudice, intolerance, bigotry and untouchability, casteism, etc.

Das Activist Manifesto

I cannot fathom why I did not blog on Frank Partnoy (with Rupert Younger)’s article on ‘The Activist Manifesto’ (‘What would Karl Marx write today’ was the title of their article in FT in March 2018). By chance, I stumbled upon it again, today.

I was writing to my friend Gulzar about some of the books written by Wall Street insiders. ‘F.I.A.S.C.O’ came to mind. Frank Partnoy was the author. He wrote it after he worked for Morgan Stanley. I had read the book long ago. I liked it. He practised law after that and joined University of San Diego in 1997. I understand that he is now shifting to University of Berkeley as tenured law professor. I had used his article in ‘The Atlantic’ on Wells Fargo (‘What’s inside American banks?’) in the courses that I teach.

I decided to check and see if he had a Twitter handle. Thankfully, he had one and even more thankfully, he was not an inveterate Tweeter! In the process, I chanced upon the FT article again on the rewriting of ‘Das Manifesto’. They had a website for the manifesto.

I spent time reading Professor Alan Morrison’s great introduction to the manifesto of Partnoy and Younger. Worth reading. I am yet to download their new manifesto and the original. Intend to do so.

In the process, from Partnoy’s Twitter handle, I read the wonderful review of Adam Winkler’s book, ‘We, the Corporations’ by Zephyr Teachout. Sample this comment:

Beginning in the 1970s, a group of activist lawyers associated with the University of Chicago persuaded courts to gut well-established principles designed to protect open markets and decentralized power, and to replace them with an ideology of efficiency that has contributed to our current crisis of monopoly capitalism and inequality. Winkler mentions the Chicago school in passing, but he doesn’t address the post-1980 antitrust cases, a striking oversight because they fit neatly into his theory: Corporate monopolies gained rights by asserting that they benefited the rights of others (in this case, consumers). [Link]

Teachout says that Winkler missed out on this but writes a nice tribute to his work.

Also, read the review of ‘The Chain of Title’ by David Dayen, reviewed by Frank Partnoy himself. It is the kind of stuff that one sees in developing economies. Nobody knew who had the titles to the properties that were foreclosed. Yet, they foreclosed! This happened in America. Heart-rending, actually:

Lisa Epstein, a nurse, learns that the bank foreclosing on her, the one at the end of
the securitization daisy chain, could not prove that it had legally obtained her loan. When she challenges the bank in court, its lawyers present a document dated three months after she was served with foreclosure papers — a “poorly drafted cover-up,” Dayen writes. She meets Michael Redman, a car salesman who had a similar experience, and persuades him to publish an online guide to uncovering mortgage fraud. The two of them connect with Lynn Szymoniak, a lawyer, who investigates the signatures in her own foreclosure action and finds one with a date when the signer was actually in state prison.

Exposing those lies becomes a moral crusade. The homeowners’ stories are emotional roller coasters, which Dayen meticulously reports. He and his characters find the banks’ behavior not just indefensible but criminal. Prepare to be surprised, and angry.

Partnoy also reviewed Anita Raghavan’s Billionaire’s Apprentice.

So, an evening in ‘partnership’ with Partnoy!

 

How to become a good economist

Yesterday, I began teaching for the fifth year, the Global Macroeconomics and exchange rates course at the Singpaore Management University to graduate students of the Wealth Management programme, 2018-19. The first session is to set the stage for the course, for learning economics, the right approach to learning economic theories. Emanuel Derman says that they are models and models, to him, are approximations. A theory is an ‘explanation of everything’. Economic theories cannot be that. He calls them models.

In the process of preparing for the class, I read the first chapter of the book, ‘A brief history of economics: artful approaches to dismal science’ which I had downloaded some years ago. Ray Canterbery writes well.

Sample these lines:

As important as pure analytics, mathematics, and statistics are, if we know only the tools of the trade, we will be unable to know the place of economics within the broader community of ideas, much less be able to explain it to the uninitiated. We will be unable to engage in the rhetoric of the intellect….

…A broader approach invites readers to range across the neighboring fields of history, philosophy, mathematics, politics, natural science, and literature….

… Historical perspective puts the lie to any claim that economics always is a progressive science—operating, like nuclear physics, outside time and in pursuit of eternal verities.

….We cannot recognize truly new ideas unless we are familiar with the ideas that economists have already explored. And we cannot understand the ideas of the great economists unless we understand the times of their lives.

…..Institutions include formal systems, such as constitutions, laws, taxation, insurance, and market regulations, as well as informal norms of behavior, such as habits, morals, ethics, ideologies, and belief systems.

The highlighted portion is what Deirdre McCloskey would call ‘Bourgeois Virtues’ – courage, temperance, prudence, justice, faith/love. She says the word, ‘Bourgeois’ strictly referred to the ‘Middle Class’ before. She is using that word to refer to the ‘Middle Class’.

By the way, the interview of her by Arjun Jayadev here is very good read. There is also a link to the transcript of the interview, if you do not like to watch the videos. But, the good thing about the videos is that they are broken into small slices on specific topics. You can pick and choose. Thoughtful, in all.

See this paragraph:

The focus on a deeply felt and embedded analysis is typical of McCloskey for whom economics is better understood as social history rather than meteorological prediction. As a critique of the faux scientific economics that pretends otherwise, she went over her long-standing criticisms of the narrowness of economic methods (as she put it, the discipline as the breadth of ‘M to N’ rather than A to Z) and its delusions. …

…. To McCloskey, a criticism of the ways in which economics is currently practiced is not to deny the importance of formalization and abstraction but rather to know its place and to never stray from the serious business of understanding the world.

She makes an observation in the course of the interiew, that is rather significant:

The American Statistical Association, incidentally in the spring of 2016 issued an official report denying that tests of statistical significance are a sensible guide to the importance of a variable. [Link]

Read what she says about philosophy:

In economics, this surprises outsiders, the word philosophy is a swear word. People say, ‘That’s rather philosophical’ as though that was an exceptionally stupid thing to
say.

Back to Ray Canterbury:

For all its concern with form, the new rhetoric about rhetoric nonetheless relies on argumentation within context. Without the villainous mercantilists, Adam Smith’s free trade arguments would have been as dull as the proverbial Scottish coastal town to which the tide, having gone out, refused to return. If David Ricardo had been championing industrialization during the Middle Ages, the more pious Malthus would have won their debate. Besides, there always was more than rhetoric. The great economists gave us entire systems for observing economic behavior.

Canterbury’s introduction ends with these lines, aptly:

Wall Street Capitalism had culminated in a Casino Capitalism characterized by making money with money through speculation.

Quite. It is also the apt note on which to end this blog post.

Useful resources for poverty

Martin Ravallion’s new book, ‘Economics of Poverty’ released last year seems to have a website linked to it. I have not checked it out. But, sounds useful.

Related to the theme of poverty is the book on poverty in South Asia by Ejaz Ghani (ed.) titled, ‘The poor half billion in South Asia: what is holding back lagging regions’ published in 2010.

Separately, VoxEU had three volumes on the Long Economic and Political shadow of history. I have not read them yet. But, thought I should record their availability here. I might have recorded them already here. Does not matter.

On a related note, would strongly recommend, ‘Power and Plenty’ by Kevin O’ Rourke and Ronald Findlay. I have read parts of it. Delightfully written. It is a wonderful compendium of international economic history seen through international trade and the military conflicts that either accompanied them or preceded them. You can download the preface and chapter 1 here. Worth it.

In the preface, they write that most books are written for the authors and that there is much learning for authors during the writing of the book than there is transfer of knowledge from them to readers. Both are very true. I can vouch for both!

There is a website called ‘Booksforunderstanding.org’. Well, some of you might know it already. I did not know it until yesterday. The list of books under Financial Markets/Financial Panics/Market Regulation, etc., is quite long and leave one with a daunting feeling. Most titles sound interesting.

Confronted with confounding complexity

Ever since I read Martin Ford’ ‘The rise of the robots’, I have been following his Twitter handle, from time to time. I am not on Twitter. Over the last two days, I had a rich harvest of articles to read. Just finished reading them. I am yet to comprehend the full import of all that I had read. Perhaps, it is not just possible.

The article about driverless trucks and the consequences of automation on the rise of extreme sentiments is of a garden-variety nature compared to the other articles that I read.

Prof. Tyler Cowen has a piece in which he expresses considerable disquiet about what the robotics/AI revolution holds. He presents evidence on what the Industrial Revolution wrought in terms of real wages. He is right that it has caused real pain to many, many people. Time has airbrushed them out of our collective conscience. More importantly, some of us never really experienced the fallout. So, it is easy to sound academically rational about it or as a techno-optimist.

Yet, he contrives to conclude on a note of ‘full steam ahead’. I am not able to understand that one. His choice. Useful to know the name of an economic historian, Gregory Clark, at UC Davis.

Then came the MIT Technology Review article. That too invoked an economic historian: Joel Mokyr at Northwestern University. His understanding of the problem seems very reasonable:

has spent his career studying how people and societies have experienced the radical transitions spurred by advances in technology, such as the Industrial Revolution that began in the late 18th century. The current disruptions are faster and “more intensive,” Mokyr says. “It is nothing like what we have seen in the past, and the issue is whether the system can adapt as it did in the past.”

But, his answer?

Mokyr describes himself as “less pessimistic” than others about whether AI will create plenty of jobs and opportunities to make up for the ones that are lost. And even if it does not, the alternative—technological stagnation—is far worse.

But, again, a good description of what a loss of a job means in the modern society:

There is no question that in the modern capitalist system your occupation is your identity,” he says. And the pain and humiliation felt by those whose jobs have been replaced by automation is “clearly a major issue,” he adds. “I don’t see an easy way of solving it. It’s an inevitable consequence of technological progress.”

Past is no guide to the future but is our recollection of even the past accurate?

Sample this:

Personal computers, the Internet, and other technologies of the last several decades did replace some bank tellers, cashiers, and others whose jobs involved routine tasks.

The full impact of the computing and internet revolution is being felt now. They enabled outsourcing and offshoring. Those who lost their jobs or income or both now want to shrink the world back to the familiarity of the past, in their own ways. Can we say that thse technologies simply replaced routine jobs and did nothing more in terms of damages?

Again, the same facile conclusion:

if we fail to use the technology in a way that benefits as many people as possible (see “Who Will Own the Robots?”), we risk fueling public resentment of automation and its creators. The danger is not so much a direct political backlash—though the history of the Luddites suggests it could happen—but, rather, a failure to embrace and invest in the technology’s abundant possibilities.

This is a short one but more of an introduction/summary of the BankUnderground blog post. BankUnderground is maintained by the Bank of England staffers. The header makes sense. To me, that is.

The Bank Underground article is a very important read because it shows – a bit like Tyler Cowen’s article above – how ‘this time it might be different’ – in terms of the time the latest wave of technology affords humans and societies to adapt – it could be far less. Telescoping of the pace of change – ask Alvin Toffler. Well, we cannot. He died last year but, who knows, technology might enable us to do so sometime in the future.

This is a series of articles in ‘Scientific American’. The lead article is a MUST READ. It touches upon all aspects such as personal liberty, our abilities to think, our freedom to make choices, etc., all those that will become playthings of technology. The page is not well formatted because headers of the subsequent sections merge into previous paragraphs.

Interestingly, the word, ‘complexity’ occurs eight times in these articles. Some of the sentences that bear them are interesting.

  1. But one look at the relevant scientific literature shows that attempts to control opinions, in the sense of their “optimization”, are doomed to fail because of the complexity of the problem. The dynamics of the formation of opinions are full of surprises.
  2. In a rapidly changing world a super-intelligence can never make perfect decisions (see Fig. 1): systemic complexity is increasing faster than data volumes, which are growing faster than the ability to process them, and data transfer rates are limited.
  3. Centralized, top-down control is a solution of the past, which is only suitable for systems of low complexity. Therefore, federal systems and majority decisions are the solutions of the present. With economic and cultural evolution, social complexity will continue to rise. Therefore, the solution for the future is collective intelligence.

This is an important point:

Collective intelligence requires a high degree of diversity. This is, however, being reduced by today’s personalized information systems, which reinforce trends…. Reducing sociodiversity often also reduces the functionality and performance of an economy and society. This is the reason why totalitarian regimes often end up in conflict with their neighbors. Typical long-term consequences are political instability and war, as have occurred time and again throughout history. Pluralism and participation are therefore not to be seen primarily as concessions to citizens, but as functional prerequisites for thriving, complex, modern societies.

If technology is tailored to reinforce and exploit what we like, then…. we lose the ability even to tolerat the ‘other’, let alone have an understanding of and accept them.

Thanks to Big Data, we can now take better, evidence-based decisions. However, the principle of top-down control increasingly fails, since the complexity of society grows in an explosive way as we go on networking our world. Distributed control approaches will become ever more important. Only by means of collective intelligence will it be possible to find appropriate solutions to the complexity challenges of our world.

There is a long NYT article on how Universal Basic Income is being experimented with, in a  village in Kenya. The idea of cash transfers is very appealing in such situations. But, it might prove to be wholly inadequate to the problems that AI/Robotics would be throwing up. For now, it is gaining traction because of the conscience salve that it is, for the technology industry. When Bill Gates said that one should tax robots, clearly, the technology companies that are unleashing them should pay for the externalities they are going to create. Taxation is the best instrument for it.

Just as banks have to create living wills and take up insurance to guard against economic consequences of their failures lest taxpayers are on the hook for collectivisation of losses while gains were kept private, technology companies have to do the same.

However, one good thing with UBI or Cash transfer is that the aid industry, as we know it, would be dead and that is a good thing.

Another NYT article says that with the recovery in oil prices, oil production is back on track in the United States but not the jobs. Nearly one third to one half of the jobs lost won’t come back. Why? Automation.

This may sound like a somewhat relatively lighter article about robots delivering sharing space with pedestrians but it would put delivery workers, drivers out of their jobs.

So, in the end, are we wiser? Yes. Are we confused? Yes. Are we worried? Yes. Do we have answers? No, except ‘tax the hell out of the companies that develop these’. For now, that is my only answser. One blogger is not going to stop the relentless march of humans to extinction in whichever manner it is achieved – hand to hand combat, animals, spears, arrows, swords, guns, bullets, missiles, bombs and technology.

It is time to remind the readers of the man who tried to redeem the world with logic. That is what these companies are trying to do with their technology. If you had not read that article, you should. If nothing else, it should make us humble, at least for a while.

Good weekend reads

Sri Lanka Port Loans contributed to the debt trap. But, why did India deny the offer of Trinconmalee port?

Chinese students threaten free speech abroad – Defenders of the global order that Trump is seeking to ‘destroy’?!

The town of Vijayawada immortalises its civil servants and one of them is my co-author and good friend Gulzar Natarajan. Good practice.

Bombay Jayashri makes her debut as a columnist. She might have written one-off articles before, I guess. A very good and nice start.

A lovely article and a very good reminder – on Leo Tolstoy’s ‘The death of Ivan Ilyich’.

If all theories that do not explain reality are thrown out of economics, what would be left?

Neel Kashkari makes the case for deregulation and higher capital requirements on big banks. Good stuff.

A great article on the exploitation in American Universities. Hypocrisy is one successful and enduring example of globalisation. May be, behind a firewall.

Economists would do well to put this up on their walls. A good exercise in spiritual evolution.

Paul Collier’s essay in the ‘Times Literary Supplement’ on saving capitalism may not have a original title but has many quotable and thoughtful lines. Made me buy three of the books reviewed or discussed. Was directed by Emanuel Derman’s quote from one of the paragraphs in the essay in a tweet.