Americans caught in poverty traps harbor unrealistic expectations

The New York Times reports:

A widening income gap and sagging social mobility have left dents in the American dream. But the belief that anyone with enough gumption and grit can clamber to the top remains central to the nation’s self-image.

And that could complicate Democratic efforts to frame the 2020 presidential election as a referendum on a broken economic system.

Americans, who tend to link rewards to individual effort, routinely overestimate the ease of moving up the income ranks, while Europeans — citing an unfair system, inherited wealth and sticky social classes — consistently underestimate it, surveys have found.

For moving from the bottom of the income ladder to the top, the South offers the worst odds in the United States. But it’s also the region where people are most optimistic about the prospects.

“Fifteen to 20 percent?” guessed Vicki Winters, a retired contract specialist at the Defense Department who lives with her husband, George, in a predominantly white Huntsville suburb.

The actual chances of making that climb in Alabama are a shade above 5 percent. Nationwide, they are less than 8 percent. And in Madison County, where the Winterses live, the odds that a child will escape poverty are among the lowest in the nation. [Continue reading…]

80% of the stock market is now on autopilot

CNBC reports:

It’s no secret that machines are taking up a bigger and bigger share of investing, but the extent of their influence is approaching shocking proportions. It is as high as 80%, according to one major investing firm.

Passive investments such as index funds and exchange-traded funds control about 60% of the equity assets, while quantitative funds, those which rely on trend-following models instead of fundamental research from humans, now account for 20% of the market share, according to estimates from J.P. Morgan.

This means so much of stock trading is now in the hands of automated buyers and sellers that the market is increasingly sensitive to headlines and more prone to sharp price swings, many notable investors believe.

Omega Advisors founder Leon Cooperman previously said computer trading is creating a “Wild West” with the markets, calling for an investigation by the Securities and Exchange Commission. [Continue reading…]

The new left economics: How a network of thinkers is transforming capitalism

Andy Beckett writes:

For almost half a century, something vital has been missing from leftwing politics in western countries. Since the 70s, the left has changed how many people think about prejudice, personal identity and freedom. It has exposed capitalism’s cruelties. It has sometimes won elections, and sometimes governed effectively afterwards. But it has not been able to change fundamentally how wealth and work function in society – or even provide a compelling vision of how that might be done. The left, in short, has not had an economic policy.

Instead, the right has had one. Privatisation, deregulation, lower taxes for business and the rich, more power for employers and shareholders, less power for workers – these interlocking policies have intensified capitalism, and made it ever more ubiquitous. There have been immense efforts to make capitalism appear inevitable; to depict any alternative as impossible.

In this increasingly hostile environment, the left’s economic approach has been reactive – resisting these huge changes, often in vain – and often backward-looking, even nostalgic. For many decades, the same two critical analysts of capitalism, Karl Marx and John Maynard Keynes, have continued to dominate the left’s economic imagination. Marx died in 1883, Keynes in 1946. The last time their ideas had a significant influence on western governments or voters was 40 years ago, during the turbulent final days of postwar social democracy. Ever since, rightwingers and centrists have caricatured anyone arguing that capitalism should be reined in – let alone reshaped or replaced – as wanting to take the world “back to the 70s”. Altering our economic system has been presented as a fantasy – no more practical than time travel.

And yet, in recent years, that system has started to fail. Rather than sustainable and widely shared prosperity, it has produced wage stagnation, ever more workers in poverty, ever more inequality, banking crises, the convulsions of populism and the impending climate catastrophe. Even senior rightwing politicians sometimes concede the seriousness of the crisis. At last year’s Conservative conference, the chancellor, Philip Hammond, admitted that “a gap has opened up” in the west “between the theory of how a market economy delivers … and the reality”. He went on: “Too many people feel that … the system is not working for them.” [Continue reading…]

Facebook’s path to global domination: Take over the internet, then the world’s financial system

Thomas Claburn writes:

Facebook – the global ad business pilloried repeatedly over the past 15 years for privacy disasters – on Tuesday announced a scheme to allow account holders to buy credits and spend the digitized funds online through a network of partners, under a “strong commitment to privacy.”

The antisocial network’s blockchain-tracked currency, Libra, will reside in a digital wallet named for the company’s newly formed financial services subsidiary Calibra. This coin-storing code will be available initially in WhatsApp and Messenger and as a standalone app for Android and iOS next year, the Silicon Valley goliath says.

Skepticism of what might be described as “Facebank” is high. “It is frankly baffling to me that a company with a massive data privacy problem launched a non-private global currency,” said Matthew Green, associate professor of computer science at the Johns Hopkins Information Security Institute in the US, via Twitter.

Some people may be giving Facebook, which this year suffered a corporation-wide 14-hour outage, too much credit…

The e-IOU notes are backed by actual financial assets, collectively known as the Libra Reserve, which will allow the digital funny money to be converted to local fiat currencies. It’s not pegged to a single currency, however, so its value with regard to other currencies will fluctuate, a fact that will invite ruthless currency arbitrage. [Continue reading…]

Matt Levine writes:

Central banks are mysterious, and banks are widely mistrusted, and there is a popular and not unreasonable sense that the banking system gives special privileges to favored insiders in unfair and inegalitarian and politicized ways. Cryptocurrency disintermediates banks and governments and traditional favored incumbents, and rests the power to create money in a form of direct social consensus. It is, crypto advocates say, the most powerful democratizing force since the internet.

But, you know … look at the internet. In a real, true, important sense, the internet is decentralized and libertarian and empowering; the architecture of the internet is not controlled by any government or corporation, and everyone can access and build on it. But in another, also quite real, sense, the internet has been a powerful tool for the centralizing of power. There are a zillion websites but you find them using Google; anyone can publish on the internet but you get your news from Facebook; anyone can sell anything on the internet but mostly you buy stuff from Amazon; email is a free and open protocol but you use Gmail. The democratizing effect of the internet’s openness and decentralization is counteracted by its vast economies of scale and network effects, which tend to concentrate power in a few big winners.

Basically the point here is that if you replace the traditional social-regulatory technology of money creation with a new sort of computer technology of money creation, odds are that the power of money creation will end up not so much in the hands of free-spirited individual hackers around the world, but in the hands of some giant tech company.

In this case, Facebook Inc.:

Facebook Inc. unveiled plans for a new cryptocurrency that the social-media giant hopes will one day trade on a global scale much like the U.S. dollar.

Called Libra, the new currency will launch as soon as next year and be what’s known as a stablecoin — a digital currency that’s supported by established government-backed currencies and securities. The goal is to avoid massive fluctuations in value so Libra can be used for everyday transactions in a way that more volatile crypotcurrencies, like Bitcoin, haven’t been.

Libra is the culmination of a year-long effort to devise an easy way for Facebook users to send and receive money through its messaging services.

Oh yeah. Here’s the white paper describing Libra, and here are some ancillary papers about its blockchain and its programming language and its cash reserve and its compliance policies. Everything is at a pretty high level of generality—you can’t go out and buy a Libra today—but I suppose we have to talk about some specifics anyway.

So, first, Libra will be a “stablecoin,” in the sense that its value will be pinned to conventional financial assets. Unlike most stablecoins, though, it will be pinned to a basket “of low-volatility assets, including bank deposits and government securities” in different currencies, so it won’t consistently be worth one dollar or one euro or anything else. “As the value of Libra will be effectively linked to a basket of fiat currencies, from the point of view of any specific currency, there will be fluctuations in the value of Libra.”

This strikes me as very annoying, but it has some obvious advantages for Facebook/Libra. For one thing, they’ll only need to manage one general Libra, rather than having different stablecoins corresponding to different national currencies. For another thing, if Libra gains widespread acceptance, its lack of one-to-one correspondence will give it a tendency to displace national currencies. If you mostly spend dollars, and Libra is always going up and down against the dollar, that will be annoying and you won’t want as many Libras. But if you mostly spend Libras—if Facebook is successful at making this the main currency of the internet—then that dynamic will reverse. If the dollar is always going up and down against the Libra, that will be annoying and you’ll want more Libras. The dollar will start to seem unstable and useless. If you buy most things online, and if everything online is priced in Libras, then you’ll end up living your life denominated in Libras, and only converting your Libras into dollars on your occasional touristic visits to the physical world. The goal is for Libra to be more useful than any national currency, accepted in more places and with fewer complications; pegging it to a single national currency would only hold it back. [Continue reading…]

How American waste crosses the globe and overwhelms the poorest nations

The Guardian reports:

What happens to your plastic after you drop it in a recycling bin?

According to promotional materials from America’s plastics industry, it is whisked off to a factory where it is seamlessly transformed into something new.

This is not the experience of Nguyễn Thị Hồng Thắm, a 60-year-old Vietnamese mother of seven, living amid piles of grimy American plastic on the outskirts of Hanoi. Outside her home, the sun beats down on a Cheetos bag; aisle markers from a Walmart store; and a plastic bag from ShopRite, a chain of supermarkets in New Jersey, bearing a message urging people to recycle it.

Tham is paid the equivalent of $6.50 a day to strip off the non-recyclable elements and sort what remains: translucent plastic in one pile, opaque in another.

A Guardian investigation has found that hundreds of thousands of tons of US plastic are being shipped every year to poorly regulated developing countries around the globe for the dirty, labor-intensive process of recycling. The consequences for public health and the environment are grim. [Continue reading…]

Climate change poses major risks to financial markets, regulator warns

The New York Times reports:

A top financial regulator is opening a public effort to highlight the risk that climate change poses to the nation’s financial markets, setting up a clash with a president who has mocked global warming and whose administration has sought to suppress climate science.

Rostin Behnam, who sits on the federal government’s five-member Commodity Futures Trading Commission, a powerful agency overseeing major financial markets including grain futures, oil trading and complex derivatives, said in an interview on Monday that the financial risks from climate change were comparable to those posed by the mortgage meltdown that triggered the 2008 financial crisis.

“If climate change causes more volatile frequent and extreme weather events, you’re going to have a scenario where these large providers of financial products — mortgages, home insurance, pensions — cannot shift risk away from their portfolios,” he said. “It’s abundantly clear that climate change poses financial risk to the stability of the financial system.”

Mr. Behnam was appointed by President Trump to a seat on the commission that, by law, must be filled by a Democrat. He said that unusual status gave him a measure of political protection that other appointees within the administration might not benefit from. [Continue reading…]

Climate change is our World War III. It needs a bold response

Joseph Stiglitz writes:

Advocates of the Green New Deal say there is great urgency in dealing with climate change and highlight the scale and scope of what is required to combat it. They are right. They use the term “New Deal” to evoke the massive response by Franklin Delano Roosevelt and the United States government to the Great Depression. An even better analogy would be the country’s mobilization to fight World War II.

Critics ask, “Can we afford it?” and complain that Green New Deal proponents confound the fight to preserve the planet, to which all right-minded individuals should agree, with a more controversial agenda for societal transformation. On both accounts the critics are wrong.

Yes, we can afford it, with the right fiscal policies and collective will. But more importantly, we must afford it. Climate change is our World War III. Our lives and civilization as we know it is at stake, just as they were in World War II.

When the US was attacked during the second world war no one asked, “Can we afford to fight the war?” It was an existential matter. We could not afford not to fight it. The same goes for climate change. Here, we are already experiencing the direct costs of ignoring the issue – in recent years the country has lost almost 2% of GDP in weather-related disasters, which include floods, hurricanes, and forest fires. The cost to our health from climate-related diseases is just being tabulated, but it, too, will run into the tens of billions of dollars – not to mention the as-yet-uncounted number of lives lost. We will pay for climate change one way or another, so it makes sense to spend money now to reduce emissions rather than wait until later to pay a lot more for the consequences – not just from weather but also from rising sea levels. It’s a cliche, but it’s true: an ounce of prevention is worth a pound of cure.

The war on climate change, if correctly waged, would actually be good for the economy – just as the second world war set the stage for America’s golden economic era , with the fastest rate of growth in its history amidst shared prosperity. The Green New Deal would stimulate demand, ensuring that all available resources were used; and the transition to the green economy would likely usher in a new boom. Trump’s focus on the industries of the past, like coal, is strangling the much more sensible move to wind and solar power. More jobs by far will be created in renewable energy than will be lost in coal. [Continue reading…]

Trump’s tariff threat to Mexico may upend trade deal, undermine the economy

The Washington Post reports:

President Trump’s surprise announcement of an escalating series of new tariffs on all goods imported from Mexico is likely to upend hopes for early congressional action on his proposed North American trade deal and trigger economic upheaval on both sides of the border, according to trade analysts and business executives.

Business leaders reacted with dismay to Trump’s statement Thursday that he would impose a new 5 percent tariff on all goods from Mexico beginning June 10 to force the Mexican government to take more aggressive actions to prevent Central American migrants from crossing its territory en route to the United States.

And a prominent member of the president’s party, Senate Finance Committee Chairman Charles E. Grassley of Iowa, blasted Trump’s move as “a misuse of presidential tariff authority and contrary to congressional intent.” Implementing the tariffs, he said, would “seriously jeopardize passage” of the United States-Mexico-Canada Agreement (USMCA). [Continue reading…]

Bloomberg reports:

The automotive industry is bearing the brunt of trade-war crossfire again as U.S. President Donald Trump threatens to slap tariffs of as much as 25% on goods from Mexico, a key production hub for carmakers from Mazda Motor Corp. to General Motors Co.

Mexico is the largest source of U.S. vehicle and auto-parts imports, meaning tariffs would increase costs for virtually every major manufacturer. In late night tweets Thursday, Trump warned tariffs would start at 5% on June 10 and increase to 25% on Oct. 1 unless Mexico stops immigrants from entering the U.S. illegally.

A dozen of the world’s largest automakers — including Ford Motor Co., Toyota Motor Corp. and Volkswagen AG — lost about $18 billion in market value by the start of regular U.S. trading Friday. The Bloomberg World Auto Manufacturers Index slumped as much as 2.2% to the lowest intraday since July 2016. [Continue reading…]

Jeff Bezos offers absurd and hypocritical reason for his massive space plan

Joe Romm writes:

Amazon founder and CEO Jeff Bezos recently announced a wildly ambitious plan to ultimately put up to 1 trillion humans in vast cylindrical space colonies near the Earth.

But while the goal is over-the-top, the justification is both absurd and hypocritical. Bezos argued at length on Thursday in a major presentation at the Washington, D.C. Convention Center that we need such a future to save the Earth “if the world economy and population is to keep expanding.”

Bezos’s core argument is that this never-ending growth will drive an unsustainable doubling of energy use every 25 years that will lead to humanity running out of energy in 200 years. But the Amazon chief has apparently missed recent trends in population and energy efficiency that show the rate of growth of energy use has already slowed. Independent projections suggest Bezos is overestimating energy growth by a factor of three.

Even more important, long before the year 2219, much of the earth will be all but uninhabitable thanks to catastrophic climate change — driven in large part by a monomaniacal pursuit of growth at all costs. [Continue reading…]

U.S. fossil fuel subsidies exceed Pentagon spending, says IMF

Rolling Stone reports:

The United States has spent more subsidizing fossil fuels in recent years than it has on defense spending, according to a new report from the International Monetary Fund.

The IMF found that direct and indirect subsidies for coal, oil and gas in the U.S. reached $649 billion in 2015. Pentagon spending that same year was $599 billion.

The study defines “subsidy” very broadly, as many economists do. It accounts for the “differences between actual consumer fuel prices and how much consumers would pay if prices fully reflected supply costs plus the taxes needed to reflect environmental costs” and other damage, including premature deaths from air pollution. [Continue reading…]