Is Profit-Maximizing Data-Mining Undermining Democracy?

If targeting political extremes generates the most profit, then that's what these corporations will pursue.

As many of you know, oftwominds.com was falsely labeled propaganda by the propaganda operation known as ProporNot back in 2016. The Washington Post saw fit to promote ProporNot's propaganda operation because it aligned with the newspaper's view that any site that wasn't pro-status quo was propaganda; the possibility of reasoned dissent has vanished into a void of warring accusations of propaganda and "fake news" --which is of course propaganda in action.

Now we discover that profit-maximizing data-mining (i.e. Facebook and Google) can--gasp--be used for selling ideologies, narratives and candidates just like dog food and laundry detergent. The more extreme and fixed the views and the closer the groups are in size (i.e. the closer any electoral contest), the more profitable the corporate data-mining becomes.

Meanwhile, back at the ranch, the data-mining gets all the important stuff wrong. As correspondent GFB explains, oftwominds.com was identified as "propaganda" by data-mining, which concluded that any site that posted content that wasn't pro-Hillary was automatically propaganda:

At least we now know why your site was flagged as a source of Russian disinformation:

Cambridge Analytica is hired by the Russians to data mine to find the most efficacious targets for their disinformation campaign - and in the course of doing research, they find that a number of individuals who visit your site have shown - in other social media actions - to have anti-Hillary, or anti-powers-that-be tendency. They conclude the number of visitors that have that data profile would suggest that it is likely most, if not all visitors to your site would likely have the same view - and so any visitor to your site gets flagged to be targeted, if possible, by the disinformation campaign.

Now look at in reverse - someone who is investigating possible unscrupulous data mining re: the campaign, and through there own data mining notice that visitors to your site get an inordinate amount of targeted disinformation - - - and they conclude (incorrectly) that oftwominds.com is likely the source of that targeting.

Setting aside the quasi-monopoly on vast data-mining of users held by Facebook and Google, we have to ask: what sort of "democracy" do we end up with when data-mining ignores the "independent" middle/moderate voters in favor of the ends of the spectrum which can be more easily whipped up into a frenzy that might just lead to a few more votes being cast (Recall that voter participation in the US is abysmally low compared to other democracies.)

It also turns out that data-mining draws all sorts of false conclusions about individuals, groups and sites. For example, if you visit a "prepper" site then the algorithms will reckon you're pro-gun ownership. If you visit the Sierra Club website, then you're targeted as a "social liberal," and so on.

But in the mad rush to monetize their vast trawling of user data, Facebook, Google et al., niceties such as accuracy and the undermining of civil society don't matter: these are privately owned corporations whose only responsibility is to maximize profits for their owners and managers.

If targeting political extremes generates the most profit, then that's what these corporations will pursue. It's nothing personal--maximizing profit by any means available is why they exist.

Of related interest:

Facebook Is a Utility Which Can't Charge Its Users (July 22, 2010)

How Much of our Discord Is the Result of the "Engagement" Advert Revenue Model of Social Media? (October 24, 2017)

Should Facebook, Google and Twitter Be Public Utilities? (March 5, 2018)

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How Much Longer Can We Get Away With It?

Alas, fakery isn't actually a solution to fiscal/financial crisis..

This chart of "debt securities and loans"--i.e. total debt in the U.S. economy--is also a chart of the creation and distribution of new money, as the issuance of new debt is the mechanism in our financial system for creating (or "emitting" in economic jargon) new currency: when a bank issues a new home mortgage, for example, the loan amount is new currency created out of the magical air of fractional reserve banking.

Central banks also create new currency at will, and emitting newly created money is how they've bought $21 trillion in assets such as bonds, mortgages and stocks since 2009. Is there an easier way to push asset valuations higher than creating "money" out of thin air and using it to buy assets, regardless of the price? If there is an easier way, I haven't heard of it.

Which brings us to the question: how much longer can we get away with this travesty of a mockery of a sham? How much longer can we get away with creating "money" by issuing new debt/liabilities to grease the consumption of more goods and services and the purchases of epic bubble-valuation assets?

Since humans are still using Wetware 1.0 (a.k.a. human nature), we can constructively refer to the Roman Empire's experience with creating "money" with no intrinsic value. The reason why the Roman Empire (Western and Eastern) attracts such attention is 1) we have a fair amount of documentation for the period, something we don't have for other successful empires such as the Incas, and 2) we're fascinated by the decline and collapse of the Western Empire, a structure so vast and successful that collapse seemed impossible just a few decades before the final unraveling.

One of the books I'm currently enjoying is The Fate of Rome: Climate, Disease, and the End of an Empire, a new exploration of the impact of climate change and pandemics on the Roman Empire's final few centuries.

The key takeaway is that climate change undermined the production of grain while the arrival of previously unknown diseases via trade routes stretching from Rome to China, India and the interior of Africa decimated the productive populace. Add in the rise of well-organized "barbarians" and the political instability born of a self-serving, ossified elite and voila, you have an excellent recipe for crisis.

Crises tend to reduce tax collections and increase government/Imperial costs, and this creates a fiscal/financial crisis. The Romans didn't have a fiat currency that a central bank could create out of thin air, so they did the next best thing which was to replace their mostly-silver coinage with new base-metal coinage that had been washed in silver. That is, they debased/devalued their money, replacing coinage with an intrinsic value of silver with coinage with little to no intrinsic value.

They got away with this debasement/ devaluation for quite a few years, and so naturally they reckoned they could get away with it forever. But alas, debauching the currency is not a permanent solution to insolvency; it is a one-time trick that fools the market and populace for a time but soon enough people catch on and bad money drives out good money (Gresham's law) as people hoarded the old silver coins and tried to trade the worthless new coins for anything but more worthless "money."

In the present, we see this process at work in Venezuela, where the government has debauched the nation's currency, the bolivar, to the point that inflation (i.e. loss of purchasing power) is running around 7,000% annually.

So how long can we get away with creating "money" out of thin air and using it to pump up asset prices? The Roman leaders who in desperation debased the Empire's currency/coinage must have been chortling at the fast one they pulled on the Empire's merchants, markets, farmers and soldiers, and we must forgive their avid willingness to believe that they could get away with it essentially forever.

Alas, fakery isn't actually a solution to fiscal/financial crisis. At this moment in time, our "leadership" is basking in the hubris-soaked confidence that we can get away with it if not forever then for decades to come: we can borrow currency into existence in as many trillions as we desire, and inflation will remain dormant, consumption will remain robust and everyone will accept the debauched currency as having value.

Until they don't. This is typically a sudden and unexpected event, as this chart of the exchange rate of the bolivar to the US dollar shows: the slide from 10 bolivars to the USD to 25 bolivars to one USD was gradual, but the implosion to 200,000 bolivars to the USD was frighteningly rapid.

No doubt the Romans said, "it can't happen here"--but they were wrong.


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Checking In on the Four Intersecting Cycles

If you think this is a robust, resilient, stable system, please check your Ibogaine / Hopium / Delusionol intake.

Correspondent James D. recently asked for an update on the four intersecting cycles I've been writing about for the past 10 years. Here's the chart I prepared back in 2008 of four long-term cycles:

1. Generational (political/social)

2. Price inflation/wage stagnation (economic)

3. Credit/debt expansion/contraction (financial)

4. Relative affordability of energy (resources)

Here are four of the many dozens of essays I've written on these topics over the past decade:

Long Cycles: Cheaper Goods, Costlier Capital, Income Disparity Increases (August 1, 2008)

Beyond the False Dawn: Global Crisis 2020-2022 (February 18, 2011)

A Disintegrative Winter: The Debt and Anti-Status Quo Super-Cycle Has Turned(December 5, 2016)

We're in a Boiling-Point Crisis of Exploitive Elites (June 19, 2017)

The key point that's not communicated in the chart is there are dynamics that interact with each of these cycles. For example, demographics are influencing each of these trends in self-reinforcing ways.

Governments are borrowing more to fund the promises made to seniors decades ago when there were relatively few retirees compared to the working populace. Now that the ratio of those collecting government benefits to workers is 1-to-2 (one retiree for every worker), the system is buckling.

The "solution" is to borrow increasing sums from future taxpayers to fund pay-as-you-go healthcare and pension programs for retirees.

Technology is another dynamic that is actively influencing all these cycles in self-reinforcing ways. As technology is substituted for human labor, wages stagnate and the size of the populace paying taxes dwindles accordingly. The "solution" is once again to borrow more to substitute for declining purchasing power.

The dynamics driving wealth/income inequality and the rise of politically/financially dominant elites are also powering these cycles. As Peter Turchin has explained--a topic covered in my essay When Did Our Elites Become Self-Serving Parasites? (October 4, 2016)-- social disunity / discord rises when the number of people promised a spot in the elite far exceeds the actual number of slots available.

In summary, the four cycles are intact and poised to intersect in a very messy fashion within the next decade. various centralized efforts have been made to paper over the secular stagnation, political polarization, brewing generational wars, resistance to globalism, rising cost of capital, decay of opportunity, soaring debts, rising dominance of speculation / malinvestment /mis-allocation of capital, diminishing returns on centralization, the marriage of Orwell, Huxley and Kafka in officially sanctioned propaganda, increasingly dysfunctional and self-serving institutions and the rising costs of energy, but every one of these makeshift efforts further erodes the resilience of the overall system and increases systemic fragility and vulnerability to self-reinforcing failures of key subsystems.

Here are a few charts that illustrate the trends / cycles:

Total systemic debt: note that the tiny wobble in credit expansion in 2008 nearly collapsed the entire global financial system.

Here's political polarization: notice any common ground?

The elites that are safely protected by the moat of the status quo are doing just fine while the disgruntled debt-serfs who were promised security and rising wages/wealth are massing beyond the moat.

Meanwhile, asset bubbles and soaring debt are the status quo's go-to fix for every problem:

If you think this is a robust, resilient, stable system, please check your Ibogaine / Hopium / Delusionol intake.


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There is No "Free Trade"--There Is Only the Darwinian Game of Trade

Rising income and wealth inequality is causally linked to globalization and the expansion of Darwinian trade and capital flows.

Stripped of lofty-sounding abstractions such as comparative advantage, trade boils down to four Darwinian goals:

1. Find foreign markets to absorb excess production, i.e. where excess production can be dumped.

2. Extract foreign resources at low prices.

3. Deny geopolitical rivals access to these resources.

4. Open foreign markets to domestic capital and credit so domestic capital can buy up all the productive assets and resources, a dynamic I explained last week in Forget "Free Trade"--It's All About Capital Flows.

All the blather about "free trade" is window dressing and propaganda. Nobody believes in risking completely free trade; to do so would be to open the doors to foreign domination of key resources, assets and markets.

Trade is all about securing advantages in a Darwinian struggle to achieve or maintain dominance. As I pointed out back in 2005, the savings accrued by consumers due to opening trade with China were estimated at $100 billion over 27 years (1978 to 2005), while corporate profits expanded by trillions of dollars.

China Trade Surplus: Gusher Profits for U.S. Corporations (August 13, 2005)

In other words, consumers got a nickel of savings while corporations banked a dollar of pure profit as sticker prices barely budged while input costs plummeted. Corporations pocketed the difference, not consumers.

As longtime correspondent Chad D. noted in response to my essay on capital flows, restricting trade may be one of the few ways smaller nations have to avoid their resources and assets being swallowed up by mobile capital flowing out of nations with virtually unlimited credit (the US, the EU, China and Japan).

Protecting fragile domestic industries with tariffs has a long history, including in the US, but the real action isn't in tariffs: it's in the bureaucratic tools to limit trade and the soft and hard power plays that secure cheap resources while denying access to those resources to geopolitical rivals.

The bureaucratic means of restricting imports have been raised to an art in Japan and other export-dependent nations: there may not be any visible tariffs, just bureaucratic sinkholes that tie up imports in red tape.

Then there's currency manipulation, for example, China's peg to the US dollar.What's the "free market" price of Chinese goods in the US? Nobody knows because the peg protects China from its own currency being too strong or too weak to benefit its export-dependent economy.

Those bleating about "free trade" are simply pushing a Darwinian strategy that benefits them above everyone else. US corporate profits have quadrupled since China entered the WTO; is this mere coincidence? No: global corporations arbitraged labor, credit, taxes, environmental/regulatory and currency inputs to dramatically lower their costs (and the quality of the goods they sold credit-dependent consumers) and thus boost profits four-fold in a mere 15 years while tossing the hapless consumers a few nickels of "lower prices always" (and lower quality always, too).

The Neoliberal Agenda trumpets "free trade" because "free trade" is a cover for "free capital flows." Once capital is free to flow from central-bank fueled global corporations, no domestic bidder can outbid foreign mobile capital, as those closest to the central bank credit spigots can borrow essentially unlimited sums at near-zero rates--an unmatched advantage when it comes to snapping up resources and assets.

If we ask cui bono, to whose benefit?, we find the consumer has received shoddy goods and paltry discounts from "free trade," while corporations, banks and financiers have benefited enormously.

Rising income and wealth inequality is causally linked to globalization and the expansion of Darwinian trade and capital flows: the winners are few and the losers are many. Tariffs will not solve the larger problems of reduced employment, stagnant wages and rising income inequality. To make a dent in those issues, we'll need to tackle central bank and central-state policies that have pushed financial speculation to supremacy over the productive economy.

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Read the first section for free in PDF format.


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Forget "Free Trade"--It's All About Capital Flows

In a world dominated by mobile capital, mobile capital is the comparative advantage.

Defenders and critics of "free trade" and globalization tend to present the issue as either/or: it's inherently good or bad. In the real world, it's not that simple. The confusion starts with defining free trade (and by extension, globalization).

In the classical definition of free trade espoused by 18th century British economist David Ricardo, trade is generally thought of as goods being shipped from one nation to another to take advantage of what Ricardo termed comparative advantage: nations would benefit by exporting whatever they produced efficiently and importing what they did not produce efficiently. While Ricardo’s concept of free trade is intuitively appealing because it is win-win for importer and exporter, it doesn’t describe the consequences of the mobility of capital. Capital--cash, credit, tools and the intangible capital of expertise--moves freely around the globe seeking the highest possible return, pursuing the prime directive of capital: expand or die.

Capital that fails to expand will stagnate or shrink. If the contraction continues unchecked, the capital eventually vanishes.

The mobility of capital radically alters the simplistic 18th century view of free trade. In today's world, trade can not be coherently measured as goods moving between nations, because capital from the importing nation owns the productive assets in the exporting nation. If Apple owns a factory (or joint venture) in China and collects virtually all the profits from the iGadgets produced there, this reality cannot be captured by the models of simple trade described by Ricardo.

In today's globalized version of "free trade," mobile capital can arbitrage labor, currencies, interest rates, regulatory burdens and political favors by shifting between nations and assets. Trying to account for trade in the 18th century manner of goods shipped between nations is nonsensical when components come from a number of nations and profits flow not to the nation of origin but to the owners of capital.

This was recently described in a Foreign Affairs article, (Mis)leading Indicators:

If trade numbers more accurately accounted for how products are made, it is possible that the United States would not have any trade deficit at all with China.The problem, in short, is that trade figures are currently calculated based on the assumption that each product has a single country of origin and that the declared value of that product goes to that country.

Thus, every time an iPhone or an iPad rolls off the factory floors of Foxconn (Apple's main contractor in China) and travels to the port of Long Beach, California, it is counted as an import from China, since that is where it undergoes its final "substantial transformation," which is the criterion the WTO uses to determine which goods to assign to which countries.

Every iPhone that Apple sells in the United States adds roughly $200 to the U.S.-Chinese trade deficit, according to the calculations of three economists who looked at the issue in 2010. That means that by 2013, Apple's U.S. iPhone sales alone were adding $6-$8 billion to the trade deficit with China every year, if not more.

A more reasonable standard, of course, would recognize that iPhones and iPads do not have a single country of origin. More than a dozen companies from at least five countries supply parts for them. Infineon Technologies, in Germany, makes the wireless chip; Toshiba, in Japan, manufactures the touchscreen; and Broadcom, in the United States, makes the Bluetooth chips that let the devices connect to wireless headsets or keyboards.

Analysts differ over how much of the final price of an iPhone or an iPad should be assigned to what country, but no one disputes that the largest slice should go not to China but to the United States. That intellectual property, along with the marketing, is the largest source of the iPhone's value.

Taking these facts into account would leave China, the supposed country of origin, with a paltry piece of the pie. Analysts estimate that as little as $10 of the value of every iPhone or iPad actually ends up in the Chinese economy, in the form of income paid directly to Foxconn or other contractors.

In a world dominated by mobile capital, mobile capital is the comparative advantage. Mobile capital can borrow billions of dollars (or equivalent) in one nation at low rates of interest and then use that money to outbid domestic capital for assets in another nation with few sources of credit.

Mobile capital can overwhelm the local political system, buying favors and cutting deals, all with cash borrowed at near-zero interest rates. Mobile capital can buy up and exploit resources and cheap labor until the resource is depleted or competition cuts profit margins. At that point, mobile capital closes the factories, fires the employees and moves on.

Where is the "free trade" in a world in which the comparative advantage is held by mobile capital? And what gives mobile capital its essentially unlimited leverage? Central banks issuing trillions of dollars in nearly-free money to banks and other financial institutions that funnel the free cash to corporations and financiers, who can then roam the world snapping up assets and arbitraging global imbalances with nearly-free money.

There's nothing remotely "free" about trade based not on Ricardo's simple concept of comparative advantage but on capital flows unleashed by central bank liquidity.

The gains reaped by mobile capital flow to those who control mobile capital: global corporations, financiers and banks. No wonder labor's share of the economy is stagnating across the globe while corporate profits reach unprecedented heights.

My new book Money and Work Unchained is $9.95 for the Kindle ebook and $20 for the print edition.

Read the first section for free in PDF format.


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