Wednesday, April 08, 2020

The World Has Changed More Than We Know

Put another way: eras end.
While the mainstream media understandably focuses on the here and now of the pandemic, some commentators are looking at the long-term consequences. Here is a small sampling:
While each of these essays offers a different perspective, let's focus on the last two: Ugo Bardi's essay on Hyperspecialization and the technological responses described in the MIT Technology Review essay.
As readers of the blog know, I've been differentiating between first-order and second-order effects: First order effects: every action has a consequence. Second order effects: every consequence has its own consequences.
We can think of these as direct (first order) and indirect (second order) effects.
The MIT Technology Review article focuses on direct effects, i.e. how to deploy technology to identify people with the virus, track their recent movements and who they might have exposed to the disease, tech-driven regulations that would limit the movements of infected (such as we see in China now), etc.
Bardi's first-hand account from Northern Italy touches on an indirect effect: the profoundly negative impact of a hyperspecialized economy that is suddenly disrupted. In this case, the specialization is tourism, but there are other examples, many driven by hyper-globalization.
Specialization has long been central to capitalism's relentless drive to increase efficiencies and thus profits, and globalization has pushed specialization to extremes globally dominant corporations can arbitrage currencies, wages, political corruption and lax environmental standards in ways that localized competitors cannot.
The net result is increasing reliance on one globally competitive industry for jobs, tax revenues, etc.--in essence, the modern-day equivalent of a monoculture plantation or single-industry factory town.
When the plantation or factory closes, there's no economically diverse ecosystem to pick up the slack.
If tourism doesn't rebound very quickly, all the local economies that became hyperspecialized to serve global tourism (enabled by low-cost airfares and credit cards) will be gutted.
The second order effect of the pandemic will be the wrenching transformation of these local economies into a much broader economic ecosystem that will have to be moated from globalized competition. For example, grapes flown in from locales 3,000 miles away will be banned or heavily taxed so local grapes can compete.
A great many inefficiencies have been sustained by hidebound, self-serving institutions and cartels which have moated their industries from competition. These include higher education, healthcare, the defense sector and the recent crop of Big Tech monopolies (Facebook, Google, et al.).
A number of people have already noted that remote online classes have become the norm out of necessity, and this has revealed the incredible inefficiency of maintaining enormously costly campuses and bureaucracies for coursework that can be completed anywhere.
I wrote an entire book outlining how a superior education could be delivered for 10% of the current cost (roughly $120,000 for a four-year state college diploma). (The Nearly Free University and the Emerging Economy)
While the large research universities need students to physically be present to operate the machinery of experiments and research, the vast majority of undergraduate coursework does not require physical presence. In many lab settings, whatever physical presence is required could be drastically compressed in time or shifted to remote control of lab tools.
The same transition will occur in Corporate America as managers accept that there are few absolutely essential reasons to demand workers squander huge amounts of time and money transporting themselves to centralized workplaces.
The trend to remote work is not new, but it is now being accelerated past the point that hidebound managers will be able to demand a return to the inefficiencies of the former status quo.
This shift to decentralized, networked remote work will have a devastating impact on the commercial office sector. A very large percentage of the already-excessive supply of office space will be surplus, and it won't be cheap or easy to transform offices into residential living spaces.
(An entire floor of office space might have one set of bathrooms and a single utility kitchen; every living unit will of course require its own bathroom and kitchen.)
The financial fragilities and vulnerabilities that are now becoming apparent are not limited to hyperspecialization and globalized monoculture economies. The cost structure of most small enterprises was burdensome even in the best of times: rent, utilities, fees, taxes, regulatory compliance, insurance, labor overhead and so on are now crushingly costly, and once revenues decline by even modest amounts, the small businesses are no longer viable.
Costs such as rent, healthcare insurance, local fees and taxes are notoriously "sticky," meaning the default setting is to ratchet ever higher. These costs don't drop unless there is a full-blown crisis such as mass bankruptcies of commercial landlords and cities.
Thus we can anticipate a culling of all the marginal, struggling small businesses in the pandemic recession, and a weak or non-existent emergence of new businesses in the future to replace those lost, as revenues will remain weak while costs will only increase.
Few observers are pondering the psychological changes that the pandemic have unleashed. To take an obvious example, consumers will no longer be able to maintain confidence in their incomes or the market value of their labor and assets. This uncertainty will naturally encourage savings rather than frivolous spending and debt, and this change will depress consumption.
Status quo policies such as lowering interest rates will not change this psychological shift in the tides.
Lowering interest rates to zero won't mean credit cards, auto loans and mortgages will be interest free, and lower rates won't change the reality that incomes and asset prices may decline or remain uncertain for years to come.
The world has changed, and the only things we know with certainty are 1) a return to the pre-pandemic status quo is not possible and 2) this is a positive development.
Put another way: eras end. No matter how glorious or inglorious they may have been, eras end and a new era begins. Welcome to 2020.
This essay was drawn from Musings Report 12. The Musings Reports are emailed weekly to subscribers and patrons. To subscribe or become a patron, please visit how to subscribe/become a patron.
Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
Thank you, Brian N. ($50), for your superbly generous contribution to this site -- I am greatly honored by your support and readership.
 
Thank you, Suzanne S. ($50), for your extraordinarily generous contribution to this site -- I am greatly honored by your steadfast support and readership.

Read more...

Monday, April 06, 2020

The Lockdown Wouldn't Be So Devastating If Our Economy Wasn't So Rigged, Brittle and Exploitive

An economy of rackets designed to enrich the few at the expense of the many is brittle because self-serving rackets snuff out competition, accountability and transparency.
What's remarkable about the lockdown isn't the hue and cry about the economic damage--it's the absence of any critical curiosity as to how our economy became so fragile that only the wealthiest contingent can survive a few weeks on savings or rainy-day funds.
A healthy, resilient economy would be able to survive a few weeks of lockdown without a multi-trillion dollar bailout of every racket in the land. A society that wasn't threadbare financially and socially would be able to function and accept individual sacrifices for the common good.
Rather than being organized to serve the common good, our economy and social order is little more than overlapping rackets: rigged "markets" operated by quasi-monopolies to enrich the few at the expense of the many; brittle bureaucracies bound by thousands of pages of mindless "compliance" and exploitive neofeudal structures in which debt-serfs are paid just enough to service their debt but not enough to afford skyrocketing costs for housing, healthcare, higher education, childcare, junk fees and taxes.
While everyone is busy screaming about the damage done by the lockdown, nobody's asking why costs are so high that few can survive a few weeks on their own means. Nobody dares look at the soaring costs imposed by cartels and monopolies (including government and government-funded rackets such as healthcare and higher education) because it might shine a light on the money-trough they're feeding from. (Crush every racket but mine...)
If costs weren't so crushing, more households and enterprises might have savings. Empires don't collapse because everyone ran out of money; they collapse when the costs exceed earnings.
Put another way, the skyrocketing costs of self-serving sclerotic complexity, a.k.a. convoluted inefficiencies imposed by institutions which lack any accountability, far exceed the gains in productivity and resource mining needed to pay for the productivity-draining complexity.
As for innovation--please don't make us laugh. All the rackets work overtime to avoid being disrupted by the forces of productivity and transparency. Just look at higher education: all the technology was available a decade ago to radically reduce the costs of effective education, (as I outlined in my 2012 book The Nearly Free University), but the higher education cartel fought to maintain its monopoly on credentials, squandering hundreds of billions of dollars on layers of administrators and self-glorifying buildings.
I've been explaining How Healthcare Is Dooming the U.S. Economy for years. Now it's becoming too obvious to deny. Sickcare Will Bankrupt the Nation (March 21, 2011).
Just as Wall Street destroyed the private-sector mortgage market by financializing it, healthcare has been destroyed by Corporate America's financialization of what was once for the common good, turning it into a hollowed-out profit machine for the few at the expense of the luckless serfs who have no choice but to serve the Financial Nobility. (You can pick any health insurer you want--but there's only two, heh, and their prices are the same: Kafkaesque in their opaque complexity, and high enough to bankrupt all but the wealthiest.)
An economy of rackets designed to enrich the few at the expense of the many is brittle because self-serving rackets snuff out competition, accountability and transparency. As I noted in The Convergence of Marx, Orwell and Kafka (July 25, 2012), Marx understood that predatory, parasitic Monopoly Capitalism melts any social norms that restrict its dominance into air, while Kafka understood that the the more powerful and entrenched the bureaucracy, the greater the collateral damage rained on the innocent, and the more extreme the perversion of justice.
Orwell understood that the State's ontological imperative is expansion, to the point where it controls every level of governance, markets and society. Once the State escapes the control of the citizenry, it is free to exploit them in a parasitic predation that is the mirror-image of Monopoly Capital. For what is the State but a monopoly of force, coercion, data manipulation and the neofeudal enforcement of crony-capitalist private monopolies on powerless serfs?
Neofeudal exploitation has hollowed out the economy, leaving a fragile, brittle shell of rackets, self-serving cartels and institutions that have squandered the public's trust in their greedy rush to accumulate as much private wealth as they can before the whole rotten corrupt structure collapses under its own weight.
Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
Thank you, Michael M. ($50), for your superbly generous ontribution to this site -- I am greatly honored by your support and readership.
 
Thank you, E.G.S. ($10/month), for your extraordinarily generous subscription to this site -- I am greatly honored by your support and readership.

Read more...

Sunday, April 05, 2020

If Lockdown Is a Needless Over-Reaction, Then Why Did China Lockdown Half its Economy?

Recall that the initial deaths and related costs are only the first-order effects; policy makers have to consider the second-order effects.
Everyone who reckons that the lockdown is needless and more destructive than the pandemic that triggered it has to answer this question: then why did China lockdown half its economy?
The reasoning of those who reckon the lockdown is needless can be summarized as follows:
1. The lockdown is based on poorly executed extrapolations of faulty data; the death rate is much lower than expected, and most cases are mild or asymptomatic.
2. Therefore, the lockdown is doing far more economic damage than simply letting the pandemic run its course.
3. Alternatively, the pandemic and the lockdown are planned operations of elites, the goal being to further consolidate New World Order control in the hands of a few.
All of these rationales stumble on the question of why China locked down half its economy. It is a real stretch to claim that the Deep State et al. control China, therefore it's unlikely China's decision to lock down half its economy as the pandemic ravaged Wuhan was a U.S. Deep State operation.
As for the extrapolation of faulty data: what did the Chinese leadership learn that we don't yet know? How can we assume China's leadership over-reacted to faulty data in shutting down half their economy? More likely, they had the best available data and balanced the consequences of letting the pandemic run its course or accepting the immense economic damage of locking down most of their productive economy.
Why would China's leadership have accepted the staggering economic losses of lockdown if the situation wasn't catastrophically dire?
What other factors might have influenced China's decision to lock down its economy that we don't know? The true origin of the virus, perhaps? The true death rate in Wuhan? The actual number of dead piling up like cordwood in Wuhan?
If China's lockdown was a decision reached by its leadership based on information known only to them, then it follows that the information effectively forced their decision to absorb the enormous economic damage of a full lockdown as the lesser of two evils.
It is quite reasonable to assume China's leadership had the most accurate data available, and that they deliberated very carefully before choosing a response with such grave economic consequences.
Few commentators have speculated what the intelligence agencies of South Korea, Japan, Singapore and the Western nations might have discovered and shared with each other. China is not exactly a closed country, and there are ample intelligence-gathering opportunities via space-based assets, data collection and meta-analysis of that data, and so on.
It seems unlikely to the point of absurdity that all these intelligence agencies weren't collating data from every available source and making their own assessments of the risks of letting the virus run its course.
If the lockdown is needless and more damaging than the pandemic in the West, then that is also true in China. Those claiming the lockdown is a planned operation have to explain why China would follow the directives of a Western cabal: how would kowtowing to a Western run operation benefit China, given that the operation required accepting enormous economic damage?
Those claiming the economic damage is much worse than the relatively light casualties of letting the pandemic run its course have to explain why China's leadership chose lockdown. Given the extraordinarily high costs of choosing lockdown as the response, they must have had extremely sound reasons for choosing such a painful policy.
As many have surmised based on evidence, it seems beyond reasonable doubt that the actual death toll in Wuhan was somewhere between 10 and 100 times the official counts of around 2,500. Would China's leadership shut down most of its economy for a run-of-the-mill flu that caused a mere 2,500 deaths in a nation of 1.3 billion people? It seems unlikely.
As many commentators have pointed out, China's leadership is drawn from the ranks of technocrats, not lawyers. It's likely technocrats can grasp the consequences of data presented to them and make rational extrapolations from that data.
If Covid-19 has a very low death rate and therefore wouldn't disrupt the economy any more than a run-of-the-mill flu, then why did China's leadership pursue such an extremely costly policy as lockdown? Those claiming lockdown is an over-reaction are also claiming that China made a terrible policy mistake in choosing lockdown.
But since the data that decision was based on is not known, then we cannot know if lockdown was the best available option or perhaps the only available option.
It's likely that the intelligence agencies of South Korea, Japan and the Western nations probably have collected data that's confidential. It's also likely that they've shared data and that they've informed their political leaderships of the consequences of various policy choices.
As a thought experiment, let's say 250,000 people died in Wuhan, not 2,500. Is lockdown still needless? Based on what assumptions about the economic damage inflicted by deaths on that scale?
Recall that the initial deaths and related costs are only the first-order effects; policy makers have to consider the second-order effects--consequences have their own consequences. For more on this, please review my COVID-19 Pandemic Posts dating back to January 24, 2020.
Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
Thank you, Gary R. ($50), for your splendidly generous ontribution to this site -- I am greatly honored by your steadfast support and readership.
 
Thank you, Marvin M. ($50), for your extraordinarily generous contribution to this site -- I am greatly honored by your steadfast support and readership.

Read more...

Thursday, April 02, 2020

When Bulls Are Over-Anxious to Catch the Rocketship Higher, This Isn't the Bottom

Everyone with any position in today's market will be able to say they lived through a real Bear Market.
In the echo chamber of a Bull Market, there's always a reason to get bullish: the consumer is spending, housing is strong, the Fed has our back, multiples are expanding, earnings are higher, stock buybacks will push valuations up, and so on, in an essentially endless parade of self-referential reasons to buy, buy, buy and ride the rocketship higher.
The classic Bull Market reason to get extremely bullish is, yes, bearish sentiment: sentiment is terrible, and bearish sentiment is the surefire marker of a stock market bottom. The more bearish the sentiment, the more reasons to get bullish and start buying with abandon: max out the margin account, hock the farm, empty the kids' college savings, whatever you need to do but dang it, dump every cent you have into stocks when sentiment gets bearish.
Since only those of us with gray hair have actually lived through a real Bear Market, younger participants cannot imagine sentiment is bearish because conditions are bearish. The last real Bear Market was in the 1970s and early 1980s, about years ago. By "real" I mean deep, enduring and pervasive.
Each of the recessions / Bear Markets since 1982 have been relatively brief and in the downturns of 2000-02 and 2008-09, the result of extreme excesses in specific financial sectors of the economy: the tech sector in the dot-com bubble-burst and subprime mortgages in the housing bubble burst.
If you didn't work in the tech sector or speculate in tech stocks, the 2000-02 downturn wasn't that wrenching or pervasive. The 2008-09 Global Financial Meltdown affected more people because it deflated the core asset of household wealth, the home, and toppled the dominoes of banking / Wall Street's institutionalized fraud and extreme excesses of debt and leverage.
A real Bear Market is different. It's systemic, i.e. it can't be reversed with "the Fed has our back" tricks; it's pervasive, i.e. it affects every sector of the economy, and because it's systemic, it's enduring--it doesn't end in a quarter or two or even a year or two.
Real Bear Markets end not when sentiment gets extremely bearish but when all the mal-investments, inefficiencies, excesses and institutionalized skims/scams are squeezed out of the system. To the degree that the status quo works tirelessly to maintain the inefficiencies, excesses and institutionalized skims/scams because they enrich insiders and elites, then the Bear Market never ends.
The Bulls have been trained by the Federal Reserve and "buy the dip" to respond with Pavlovian enthusiasm to signals such as bearish sentiment and a whole tramp steamer of other technical analysis signals: price is stretched below the 200-day moving average, this is the signal to buy, the Fed is printing trillions, you can't lose if you buy now, etc.
It never occurs to over-anxious-to-buy Bulls that all their analogs and signal are misleading because this situation is fundamentally different. Even 1929 and the starts of the Great Depression isn't an accurate analog, as the Roaring Twenties were just another bubble of excesses in debt, leverage and risk-taking that eventually popped.
The Great Depression was exacerbated by the collapse of small banks, which wiped out savings, and the Dust Bowl (caused in part by the plowing of huge swaths of marginal land to increase production, all of which was funded by debt that could never be paid back).
The reason why sentiment is bearish is because the situation--the popping of a vast, 20-year expansion of excessive debt, leverage, state/monopoly abuses and risk in an unprecedented Everything Bubble--is definitively bearish. Sentiment is bearish because reality is bearish, and taking that reality as a bullish signal to buy is delusional.
No, no, no, cry the Bulls: the market discounts reality, and therefore it's time to buy, buy, buy because we're already turning the corner. And how do we know this? Because sentiment is so bearish! This self-referential dependence on sentiment readings and signals rather than on reality is the key dynamic in delusional bullishness.
An abundance of Bulls over-anxious to "buy the dip" to catch the rocketship higher is not evidence of a bottom, it's evidence of a top. At the bottoms of real Bear Markets, few are anxious to buy the dip because sentiment is bearish. All those who were so anxious to buy the dip based on bearish sentiment have been wiped out and are now cubby-holed somewhere, reliving past glories when they made fortunes buying the dip because the Fed has our back, sentiment was bearish and the 5-day EMA blah, blah, blah.
Case in point, every institution's favorite stock of the past decade: Apple. Interestingly, Apple's operating earnings have been flat for years--never mind what the global lockdown will do to aspirational longings for $1,000 smart phones.
Yet plateauing operating earnings meant nothing to Apple bulls, who doubled the stock's value because.... another tramp steamer full of bullish hyperbole.
Everyone with any position in today's market will be able to say they lived through a real Bear Market. The trick is to survive the bullish echo chamber and have some capital left to deploy when all the bulls so anxious to buy the dip will have vanished.
Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
Thank you, Klaus H. ($50), for your splendidly generous ontribution to this site -- I am greatly honored by your support and readership.
 
Thank you, Carroll H. ($50), for your extraordinarily generous contribution to this site -- I am greatly honored by your support and readership.

Read more...

Terms of Service

All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.

Our Privacy Policy:

Correspondents' email is strictly confidential. This site does not collect digital data from visitors or distribute cookies. Advertisements served by third-party advertising networks such as Adsense and Investing Channel may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative)
If you have other privacy concerns relating to advertisements, please contact advertisers directly. Websites and blog links on the site's blog roll are posted at my discretion.

Our Commission Policy:

As an Amazon Associate I earn from qualifying purchases. I also earn a commission on purchases of precious metals via BullionVault. I receive no fees or compensation for any other non-advertising links or content posted
on my site.

  © Blogger templates Newspaper III by Ourblogtemplates.com 2008

Back to TOP