On the Dehumanization of Immigrants

Britain is in the grip of a worrying trend.

Our own Prime Minister compared migrants in Calais to insects when he called them a “swarm”.

Meanwhile, internet comment sections relating to the refugees are filled with hatred and venom. Asylum seekers are referred to as “invaders”, and the trolls encourage the British authorities to shoot them, to machine gun them, and hang them on meat hooks.

This dehumanization of immigrants frightens me. Not simply because dehumanization of large groups of people often foreshadows violence. It frightens me because this is just the tip of the iceberg. There is a lot more of this hateful stuff bubbling beneath the surface of our society. Anti-immigrant sentiment has been swelling in Britain for the last two decades, gently encouraged by tabloid journalists and other intellectually lazy people looking for an easy scapegoat for the economic and social problems of the age. As Richard Seymour noted last year in The Guardian, “77% of people in the UK want immigration reduced, and 56% want it ‘reduced a lot‘”.

Britain has been subject to soaring inflows of immigration in the past twenty years. This has meant large-scale changes to the fabric of society, some of which people may like, but many of which they may not. And there is an additional burden on public services. IPSOS-Mori, for instance, found that there is a strong correlation across Europe between anti-immigrant sentiment and people’s perception of strain on public services. In that sense, anti-immigration sentiment in itself may not be entirely irrational.

Still, it does ignore the fact that there may be cleaner solutions to Britain’s problems than simplistically blaming immigration, and trying to clamp down on human movement. None of the strains on public services, health care and infrastructure would exist if only the government would properly scale investment in infrastructure and public services to demand. Immigrants pay more taxes than they draw out in services, so immigration has hardly made such investment unaffordable. Not to mention the billions of pounds in cheap lending that the private market made available to the government at negative real rates during the last parliament — money that could have been invested in infrastructure and public services — but which the government passed on.

As America — with its millions of undocumented migrants — is discovering, trying to stem flows of humans is very hard. People are slippy, and they go where they wish. Walls and fences are impediments, but they are not absolutes. People can be incredibly singleminded. The stories of the migrants in Calais who have escaped warzones, famines and despots in Africa and the middle east to slip into Europe, and across the Channel are a testament to the resilience of the human will. That resilience is why the anti-immigration internet trolls are setting their sights upon machine guns and meathooks and other such savagery. Walls and barbed wire and officers with searchlights and sniffer dogs isn’t working.

In the bigger picture, as anti-immigrant sentiment has swelled, there may be an overflow into the demonization and ostracization of ethnic minorities, even those who are here legally. Even those who were born here. Even those such as myself who were born here and are the children of white, English mothers. Even, perhaps, to white Britons who favour multiculturalism and immigration. The data shows that Britain is getting more racist, with 1 in 3 admitting to racial prejudice, up from 25 percent in 2001.

In the long run, I have no doubt that the economic benefits of migration — it’s estimated that completely open borders would roughly double global GDP via more efficient matching of workers and firms — will win out and that humanity will become increasingly transnational, and postnational, and ultimately interplanetary.

But for now, with this tidal wave of anti-immigrant and increasingly racist sentiment, I feel frightened at what my own country — a country that I have lived in my entire life — might be becoming.

Don’t Mention The War

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It is wrong to suggest that people should be held accountable for the actions of their ancestors. Blaming each other for the deeds of our ancestors is the cause of vast tracts of human suffering and conflict. Tribes and nations have fought each others for centuries — and, in some places, continue to do so — based on the actions of that tribe or nation’s forefathers. This is irrational. We cannot change the actions of our ancestors. That is perhaps one reason why John Cleese’s portrayal of an idiot hotelier beating down his German guests with a spiel of cringe-inducing World War 2 and Nazi clichés is so absurdly funny.

That being said, we do have a responsibility to learn from and not repeat the mistakes of our ancestors. Failure to learn from the mistakes of one’s ancestors is the point at which the actions of past generations become relevant in a discussion of the present.

There is a line of reasoning that suggests that the first person to compare their opponent to Adolf Hitler or Nazism in an argument on the internet just lost the argument. I tend to see this view as generally correct. The acts and beliefs of the Nazis were unusually horrific, and comparing your opponent or the person or group you are criticizing to the Nazis is often an act of rhetorical desperation, and often a symptom of a lack of imagination. However, what is generally correct is often locally wrong. Sometimes, a Nazi or World War 2 analogy really cuts to the core of a problem.

This, I believe, is one of those times. Having the German government and its allies trying to dictate to the Greek people the terms of Greece’s euro membership, the standards by which they should run their government, and economy, and civil service, and welfare state must feel painfully close to a new German occupation. Greece is a country, we should not forget, that suffered greatly under a German military occupation less than a lifetime ago. It is now experiencing a brutal and prolonged economic depression at the hands of a new generation of austerity obsessed Germans.

Greece has been a willing victim for German austerity. The Greeks have taken Merkel’s medicine. Greece has done a huge amount of spending cuts, so many in fact that by 2012 they had a primary surplus.

Unfortunately, Merkel’s and the Troika’s medicine was a load of horse shit. Instead of recovering, the Greek economy just got even more depressed. Unemployment has been at Great Depression levels ever since Merkel and the Troika began dictating how the Greeks ran their economy. Greek real GDP continues to trend downward. Indeed, Europe itself remains in an epic depression. The austerians keep making it worse.

Now, nobody is saying that the Greeks are blameless. Obviously, they took on a load of relatively unproductive debt they couldn’t afford, and they colluded with financiers to falsify economic data to get into the eurozone. But the country has already suffered massively as a result of those decisions (which of course were not Greece’s alone — the creditors clearly did not do their homework).

The goal now should be getting Greece — and the wider continent and world, which would also suffer greatly from a default cascade or economic slump as a result of the Greek crisis — out of the mess they are in. What Greece really needs is debt forgiveness. Even the IMF recognizes that Greece’s debts are unrepayable. But that is not Merkel and Schaüble’s goal. Instead of recognizing that their policies have failed, and that a change in course is necessary, their goal for Greece is complete capitulation to the stormtroopers. Their goal for Greece is punishment, in order to set an example to other euro members who might get into fiscal trouble.

The great irony — and the thing that makes the Nazi references really begin to stick — is that earlier German governments received massive debt relief. Indeed, after Germany started the Second World War — which killed 50 million people, including 6 million who died in the holocaust — it had its war debt written off, allowing the West German economy to begin to recover and rebuild. Indeed, Germany was the biggest defaulter of the 20th century. Yet now the very descendants of those Germans refuse the same treatment for today’s Greeks, whose troubles pale against the crimes of Germany’s Nazi past.

This is sickening. Not only are they shredding to pieces the European unity and the European Union that has kept war-torn Europe at piece with itself for the past seventy years, they are doing it in the name of an ignorant program of austerity that does nothing other than punish and degrade. And they are doing it in complete ignorance of how their own ancestors benefited from others’ forgiveness. Do they not understand the value of European unity? Of economic growth? Of peace or prosperity?

In choosing the path of sadomasochism, punishment and German supremacism, Schaüble and Merkel and their allies are risking turning what is already a terrible depression for the continent — and a ravaging for Greece — into something deeper, gloomier and more painful.

Deflation is Here — And The Government is Poised to Make it Worse

Consumer prices may not be deflating as quickly as Labour’s electoral chances did earlier this month, but — even after £300 billion of quantitative easing — price deflation for the first time in more than half a century is finally here. The Bank of England continues to throw everything at keeping prices rising at close to their 2 percent target. Yet it’s not working. And this is not just about cheaper oil. Core inflation has also been dropping like a rock.

I argued that “deflation was looming” for Britain last year, and feel a little vindicated that it has come to pass. But I don’t feel at all gratified about the thing itself.

In a highly indebted economy such as Britain’s — where private debt dwarfs government debt — deflation is a dangerous thing. Past debts — and the interest rates paid on those debts — are nominally rigid. Unless specifically stipulated as being inflation-adjusted (like TIPS) they don’t scale to price changes in the broader economy.

Under positive rates of inflation, inflation assists in keeping debt under control, by shrinking the present amount of goods and services and labour that equate to a nominal amount of currency. Under deflation, the opposite process occurs, and the nominal value of currency — as well as that of historical debt — rises, making the debt harder to service and pay down, especially with the ongoing accumulation of interest.

On the face of it, that is good news for net savers and bad news for net debtors. But raising the difficulty of deleveraging and debt service can often be bad for both, because debtors who cannot pay default, bankrupting themselves and injuring their creditors. It can also depress the economy, as individuals and firms are forced to stop spending and investing and start devoting more and more of their income to the rising real cost of deleveraging.

With growth last quarter dropping to 0.3 percent from 0.6 percent, this process might very well already be under way. This raises the prospect of the nightmarish debt-deflationary spiral above.

The last thing that the economy needs under that circumstance is more money being sucked out of it through slashing public spending. Sucking money out of the economy will make deleveraging even more difficult for debtors, and slow growth further as individuals and firms adjust their spending plans to lower levels of national and individual income. Yet that is the manifesto that the country elected to power in the election earlier this month. And although Osborne and Cameron can get out of it — via offsetting cuts in spending with tax cuts — if they go through with their election promises, the prospect of recession, continued deflation and rising levels of unemployment loom clearly.

What the economy really needed in 2010 was a deep and long commitment to public stimulus to provide the economic growth needed to let the private sector deleverage. Unlike the public sector, which is a sovereign creditor borrowing in its own currency — the private sector is far from a secure debtor. Private borrowers can — unlike the central government — “become the next Greece” and run out of money.

With interest rates in the last parliament having sunk down to new historic lows, such a thing was affordable and achievable. Instead, by trying to do public deleveraging at the same time as the private sector was deleveraging Osborne, Cameron and Clegg chose a much rockier path, one in which private deleveraging and public deleveraging are slow and grinding. With private debt levels still very high, the country remains vulnerable to another deleveraging-driven recession.

Confessions of a 21st Century Lionel Robbins

Marx said that history does not repeat itself.

But sometimes, history does. This may be particularly true in the domain of economics and economic knowledge.

Economics is a complex subject. It is the study of a series of abstractions (markets, firms, governments) built upon abstractions (money) built upon abstractions (value), a great metaphysical muddle stacked up to the sky like a wobbly Jenga tower.

At a simpler level, economics is the study of human behaviour, or as von Mises put it, human action. Business cycles from the boom to the bust are a great cavalcade of individual human action and individual decisions. The sum of individual decisions manifests itself as the market. And the behaviour of the market informs future individual decisions, in a great self-reinforcing spiral of feedback.

The question of what the government should do in a bust is one particular realm where little progress has been made since the Great Depression. Indeed, perhaps future historians will refer to the current economic malaise as Great Depression II, given that in various polities including Britain and the eurozone the depth of the slump in gross domestic product has been greater and longer than that in the 1930s.

Why? Well, the urge to purge is strong. And I say that as a former austerian — someone who has done a good deal of urging for purging.

The logic goes that a crashed market is a sick market. A corrupted market. So let the sickness kill off the weakness. Let bad firms fail. Let the bad investments fuelled by false expectations fail. Let resources be reallocated from the unproductive to the productive. Then — through harsh market discipline — market participants will learn lessons that set the stage for abundant new economic growth. As Paul Krugman notes, Friedrich Hayek called for: “the most speedy and complete adaptation possible of the structure of production to the proportion between the demand for consumers’ goods and the demand for producers’ goods as determined by voluntary saving and spending.”

It’s a simple call: no bailouts, no stimulus spending. In fact, cut government spending to balance the budget. Stop subsidising the unproductive. Let the voluntary market of savers, investors and spenders sort itself out.

The trouble is that it doesn’t really sort itself out. And we have a good deal of empirical evidence to back up that idea. The more austerity, the deeper the slump.

Lionel Robbins — who went on a similar journey away from austerianism, only eighty years earlier — reached this conclusion:

Whatever the genetic factors of the pre-1929 boom, their sequelae, in the sense of inappropriate investments fostered by wrong expectations, were completely swamped by vast deflationary forces sweeping away all those elements of constancy in the situation which otherwise might have provided a framework for an explanation in my terms. The theory was inadequate to the facts. Nor was this approach any more adequate as a guide to policy. Confronted with the freezing deflation of those days, the idea that the prime essential was the writing down of mistaken investments and the easing of capital markets by fostering the disposition to save and reducing the pressure on consumption was completely inappropriate.

To treat what developed subsequently in the way which I then thought valid was as unsuitable as denying blankets and stimulants to a drunk who has fallen into an icy pond, on the ground that his original trouble was overheating.

This is a powerful debunking of David Cameron’s confidence fairy logic. The idea that the answer to an economic malaise is to slash spending, slash welfare and let the market sort itself out is a bit ridiculous. It is very much denying blankets and stimulants to people who have been thrown into an icy pond. The great irony is that the brunt of the cuts are falling not upon the drunk market speculators who caused the financial crisis, but vast swathes of disabled and poor who had nothing to do with it.

In the face of Cameron’s austerity policy, the UK had the slowest recovery since the South Sea bubble in the 18th century. And the UK’s recovery only really began when Cameron paused the austerity. With more austerity now, we risk another recession.

The trouble, I think, is that government austerity looks very superficially plausible. It looks the responsible thing to do.

For an individual or as a firm, austerity in a slump can be a very sensible choice. For an individual or firm, getting into an unsustainable level of debt risks going bankrupt. And while it is not incoherent to suggest that someone in debt trouble take on more debt as a means to dramatically increasing their income — for instance, through entrepreneurship — it is undoubtedly a major gamble.

But for government, it’s very much the other way round. As Keynes noted, government spending is an awful lot of people’s incomes. Even if some businesses are cheered by the “fiscal responsibility” shown by a government willing to slash spending, many other businesses are going to be less cheered as their revenue falls due to the falling incomes of the individuals and firms who rely on government spending for a portion of their income.

That’s not to say that it is impossible that slashing spending in the middle of a recession may under some theoretical circumstances be consistent with a fast-recovering economy. But in the overwhelming majority of cases, it is a very, very major gamble that does not pay off. It hasn’t paid of in the eurozone since 2008, it didn’t pay off during the Brüning years in Germany, and it didn’t pay off for Cameron and Osborne, who were forced to pause austerity in 2013 with the economy flatlining. And in a very major vindication for Keynesian thinking, not only did that precede a recovery but it was also the turning point on the government deficit as a percentage of GDP. Once the slashing stopped, the deficit began to fall fast. So the responsible thing to do was to rack up government debt, allow the government to channel resources back into the economy, and let the economy recover.

This is all very counterintuitive stuff. It is hard for its discoverers to spread, which is why it has to keep being rediscovered again and again and again. I am sure there will be people in the 22nd Century who have to learn this lesson, too.

Tesla & The New Economics Of The Coming Renewable Energy Boom

I don’t need to tell anyone of the importance of Tesla’s expansion into home battery technology. A home battery lets you store solar energy to use when the sun isn’t shining, which is a really, really major thing in terms of power distribution. As I’ve been pointing out for years, this is the crucial missing link between photovoltaic cells being a rapidly, rapidly cheapening technology with a lot of rollout potential, and photovoltaic cells being the major source for the world’s power. As I predicted in The Week in 2013:

The promising trends in technology and cost suggest much more than renewable energy becoming the fastest growing energy source in the next 30 years. They suggest that renewables will grow to be the number one energy source in the United States and the world in the next 30 or 40 years.

I’d say that that was actually an overly conservative projection. I now foresee solar to be number one in the next twenty, if not the next ten years.

It’s nice to live in the knowledge that renewable energy will overcome problems posed by diminishing oil reserves and (at least) mitigate anthropogenic climate change. It’s nice to know that as solar efficiencies continue to increase and solar manufacturing costs continue to fall that the long term trend for energy costs is down.

And you can do a heck of a lot of cool things with cheap, decentralized energy, like heating and lighting your home, manufacturing goods and technology and food and tools, and powering computers and artificial intelligence.

This, in my view, is the furnace to power the next fifty or a hundred years of soaring mid-20th century style economic growth. This is the beginning of an energy-driven economic supercycle — which takes us from the era of handheld computing to the era of building asteroid mining space stations and extraterrestrial colonies and maybe even interstellar spacecraft. It’s the main reason why I switched from bearish to bullish in 2013.

But what I really want to know is how to make money out of this trend. If photovoltaic cells and batteries are the new crude oil, coal, gasoline and natural gas (etc), does that mean Musk’s firms (Tesla, SolarCity, SpaceX, etc) are going to be the next Exxon-Mobil or Shell or Gazprom?

Maybe. But I’d tend to see renewable energy and emerging tech index funds as a slightly smarter bet. The trouble is that we’re at a very early stage in the supercycle.

An imperfect analogy: Xerox made an operating system akin to Windows years before Microsoft and Apple did, but Microsoft and Apple were the ones who reaped the bigger rewards. There are a whole load of factors that could dramatically affect which renewable energy systems are the ones that dominate the market: interface, battery-photovoltaic cell integration, price per unit of energy, price per unit of storage, durability and probably some others. And also a slew of more superficial factors such as marketing. If this is going to be as big as I think it is there will be a lot of competition from outside the renewables sector not least from firms like Google, and Apple and Facebook and Samsung as well as from older energy giants like BP, Shell and Exxon-Mobil.

For now, of course, Musk does seem to be establishing himself as the market leader and trendsetter in much the way Steve Jobs once did. But that could all change. It’s even not just a matter of competing firms. Just as the internet decentralized information distribution, and solar is on the cusp of decentralizing energy production, the whole manufacturing and (I’d argue) product design paradigm is edging closer to being transformed by another set of emergent technologies: 3-D printers and home manufacturing. Maybe as home manufacturing begins to become more prominent, open-source collaborative product and component design will beat out the current proprietary model.

The main takeaway here seems to be that this is an incredibly exciting time to be alive. We’re all set to get a lot richer from this, whether or not we bought Tesla at an early stage, just as people in the early 20th century didn’t have to buy Standard Oil shares to do well from that other energy revolution.

I Don’t Understand the Apple Watch

In 2006, I was telling anyone who would listen — which, given that I was a nerdy 19-year old, wasn’t many people — to buy Apple stock. Back then Apple seemed to be on the verge of something amazing. I had had an iPod since 2003, and had just bought a Macbook Pro, and was blown away by OS X. The operating system and interface had a crispness and an attention to detail that made Windows PCs seem like a muddled mess.

Turns out I was right about Apple. The past decade has seen Apple blow up bigger than I dreamed they might. The iPhone and iPad have been stunning successes that have allowed Apple to redefine what personal computing is. And now Apple is the biggest company in the world.

And the Apple Watch — their first new product line since the iPad — seems like a step in the wrong direction. Admittedly, I haven’t used an Apple Watch yet. But why bring out a watch when other elements of your product line have made watches obsolete?

I’m happy to have my wrists free. A smartphone already does what a watch used to do — tell the time — plus so, so, so much more. I don’t want another screen, especially not a tiny and hard-to-click one strapped to my wrist that actually requires tethering to a smartphone to work. Interface design has been the key difference between Apple and Apple’s competitors in the past 10 years and to hear complaints about the interface seems pretty damning.

Yes, I can see some point to a biometric data-collection band, especially for athletes and fitness junkies and for hospital patients. Yes, I understand that sooner or later a new model of the Apple Watch will not require a tethered iPhone to work.

But at this point this is a niche product, functionally akin to the Apple Newton in the early ’90s. It does some cool stuff. But it’s not going to change the world.

The trouble is that I think Apple is barking up the wrong tree. This is like a successful band’s dodgy fourth album where they rehash earlier ideas in pursuit of that indefinable thing that made them great in the first place. The trouble is that that thing — the bleeding edge — has moved on. Trying to recapture it by rehashing old ideas in a slightly different form might sell some records. And Apple will sell some watches. But it’s not going to change the world.

The bleeding edge technologies that will change the world immeasurably in the next 20 years are self-driving cars, artificial intelligence, 3-D printers, ultra-efficient solar cells that can produce energy more cheaply than fossil fuels, and battery and energy distribution technology to allow the ultra-efficient solar cells to power things when the sun isn’t out. Apple are actually working on some of these things.

The Watch is — at best —an unworthy distraction. Of course, like most ageing rockstars, Apple has the time and money for unworthy distractions. And that’s why younger, leaner competitors may be the ones to bring the truly revolutionary products to market.

On Trade Unions & Inequality

This chart is pretty wow:

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Florence Jaumotte and Carolina Osorio Buitron of the International Monetary Fund have some ideas about how the correlation may have been caused:

The main channels through which labor market institutions affect income inequality are the following:

Wage dispersion: Unionization and minimum wages are usually thought to reduce inequality by helping equalize the distribution of wages, and economic research confirms this.

Unemployment: Some economists argue that while stronger unions and a higher minimum wage reduce wage inequality, they may also increase unemployment by maintaining wages above “market-clearing” levels, leading to higher gross income inequality. But the empirical support for this hypothesis is not very strong, at least within the range of institutional arrangements observed in advanced economies (see Betcherman, 2012; Baker and others, 2004; Freeman, 2000; Howell and others, 2007; OECD, 2006). For instance, in an Organisation for Economic Co-operation and Development review of 17 studies, only 3 found a robust association between union density (or bargaining coverage) and higher overall unemployment.

Redistribution: Strong unions can induce policymakers to engage in more redistribution by mobilizing workers to vote for parties that promise to redistribute income or by leading all political parties to do so. Historically, unions have played an important role in the introduction of fundamental social and labor rights. Conversely, the weakening of unions can lead to less redistribution and higher net income inequality (that is, inequality of income after taxes and transfers).

I have spent a lot of time thinking about what has caused the major upswing in inequality since the 1980s.

Back in 2011 and 2012 my analysis tended to emphasize financialization and specifically the massive growth in credit creation that took place since the 1980s. I think this was a rather naive view to take.

I don’t think I was wrong to look at financialization. Obviously, unchecked credit creation is a plausible pathway for the rich to make themselves and their friends richer. I just think it was naive to not see financialization — like deunionization, like globalization, and like trends in housing wealth — as part of a broader pie.

My hypothesis is that what changed is that politicians decided that greed was good and that “industrial policy” was a dirty phrase. The political structures that emerged in the wake of the Great Depression and World War 2 which together greatly limited inequality — welfare states, nationalized industries, unionized workforces, constrictive financial regulations like Glass Steagall — were severely rolled back. This created an opening for the rich to get much richer very fast, which they did.

If I’m right, it would take a major political shift in the other direction to start reducing inequality.