Obama is right to be worried about income inequality — it’s gotten a lot worse under his watch

Americans today are very worried about income inequality.

A Gallup poll this month found that 67 percent of Americans are unhappy with the distribution of income and wealth in the U.S. The disappointment goes across party lines — 54 percent of Republicans are dissatisfied, as well as 70 percent of Independents and 75 percent of Democrats:

And a growing number of people are worried that they can no longer get ahead simply by working hard, suggesting that inequality is becoming more entrenched.

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Do Americans really prioritize security over freedom?

Americans are getting less hawkish about national security.

Jake Tapper of CNN raised eyebrows recently by claiming that “the American people, honestly, want security over freedom.”

That would seem to be a big departure from the ideals of, say, Benjamin Franklin, who wrote that“those who would give up essential Liberty, to purchase a little temporary Safety, deserve neither Liberty nor Safety.”

And is Tapper’s claim even true? Do the American people prioritize security over freedom? The most recent evidence doesn’t support Tapper’s claim.

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Is cash the most ‘efficient’ Christmas gift?

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Some economists think that Christmas gift-giving is a big waste of resources, and that cash is a much more efficient present.

When giving specific gifts, people often get things they don’t want, which is a waste of resources.An estimate by Wharton Professor Joel Waldfogel suggests that 20 percent of gift giving money is wasted this way.

Woldfogel argues that a person who spends $100 on himself or herself will presumably spend that money on something that actually nets them $100 worth of satisfaction. But when another person spends that amount on a gift they may end up getting a painting of a cat for a dog-lover, a sweater in the wrong size, or a coffee maker for a tea drinker, etc.

Woldfogel argues it would be much more efficient to just give cash, so that the recipient can spend something that nets $100 worth of satisfaction.

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Why are Democrats souring on big government?


According to a new Gallup poll, 72 percent of Americans say that big government is a greater threat to the U.S. in the future than big business or big labor, a record high in the half century that Gallup has been asking the question. The previous high for big government was 65 percent in 1999 and 2000:

And this isn’t just Fox News-watching Republicans who think that Obama is a Communist Muslim born in Kenya who is plotting to seize all privately-owned guns and declare martial law.

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Who should the SEC punish next for the Madoff scandal? Itself.


J.P. Morgan Chase is nearing a settlement with federal regulators over the bank’s ties to convicted fraudster Bernie Madoff, reports The New York Times. The deal would involve penalties of up to $2 billion dollars and a rare criminal action. The government intends to use the money to compensate Madoff’s victims.

For two decades before his arrest, Madoff had banked with J.P. Morgan — and apparently laundered up to $76 billion through the bank. Employees at the bank had raised concerns about Madoff’s business. In 2006, a J.P. Morgan employee wrote after studying some of Mr. Madoff’s trading records that “I do have a few concerns and questions,” and expressed worry that Madoff would not disclose exactly which trades he had made. Madoff’s company turned out to be an elaborate ponzi scheme that stole an estimated $18 billion from clients; it collapsed in 2008.

Is it fair to blame J.P. Morgan for the activities of Madoff? Do banks have a responsibility to know if their clients are involved in criminal activities? I think so — banks should have strong checks and balances to prevent fraud and money laundering, because if they don’t then criminals like Madoff can get away with it for years and years. According to Robert Lenzner of Forbes, “J.P. Morgan never reported to the Treasury or the Federal Reserve a huge cache of checks going back and forth for seven years between Madoff’s Investment Account 703 and Bank Customer Number One, belonging to real estate developer Norman Levy, who died in 2005.”

By agreeing to pay the fine and the government’s rebuke, J.P. Morgan is admitting a failure of oversight. But it’s not as if J.P. Morgan is the only one to blame. Others on Wall Street had expressed concern about Madoff’s business much earlier.

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Is there life on Jupiter’s moon?

The hunt for alien life just made a pretty big breakthrough.

Unfortunately — or perhaps fortunately — we’re not anticipating flying saucers on the White House lawn anytime soon. Instead, scientists discovered a (relatively) easily-accessible source of hydrogen and oxygen — which together make water, one of the most basic ingredients for life — on one of Jupiter’s moons.

There is already lots and lots of evidence for the existence of both liquid and frozen water in other parts of our solar system. Frozen water is abundant in asteroidsIn 2009, huge amounts of frozen water were found on Earth’s moon. Some scientists suggest that Mars’ surface has been shaped by the flow of liquid water, and NASA’s Curiosity rover found frozen water in soil samples on Mars just this year. And back in 2000, the Galileo probe found evidence of water on Jupiter’s moons Ganymede and Europa — and scientists believe that liquid oceans of water are trapped beneath the the moons’ frozen surfaces.

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Why the Volcker Rule won’t solve the problem of Too Big To Fail

The Volcker Rule was originally proposed to end the problem of banks needing taxpayer bailouts. Paul Volcker, the former chairman of the Federal Reserve, proposed that commercial banks using customer deposits to trade — a practice known as proprietary trading — played a key role in the financial crisis that began in 2007.

Five former Secretaries of the Treasury — W. Michael Blumenthal, Nicholas Brady, Paul O’Neill, George Shultz, and John Snow — endorsed the Volcker Rule in an open letter to the Wall Street Journal, writing that banks “should not engage in essentially speculative activity unrelated to essential bank services.”

The Volcker Rule was signed into law as part of the Dodd–Frank Wall Street Reform and Consumer Protection Act in July of 2010, but its implementation has been delayed until yesterday when it finally received approval from the five (!) regulatory agencies that will enforce it — the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Securities and Exchange Commission (SEC), and the Commodity Futures Trading Commission (CFTC).

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No, wrecking shopping carts won’t help the homeless

Hawaii state Representative Tom Brower (D) has been taking a sledgehammer to Hawaii’s homelessness problem. Literally. Wielding a sledgehammer, the lawmaker has destroyed over 30 shopping carts used by homeless people to store and transport their belongings.

Brower claims his actions are a product of his frustration over the existence of homelessness in his district, telling Hawaii News Now, “I got tired of telling people I’m trying to pass laws. I want to do something practical that will really clean up the streets.”

Brower also wakes those he finds sleeping and tell them to sleep somewhere else. “If someone is sleeping at night on the bus stop, I don’t do anything, but if they are sleeping during the day, I’ll walk up and say, ‘Get your ass moving,’” he said.

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The London Real Estate Bubble

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In October, London real estate asking prices jumped 10%. In my view is kind of parabolic-looking jump has developed out of quite a silly situation, and one I think is a good exhibit of just how irrational and weird markets can sometimes be.  London real estate prices have been rising strongly for a long while, and a large quantity — over half for houses above £1 million — of the demand for London real estate is coming from overseas buyers most of whom are buying for investment purposes. It is comprehensible that London is a desirable place to live, and that demand for housing in London might be higher than elsewhere in the UK. It is a diverse and rich place culturally and socially, boasting a huge variety of shopping, parks, art galleries, creative communities, restaurants, monuments and landmarks, theatres and venues, financial service providers, lawyers, think tanks, technology startups, universities, scientific institutions, sports clubs and infrastructure. Britain’s legal framework and its straightforward tax structure for wealthy foreign residents has proven highly attractive to the global super rich. With London real estate proving perennially popular, and with the global low-interest rate environment that has made borrowing for speculation cheap and easy, it is highly unsurprising that prices and rents have pushed upward and upward as the global super rich — alongside pension funds and hedge funds — sitting on large piles of cash have sought to achieve higher yields than cash or bonds by speculating in real estate. In some senses, London real estate (and real estate in other globally-desirable cities) has become a new reserve currency. And while this has occurred, price rises have proven increasingly cyclical as both London residents and speculators have sought to buy. The higher prices go, the more London residents become desperate to get their feet on the property ladder in fear they won’t ever be able to do so, and the more speculators are drawn in, seeing London real estate as an asset that just keeps going up and up.

Yet the bigger the bubble, the bigger the bust. And I think what we are seeing in London is a large psychological bubble, a mass delusion built on other delusions. Chief among these delusions is that real estate should be seen as a productive investment, as an implicit pension fund, or as a guaranteed source of real yield. While investors can look at real estate however they like, there is no getting away from the fact that real estate is a deteriorating asset. Sitting on a deteriorating asset and hoping for a real price gain — or even to preserve your purchasing power — is a speculation, not a productive investment. For commercial enterprises buying as a premises for business, or for residents buying as a place to live this is not in itself problematic. But as an investment this can be hugely problematic. It is just gambling on a deteriorating asset under the guise of buying a “safe” asset.

Of course, in the UK where housing has been treated by many successive governments as an investment, and as a haven for savings and pensions, real estate owners have done particularly well. Governments have been willing to prop up the market with liquidity via schemes like Help To Buy and via restrictive planning laws to rig the market to restrict supply. This may make investors feel particularly secure, but governments can be forced — not least by demographics — to swing in another direction. An important side-effect of continually rising prices and a restricted supply of housing is that many people will not be able to afford to buy a home. With the house prices-to-wages ratio sitting far above the long-term average, the next UK government will come under severe pressure within the next few years to allow — and probably subsidise — much more housebuilding to bring down housing costs for the population. The past-trend of government-protected gains may have inspired a false sense of security in investors.

But such a reversal of policy would not in itself crash the London real estate market. After all, London is a unique place in Britain, and the majority of the new housebuilding may take place away from London. More likely, the bubble will simply collapse under the weight of its own growth. Sooner or later, even with liquidity cheap and plentiful, the number of speculators seeking to cash out will exceed the number of speculators seeking to cash in, and confidence will dip. Sometimes, this simply equates to a small correction in the context of a large upward trend, but sometimes — especially when it can be negatively rationalised — it manifests into a deeper malaise.

When this occurs, one probable rationalisation is as follows.  Domestically, many of the relatively low-income artists, designers, technologists, musicians, students, artisans, academics, service workers and professionals (etc) who make London London are priced out, then they will go and contribute to communities elsewhere where rents and housing costs are lower — Birmingham, Manchester, Glasgow, Paris, Berlin, out into the sprawl of the home counties, and deeper into the English countryside, to places where a four bedroom house costs the same as a studio apartment in central London. Where once this would have been culturally, professionally and socially prohibitive, fast, ubiquitous internet allows for people to live a culturally and socially connected life without necessarily living in a big city like London. Internationally, other cheaper cities and jurisdictions will simply catch up with London in terms of amenities and desirability to the global super class. Competition for global capital  is huge, and while London as an Old World metropolis has done well since 2008, it may suffer in the wake of renewed competition from newer, cheaper, faster-growing Eastern metropolises.

When the bubble begins to burst — something that I think could occur endogenously within the next five years, especially if the fast increases continue — speculators, and especially speculators who are heavily leveraged may face severe problems, resulting in a worsened liquidation and contraction, and possibly threatening the liquidity of heavily-invested lenders. As many people at the table are sitting on big gains, they may prove desperate to cash out. Just as many presently feel pressured to get in to avoid being priced out of London forever, a downward turn could be severely worsened as many who are heavily invested in the bubble and scared of losing gains on which they hoped to fund retirements (etc) feel pressured to get out. Such an accelerated liquidation could easily lead to another recession. While I doubt that London prices will fall below the UK average, prices may see a very sharp correction. The psychological bubble is composed of multiple fallacies — that housing is a safe place to put savings and not a speculation, that deteriorating real estate should yield higher returns than productive business investments, that the UK government will continue to protect real estate speculators, that large flows of capital from overseas speculators will continue into London. A bursting of any of these fallacies could begin to bring the whole thing into question, even in the context of continued provision of liquidity from the Bank of England.