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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Cuddling feels great. But cuddling also has lots of quantifiable medical benefits. It releases the trust hormone oxytocin, which creates a sense of well-being and happiness, and endorphins, which are a natural painkiller. It also relieves stress, reduces inflammationlowers blood pressure, and may prevent depression.

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The London Real Estate Bubble


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.

What America Really Thinks About Obamacare

When I see discussion of Obamacare in the media and especially on blogs, I often see the impression that Obamcare is a communist scheme to impose socialised medicine in the United States:


Actually, Obamacare was first dreamt up by the conservative Heritage Foundation, and first implemented at the state level by the Republican former Massachusetts governor Mitt Romney. (And for what it’s worth, I wrongly judged Republican opposition to Obamacare as an immovable obstacle in Romney’s quest to become the Republican Presidential nominee, but I guess Republicans were far more fickle than I thought). So as its origin implies, Obamacare is not exactly a communist, or social democratic idea. A charge of socialism or communism might be more fairly levelled against Obamacare if Obamacare were a law to confiscate all hospitals, drug companies, biotechnology companies and insurance companies from private hands. But it does no such thing. The opposite, in fact. More principled critics of Obamcare might more accurately describe it as corporatist — guaranteeing revenue streams for the insurance industry through the individual mandate — but that has not exactly been the Republican Party’s line of attack.

Given that opposition by the Republican-controled House to Obamacare is the most significant cause of the current government shutdown, it is worthwhile looking over how Americans actually feel about the law, not least to gauge the extent to which Americans may or may not support the Republicans now that their opposition to Obamacare is having real consequences.

It has long been said that Obamacare is unpopular, and the polls bear this out. A September CNN/ORC poll showed that Obamacare was supported by 43% of respondents, and opposed by 51% of respondents. But here’s the catch: 16% of respondents opposed Obamacare for not being liberal enough. Presumably, they would prefer a single payer system, as is the reality throughout most of Europe an Canada. (Of course, a move to such a system might be more fairly described as socialist, but that is another argument for another day). A sizeable number want something more liberal than Obamacare, and so would presumably prefer Obamacare to the status quo, even if they still claim to oppose it. So the consensus is actually against the Republican position by 59% to 35%. And that is why opposing Obamacare in this fight-to-the-death manner will be received negatively by a majority of Americans. Only 35% of Americans are against Obamacare because it is too liberal, and even then a substantial number of those — such as seniors who receive government benefits, or poor rural Republicans receiving food stamps — may be against shutting down the government to fight Obamacare. The Republicans are fighting a losing fight, and as the shutdown grinds on may be doing irreparable damage to their 2014 election prospects.

More generally, I find it rather puzzling that Republicans — convinced Obamacare will fail disastrously — are going to such lengths to oppose it. Like Prohibition once was, it is now law, and if it is destined to precipitate disaster — by increasing unemployment, by increasing healthcare costs, by increasing strain on the healthcare system, or by any other means — then it will be quickly rejected and repealed in the future.

In The Long Run We’re All Dead

Niall Ferguson’s bizarre attack on John Maynard Keynes which he has now apologised for — claiming that Keynes’ lack of children led to him taking an irresponsible attitude to the long run — has prompted many apt responses regarding the fact that Keynes and his wife tried multiple times to have children, and that Keynes wrote many works that showed an acute thoughtfulness regarding the long run in essays such as Economic Possibilities For Our Grandchildren. 

But as soon as I heard Ferguson’s remarks, I re-read Keynes’ famous quote in full:

But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.

Keynes is actually saying the opposite of what Ferguson implied he was saying. Keynes is saying that economists who say that in the long run unemployment will fall and markets will move back toward equilibrium are making themselves useless. That unemployment will sooner-or-later fall is almost inevitable — eventually storms end, and rough seas become calm again.

But when unemployment has been high for years, and when the unemployed become so discouraged that they drop out of the labour force in vast numbers it is useless to merely quip that sooner or later markets will restore equilibrium. Having soaring unemployment, discouraged workers, rusting skills, dilapidated infrastructure, weak growth and idle capital now and potentially for years to come is a grossly and grotesquely irresponsible position. The effects of mass unemployment are damaging and lingering to families:

The stress of unemployment can lead to declines in individual and family well-being (Belle & Bullock, 2011). The burden of unemployment can also affect outcomes for children. The stress and depressive symptoms associated with job loss can negatively affect parenting practices such as increasing punitive and arbitrary punishment (McLoyd, 1998). As a result, children report more distress and depressive symptoms. Depression in children and adolescents is linked to multiple negative outcomes, including academic problems, substance abuse, high-risk sexual behavior, physical health problems, impaired social relationships and increased risk of suicide (Birmaher et al., 1996; Chen & Paterson, 2006; Le, Munoz, Ippen, & Stoddard, 2003; Verona & Javdani, 2011; Stolberg, Clark, & Bongar, 2002).

And damaging to wider communities:

Widespread unemployment in neighborhoods reduces resources, which may result in inadequate and low-quality housing, underfunded schools, restricted access to services and public transportation, and limited opportunities for employment, making it more difficult for people to return to work (Brisson, Roll, & East, 2009). Unemployed persons also report less neighborhood belonging than their employed counterparts, a finding with implications for neighborhood safety and community well-being (Steward et al., 2009).

Keynes’ point in the quote Ferguson was discussing was that economists should seek ways and means to minimise such damaging long-term effects. So whether or not we agree with Keynes’ philosophical and political conclusions, it is absolutely misleading to claim that “in the long run we’re all dead” was a call for hedonism or economic irresponsibility.

Any serious criticism of Keynes’ thought requires that critics have actually read and understood Keynes and not just absorbed second-hand caricatures of his ideas.

Why the Gold Crash? The Failure of Inflation to Take Off

One of the key features of the post-2008 gold boom was the notion that inflation was soon about to take off due to Bernanke’s money printing.

But so far — by the most-complete inflation measure, MIT’s Billion Prices Project — it hasn’t:


To me, this signifies that the deflationary forces in the economy have so far far outweighed the inflationary ones (specifically, tripling the monetary base), to such an extent that the Fed is struggling to even meet its 2% inflation target, much less trigger the kind of Weimar or Zimbabwe-style hyperinflation that some gold enthusiasts have projected.

The failure of inflation to take off (and thus lower real interest rates) is probably the greatest reason why gold’s price stagnated from 2011 and why gold has gone into liquidation the last week. With inflation low, investors became more cautious about holding gold. With the price stagnant, the huge gains that characterised gold’s rise from 1999 dried up, leaving more and more long-term investors and particularly institutional investors leaving the gold game to hunt elsewhere for yield.

I myself am an inflation agnostic, with deflationista tendencies. While I tend to lean toward the notion of deeply-depressed Japan-style price levels during a deleveraging trap, price levels are also a nonlinear phenomenon and could both accelerate or decelerate based on irrational psychological factors as much as the level of the money supply, or the total debt level, or the level of deleveraging. And high inflation could certainly take off as a result of an exogenous shock like a war, or series of natural disasters. But certainly, betting the farm on a trade tied to very high inflation expectations when the underlying trend is largely deflationary was a very bad idea, and those who did like John Paulson are being punished pretty brutally.

The extent to which this may continue is uncertain. Gold today fell beneath its 200-week moving average for the first time since 2001. How investors, and particularly institutional investors react to this is uncertain, but I tend to expect the pendulum to swing very far toward liquidation. After all, in 2011 most Americans named gold the safest investment, and now that psychological bubble is bursting. That means that for every goldbug buying the dip, many more may panic and sell their gold. This could easily turn to a rout, and gold may fall as low as the cost of production ($900), or even lower (especially considering gold’s high stock-to-flow ratio). Gold is a speculation in that it produces no return other than price rises. The last time gold got stuck in a rut, it was stuck there for almost 20 years.

However, my case for physical gold as a small part of a diverse portfolio to act as a hedge against systemic and counterparty risks (default cascades, Corzine-style vaporisation, etc) still stands, and lower prices are only good news in that regard. The financial system retains very many of its pre-2008 fragilities as the deregulated megabanks acting on margin continue to speculate in ways that systematise risk through balance sheet interconnectivity. Another financial crisis may initially lower the price of gold on margin calls, but in the long run may result in renewed inflows into gold and a price trend reversal. Gold is very much a barometer of distrust in the financial, governmental and corporate establishment, and as middle class incomes continue to stagnate and income inequality continues to soar there remain grave questions over these establishments’ abilities to foster systemic prosperity.

The Gold Bull Market Is Over

I tweeted on Friday morning:

Unfortunately, I didn’t start writing immediately. But between then and now, the market fell to a new recent-low:


So, what’s up with gold?

Well, gold tends to really do well when real interest rates are heavily negative:

fredgraph (20)

Right now they’re higher than they’ve been since 2011.

And a lot of gold buying has been based on the assumption that massive inflation is coming. Now inflation could really take off in the coming years. But the predictions that quantitative easing would heavily raise inflation (and thus lower the real interest rate) haven’t come true yet. That may well be because most of the quantitative easing money hasn’t really found its way into the wider financial system — banks are sitting on massive excess reserves. Or it may be because of the innate deflationary bias in the economy due to deleveraging effects. Eventually, so long as excess reserves are sitting there the chance of it multiplying out into the wider financial system and generating some significant inflation approaches 1. But for now, people who bought gold for inflation (or more accurately negative real interest rate) protection bought insurance against something that hasn’t happened yet. So nobody should be surprised to see a pretty significant selloff.

Of course, gold is lots of other things to purchasers. It’s a shiny tangible semi-liquid asset, and insurance against counterparty, financial system risks. BRIC central banks are still buying it, because they claim to want to insure against counterparty and financial system risks. Maybe in a few years if there’s another systemic financial crisis (something which is more likely than not) all that gold people were buying in the $1400s, and maybe $1300s or $1200s may end up looking super-cheap. But that would be a whole new bull market from the bull market that took gold from less than $300 in 1999 to over $1900 in 2011. The run is over. The price floor for gold in the medium-term without some intervening event like a massive financial crisis or a war or a global catastrophe is production cost. And right now, that’s just over $900.

And if there was a stock market crash or systemic crisis today (as some indicators are implying) gold’s price would almost certainly go down and not up as it did during the crisis in 2008 as gold-holders (e.g. hedge funds, investment banks) liquidate to cash to  settle other liabilities. Only afterward could we see significant gains.

Now, I think gold is an important part of the global financial system. The fact that it has retained its status as a store of purchasing power and as a kind of reserve currency for over 5,000 years is pretty amazing. That doesn’t mean that it’s immune to bear markets, though.

There were signs in 2011 that there was a psychological bubble in gold when a plurality of Americans named it the safest investment type.

For people holding physical gold as a long-term investment or insurance policy, all of this may be irrelevant. If your plan is to hold it until there’s a seismic shift in the global financial system, then this is totally irrelevant. An ounce of gold is an ounce of gold. On the other hand for people trading for dollar-denominated gains, the jig is up.

Judge, Jury & Executioner


I’ve criticised Rand Paul in the past on a few issues, but none of my previous doubts and nitpicks can dilute the sheer brilliance of his almost-thirteen-hour filibuster.


The absurdity of the legal framework built up by the Bush and Obama administrations was a house of cards for Paul to poke at and watch crumble. Paul’s key question is does Obama believe he can order the killing of an American citizen, on American soil, based on nothing more than his own judgment that the person is a threat?

Under the Fifth Amendment, suspects are entitled to the due process of law:

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

And how can any President claim that his own judgment, or that of his Attorney General counts as the due process of law? The targeted drone killings that have occurred in foreign lands — and which Holder admits could theoretically occur on American soil — are very simply extrajudicial killings. And extrajudicial killings are utterly barbaric, incompatible with modern civilisation, incompatible with any notion of human rights or due process, and incompatible with the Constitution.

The status quo evolved very much out of post-9/11 paranoia, as exemplified by Dick Durbin’s Cheneyesque questions aimed at Paul toward the end of the Filibuster, and by Eric Holder’s initial written response referencing Pearl Harbour and 9/11:


Neither Rand Paul nor myself are suggesting that an attempted violent attack should not be stopped using necessary means (although not excessive means). But if an act of terror has not commenced (and even in many cases where an act of terror has commenced) it should be possible to arrest and question a suspect, rather than killing them. If a suspect can be arrested, charged and tried, there should be no reason why that should not happen.  And unless an act of terror has actively commenced, or unless a suspect can be convicted beyond reasonable doubt in a court of law the government’s suspicion is only a suspicion, and the government has absolutely no business detaining or punishing a suspect.

After 9/11, due process was effectively suspended, and for all of Obama’s lip-service to “change”, this mindset prevailed through his first and into his second administration. Rand Paul’s dogged, tireless questioning — as well as the work of questioners in the media such as Glenn Greenwald, Conor Friedersdorf, Spencer Ackerman, and Micah Zenko —  is acting as a catalyst to break the public and governmental mindset that allowed for the suspension of due process. Due process matters. If it hasn’t been proven that someone has broken the law why should they be punished for it? As humans we have inalienable rights. The fear of terrorism does not trump the right to be tried under the presumption of innocence.

The strength of Rand Paul’s argument means that defenders of the status quo have had to resort to spurious or ad hominem arguments to mount a defence of the President’s position — attacking Paul’s positions on other issues, for example. It was encouraging to see Rand Paul questioning the entire notion of targeted killings and signature strikes altogether, and not just worrying about the prospect of such affairs on American soil. Due process is preferable in all circumstances.  I would have preferred to see Osama bin Laden captured and tried, rather than killed.  Due process is not a sign of moral weakness, but a sign of cultural strength, of sanity, of civilisation.

The Obama administration must eventually understand that their position is untenable. Large swathes of the mainstream media are coming around to the idea that Rand Paul is asking important questions and that due process is more important than national security panic and threat inflation. Paul has struck a blow for the Constitution at the right moment, and to a judicial edifice that has become bloated and corrupt, treating too-big-to-fail bankers with impunity, while coming down like a tonne of bricks on minor intellectual property infractions. He has harnessed the image of a lone filibustering Senator standing up to the machine of the establishment to strike a blow to those who are trying to defend the indefensible. At the very least, Rand Paul has made real oversight of the drone program possible. Hopefully, the days of signature strikes and of targeted killings are numbered. Hopefully, the Constitution and Bill of Rights will reign supreme again in Washington D.C.

Do Creditors Exploit Debtors, or Vice Versa?

I’m asking this question because I think a proper understanding of the answer is a giant leap toward grasping the geopolitical realities of the relationship between America and China.

This discussion was triggered by Noah Smith’s discussion of David Graeber’s ideas on debt, and particularly his idea that debt is a means to “extract wealth” out of others.

Noah Smith on David Graeber:

“Debt,” says Graeber, “is how the rich extract wealth from the rest of us.” But sometimes he seems to claim that creditors are extracting wealth from debtors, and sometimes he seems to claim that debtors extract wealth from creditors.

For example, in the Nation article, Graeber tells that The 1% are creditors. We, the people, have had our wealth extracted from us by the lenders. But in his book, Graeber writes that empires extract tribute from less powerful nations by forcing them to lend the empires money. In the last chapter of Debt, Graeber gives the example of the U.S. and China, and claims that the vast sums owed to China by America are, in fact, China’s wealth being extracted as tribute. And in this Businessweek article, Graeber explains that “throughout history, debt has served as a way for states to control their subjects and extract resources from them (usually to finance wars).”

But in both of these latter cases, the “extractor” is the debtor, not the creditor. Governments do not lend to finance wars; they borrow. And the U.S. does not lend to China; we borrow.

So is debt a means by which creditors extract wealth from debtors? Or a means by which debtors extract wealth from creditors? (Can it be both? Does it depend? If so, what does it depend on? How do we look at a debtor-creditor-relationship and decide who extracted wealth from whom?) Graeber seems to view the debtor/creditor relationship as clearly, obviously skewed toward the lender in some sentences, and then clearly, obviously skewed toward the borrower in other sentences.

But these can’t both be clear and obvious.

What Graeber means by “extracting wealth” in the context of a relationship between, say a mortgager and a mortgagee seems to mean the net transfer of interest. It is certainly true on the surface that there is a transfer of wealth from the debtor to the creditor (or from the creditor to the debtor if the debtor defaults).

However, between nations Graeber sees the relationship reversed — that China is being heavily and forcefully encouraged to reinvest its newly-amassed wealth in American debt (something that some Chinese government sources have suggested to be true). But if the flow of interest payments — i.e. from America to China — is the same debtor-to-creditor direction as between any creditor and debtor, then is the relationship really reversed? If China is being forced to amass American debt by the American government, is America effectively forcing China into “extracting its wealth”?

The thing Graeber seems to miss is that the transfer of interest is the payment for a service. That is, the money upfront, with the risk of non-repayment, the risk that the borrower will run off with the money. That risk has existed for eternity. In this context, the debtor-creditor relationship is a double-edged sword. Potentially, a debtor-creditor relationship could be a vehicle for both parties to get something that benefits them — in the case of the debtor, access to capital, and in the case of the creditor, a return on capital.

In the case of China and America, America may choose to pay off the debt in massively devalued currency, or repudiate the debt outright. That’s the risk China takes for the interest payments. (And the counter-risk of course being that if America chooses to repudiate its debt, it risks a war, which could be called the interstate equivalent of debtors’ prison).

Of course, the early signs are that China’s lending will be worth it. Why? Because sustained American demand provided by Chinese liquidity has allowed China to grow into the world’s greatest industrial base, and the world’s biggest trading nation. And it can’t be said that these benefits are not trickling down to the Chinese working class — China’s industrial strength has fuelled serious wage growth in the last few years. Yes — the Chinese central bank is worried about their American dollar holdings being devalued. But I think an inevitable devaluation of their dollar-denominated assets is a small price for the Chinese to pay for becoming a global trading hub, and the world’s greatest industrial base. Similarly, if American firms and governments use cheap Chinese liquidity to strengthen America, for example funding a transition to energy independence, then the cost of interest payments to China are probably worth it. And that is a principle that extends to other debtors — if the credit funds something productive that otherwise could not have been funded, then that is hardly “wealth extraction”. There is the potential for both parties to benefit from the relationship, and the opportunity costs of a world without debt-based funding would seem to be massive.

But what if tensions over debt lead to conflict? It would be foolish to rule out those kinds of possibilities, given the superficial similarities in the relationship between China-America and that of Britain-Germany prior to World War I. It is more than possible for an international creditor-debtor relationship to lead to conflict, perhaps beginning with a trade war, and escalating —  in fact, it has happened multiple times in history.

It is certainly true that devious creditors and debtors can extract wealth from each other, but so can any devious economic agent — used car salesmen, stockbrokers, etc. The actual danger of creditor-debtor relationships, is not so much wealth extraction as it is conflict arising from the competition inherent to a creditor-debtor relationship. Creditors want their pound of flesh plus interest. Debtors often prefer to be able to shirk their debts, and monetary sovereign debtors have the ability to subtly shirk their debts via the printing press. That is potentially a recipe for instability and conflict.

There is also the problem of counter-party risk. The more interconnected different parties become financially, the greater the systemic risks from a default. As we saw in 2008 following the breakdown of Lehman Brothers, systemic interconnectivity can potentially lead to default cascades. In that case, debt can be seen as a mutual incendiary device. 

So the debtor-creditor relationship is very much a double-edged sword. On the one hand, if all parties act honestly and responsibly debt can be beneficial, allowing debtors access to capital, and allowing creditors a return on capital — a mutual benefit. In the real world things are often a lot messier than that.

Humanities Scholars Baffled By Math

Via the Wall Street Journal:

In the latest study, Kimmo Eriksson, a mathematician and researcher of social psychology at Sweden’s Mälardalen University, chose two abstracts from papers published in research journals, one in evolutionary anthropology and one in sociology. He gave them to 200 people to rate for quality—with one twist. At random, one of the two abstracts received an additional sentence, the one above with the math equation, which he pulled from an unrelated paper in psychology. The study’s 200 participants all had master’s or doctoral degrees. Those with degrees in math, science or technology rated the abstract with the tacked-on sentence as slightly lower-quality than the other. But participants with degrees in humanities, social science or other fields preferred the one with the bogus math, with some rating it much more highly on a scale of 0 to 100.

Specifically, 62% of humanities and social science scholars preferred the paper with the irrelevant equation, compared with 46% from a background of mathematics, science and technology.

This is a significant result, and I hope the experiment is repeated and replicated. It is all well and good for humanities and social science scholars to mostly eschew the use of mathematics in their work. But if humanities scholars begin to take work more seriously simply for the inclusion of (faux-) mathematics without themselves understanding the mathematics, then maybe it’s time for humanities and social science scholars to increase their mathematical and statistical literacy so as not to be so easily tricked by faux-mathematical rigour.

And this isn’t just a case of not understanding the equation — it seems like a nontrivial chunk of humanities and social science scholars have quite an inferiority complex. That should be a great embarrassment; there is nothing inherently inferior about the study of the human condition, or its (mostly non-mathematical) tools.

Last year, I wrote:

Well-written work — whether in plain language or mathematics — requires comprehensible explanations and definitions, so that a non-specialist with a moderate interest in the subject can quickly and easily grasp the gist of the concepts, the theory, the reasoning, and the predictions. Researchers can use as complex methods as they like — but if they cannot explain them clearly in plain language then there is a transparency problem. Without transparency, academia — whether cultural studies, or mathematics, or economics — has sometimes produced self-serving ambiguous sludge. Bad models and theories produce bad predictions that can inform bad policy and bad investment decisions.  It is so crucial that ideas are expressed in a comprehensible way, and that theories and the thought-process behind them are not hidden behind opaque or poorly-defined words or mathematics.

But in this case, I think the only real solution is mathematical and scientific literacy.

On the other hand, prestigious mathematics journals have also recently been conned into publishing papers of (literally) incomprehensible gibberish, so it is not like only humanities and social science scholars have the capacity to be baffled by bullshit.