My Future

I am winding down Azizonomics, though, as I am sure you are already aware it has already existed in a winded down state for many years, particularly since I left The Week in 2014. I mostly started this blog in 2011 because I was concerned about the economy, and the future, and was reading a lot, and jotting down my thoughts.

From today, I will be focusing on my new podcast: Cybernetics Chat. The focus of that is much more a mixture of techno-utopianism, ecology, science fiction, and futurism, blended with economics discussion, as well as music that I enjoy.

Here are some links to the first three episodes:

I hope that my audience from here checks out the new podcast. I may start producing more written content in the future, but that will be on a different platform than Azizonomics.

Britain in the Boris Era

I’m writing this months after the December 2019 General Election. In part, this is due to me being preoccupied with other matters. For instance, on the day of the General Election I was in hospital having surgery on my jaw. But it was also useful to get a bit of distance between then and now in terms of being able to process the events of the General Election.

It was a resounding and stonking victory for Boris Johnson. The night of the 13th of December. I was sat at home dosing up on paracetamol and ibuprofen and trying to find something to distract me from post-operative pain. I felt like I was watching Blair’s 1997 landslide in reverse.

My initial feeling as regards the result was that it felt deeply unfair. It felt like the Tories were being rewarded for severely mismanaging the British economy through the 2010-19 austerity era. As I’ve written on this website before, the economic recovery from the 2008 financial crisis was the slowest since the South Sea bubble more than a century previously. Why in the world would the British public reward the Tories for mismanaging the economy so drastically?

But perhaps that was  the wrong feeling. Perhaps it was not the Tories being rewarded. Perhaps rather it was Labour and the left being punished for being out of touch.

The left in Britain has never really accepted the Brexit referendum result, or even really bothered to tangle up with the reasons why many people from Labour constituencies voted to leave. Instead, Labour and the left chose to make Brexit something to fight off, something to defend themselves against. Even Jeremy Corbyn who spent many years alongside Tony Benn in parliament voting against EU treaties was dragged along by his own party and shadow cabinet. Get Brexit Done, which was Johnson’s tentpole slogan, resonated with many people who were sick and tired of seeing lefties and centrists in parliament trying to prevent, delay, and dilute Brexit through a second referendum or even outright revocation. If it had been up to me, as leader of the Labour party (a position I will never fill) I would have taken a position blaming the indecision and dithering on Brexit on the Tories. Get Brexit Done, in other words, should have been Labour’s position all along, as it was in 2017 when Labour did much better. Would this have pushed people toward the Liberal Democrats? Well, to a certain extent. It would also have grabbed voters from the Tories and Brexit Party, which is where Labour haemorrhaged the most, particularly in the north of England.

Johnson, of course, very clearly understood how to win in the centre ground. That’s why he spent most of the campaign pandering on the NHS, to win over Labour voters who did not like Labour’s Brexit policy, or Jeremy Corbyn’s former associations with the IRA and Hamas.

Moreover, I think Labour’s failure on Brexit was underpinned by a fundamental cultural dissonance with the British public at large. Electing a leader who was perceived by the media and general public as being close to groups like the IRA and Hamas was a massive strategic blunder. Making campaign videos where Jeremy Corbyn tells us his pronouns are he/him was a massive strategic blunder. Everyone knows Jeremy Corbyn is a man, and it does absolutely nothing for LGBT equality to tell us that. He would have done much better had he been making campaign videos apologizing to the Jewish community for Labour’s general drift toward anti-Zionism and incidences of anti-Semitism.

Being in government, at the end of the day, is about governing. It is not about signalling about progressive or egalitarian values or internationalism. It is about making sure that the country is safe and secure, and economically prosperous. And it is most of all about listening to the voices of ordinary people. 52 percent of voters voted for Brexit. What percentage of voters support friendship with Hamas and Hezbollah? What percentage of voters are willing to vote for gender pronouns? Much less than 52 percent, I’d wager. Maybe I’m being overly harsh on Corbyn and Labour, but so were the general public.

There was fertile ground for Labour attacking the Tories on poverty, homelessness, austerity, and the Tories’ economic blunders, a battleground that the Tories have since 2010 won relentlessly by blaming the financial crisis on Labour, something Labour have never bothered to really fight back on very much even during the Corbyn years. But they couldn’t do much on these fronts while ignoring the will of the majority on Brexit. The British people chose to be an independent country, and not a European province. The view that that may lead to a loss in economic output may well be correct. But not everything in life is solely about economic output. A lot of decisions are about values. And the Tories, for all of their reputation as Old Etonian toffs managed to match up with a larger chunk of the British public on values, while Labour continue to flail around helplessly, winning woke millennials by a massive margin, but losing with older voters in the shires and their former heartlands.

Of course, a resounding election win does not solve the myriad problems Johnson will face in office. He will still have his work cut out to get trade deals for newly independent Britain. He still will have his work cut out to keep the British union together, as the public in Scotland and Northern Ireland become hungrier and hungrier for independence. And he still will find himself and his party encumbered by dodgy economic ideology, the same austerian ideology that led Cameron and Osborne to a stagnant economy with very weak productivity and a very slow and weak economic recovery. It’s all very well and good to talk optimistically about British infrastructure projects and the NHS, but drawing up plans for 5 percent budget cuts hardly bodes well for a fiscal renaissance, does it? Indeed, after 12 years of global economic expansion, and with the emergence of COVID-19 we may well be on the precipice of a very large and marked economic downturn, just when we are most vulnerable to it.

Remember that rates have not risen much since the financial crisis, so there is not a huge amount that monetary policy can do to relieve the economy in the case of a downturn. Throwing more quantitative easing at the problem is kind of effective, but fiscal policy is the elephant in the room in the coming downturn and austerian ideology is a major impediment to stimulative fiscal policy.

I doubt Johnson will thrive under these encumbrances. But I also doubted that he would win a majority against Corbyn, and he and Cummings exceeded everyone’s expectations. I am a big admirer of Dominic Cummings as an electoral strategist. He has proven himself far better attuned to public opinion than any of the Tories or their advisers were in 2017 during the May campaign.

But whether that will help Johnson in government remains to be seen. The Brexiteer vision of Britain booming as Singapore-on-Thames may well be an utter pipe dream, or at least may well be delayed by a period of severe disruption. Still, this is a democracy, and the will of the majority has triumphed. We will live with the consequences.

My Thoughts On Brexit

I haven’t written a post in a long time. My blog was mostly an attempt to piece together and understand the 2008 financial crisis, and the various consequences of it.

One pretty big consequence, at least in my home country, the United Kingdom, has been Brexit.

I didn’t vote in the 2016 referendum. Mostly because I was at that time I was living abroad in the United States with my father, having moved there the previous year, and I had trouble applying for an overseas postal vote.

I probably would have voted remain, but I’m not hugely committed to either side. I see huge problems with the European Union. Look at what has happened to the euro area countries such as Greece, Spain, Portugal, and Italy who got into trouble in the financial crisis. They ended up going through years of grinding deflationary austerity measures inflicted onto them by Germany, the ECB, and the IMF. Trying to piece together a European monetary union without a fiscal union has been an utter failure.

Of course, I don’t think that many leave voters in the UK were particularly concerned about the fate of Greece, and so forth. Brexit was really about us. The UK for the most part has never been particularly europhilic, or committed to European federalism. I grew up in Stoke-on-Trent, one of the most heavily leave supporting areas in the country, and the people I grew up around identified overwhelmingly as English. Not even British, and certainly not European.

If you throw the financial crash and eight years of austerity into the mix, is it at all surprising that people voted to look after their own island instead of sending money over to Europe, when they never felt very European in the first place? After years of austerity, those slogans about millions of pounds of extra money for the NHS struck a lot of chords.

And although Britain in the EU is still one of the happiest, and healthiest, and most successful countries in the world, leavers believe we can be so much more than an island on the edge of a European federation. A third of the landmass of the planet used to be British. And now we’re just going to be a European province?

The remain campaign did not inspire people in this way, so it is not hugely surprising to me that they lost. I am a democrat, and I accept the result of the referendum. My rationale for voting remain would have been that I believe in the principle of working together with other countries, and also that it is risky to rock the boat, and make radical changes to our political system. The 2008 financial crisis was due to the excesses of the financial system that devolved into a casino, not the EU. The austerity inflicted on the UK from 2010-16 was a political choice by British politicians, not European ones. In many ways the EU has been unfairly scapegoated, and often in particularly strange ways, such as over the curvature of bananas.

But that doesn’t answer the basic identity issue. If people in the UK don’t feel European, they’re not going to want to be part of a European federal union. Technological progress (e.g. telecommunications, motorization, shipping containerization, aviation, etc) has brought the world together, but not to the extent where people are happy to give up their national boundaries.

Still, it was a close result, and that has led us to the deadlock we are in. At present the British government cannot pass any laws through parliament to secure Brexit as it does not have a majority. But it cannot dissolve parliament and have an election, as the opposition parties refuse to have one.

That is partly down to the awful and stupid Fixed Term Parliaments Act, brought into being by Cameron and Clegg’s coalition government. It is more importantly down to the utter failure of the political parties in parliament to cooperate and reach a Brexit compromise that delivers Brexit while also addressing the concerns of the large minority who wanted to remain. My perspective is always that the people and the country come before any kind of party loyalty, and there is absolutely nothing wrong with working together across different political parties. But I am not a politician, and I will never be a politician, and even if I was a politician I would have no ability to fuse together this ideologically divided rabble in parliament into something workable.

I don’t know how this is going to end.  For a long time, I expected that the struggle to compromise (both between leavers and remainers, and between the UK government and the EU) would just lead to a no deal Brexit. As someone who has looked at a lot of economic forecasts in my time, I do not necessarily expect this to be as awful as it is forecasted to be by government agencies. The UK has no reason to block the flow of essential goods such as food and medicine from the EU into Britain. So while a no deal Brexit would undoubtedly lead to disruption, it would be temporary disruption as British manufacturers would reorientate to sell their goods to different markets, such as the U.S., China, and the former British empire.

But the opposition has blocked this at every turn. And Boris Johnson does not seem to be committed to leaving the EU without a deal. Nigel Farage offered him an electoral pact based on a no deal Brexit, and he turned it down.

The compromise that brings parliament together might be another referendum, or as europhiles bizarrely call it a “people’s vote”, ignoring the fact that there was already one people’s vote in 2016, the result of which hasn’t been fulfilled. The remain position seems to be to have another referendum, and hope they win. Leavers, obviously, resist this.

To me, the problem stems from the 2016 referendum being badly organized. David Cameron had no plan to leave the EU, or to deliver on any result other than remain. He only held the first referendum to silence the eurosceptics in his own political party. The day after the referendum, he quit. The Conservative Party then put Theresa May into power, who only weeks earlier had been campaigning to remain in the EU. Since then, the British government has been haphazardly improvising.

The deals that have been put before parliament seemed like a worst of both worlds situation to me. The UK would leave the EU, and leave behind any kind of say over European law, but continue to be bound by it. This may have been improved somewhat in the most recent deal negotiated by Johnson, where only Northern Ireland would continue to be integrated into the European system.

Of course, the next referendum will probably not even include a no deal option. The Labour Party and Liberal Democrats seem to be pushing for a referendum between the negotiated deal and remaining in the EU. This seems rather intellectually dishonest to me, as I think the first referendum settled the question of remain or leave. A second referendum should only be used to clarify the type of exit, lest it become a best of three situation. At least implement the result of the referendum. If that doesn’t work out, say, after 20 years, then surely the UK can rejoin the EU? (Although perhaps not, we have hardly shown ourselves to be committed to the European project, perhaps many European leaders will be happy to be rid of us?)

I think more than anything else, the situation has become very fatiguing. A lot of economic evidence is mounting to show that uncertainty is becoming a very great problem. Businesses are struggling to commit to investment if they have no idea where the UK is going to be in five years or ten years time. Until Brexit is resolved, there is a very great degree of uncertainty. But even after Brexit, there will be a lot of different uncertainties. What shape will the new relationship between the UK and the EU have? Which countries will the UK sign trade deals with? What kinds of trade deals will these be?

So, the UK is in a bit of a political mess. Indeed, the UK itself may not exist for very much longer. The Scottish nationalists are pushing for another independence referendum, and the Irish nationalists are pushing for a united Ireland.

The UK is not showing much inclination to get out of its mess any time soon, either.


Bitcoin Is Failing As Money—But Bitcoin Cash Isn’t

Money has three principal functions: as a medium of exchange, as a store of value, and as a unit of account.

Secondary attributes that have aided the adoption of various forms of money include interestingness (“Ooh! Look how shiny that gold is!”), uniform divisibility, portability, resistance to counterfeit, and imposeability. That last one is important, because it is what makes state-backed fiat currency the dominant form of money in the world. The U.S. government is territorially and militarily powerful. That allows it to print green paper unbacked by any commodity and tell people both within and without its jurisdiction to accept it. For almost fifty years, that model of money has prevailed.

Bitcoin, in the last few weeks, has made me want to add another attribute to this list: low transaction costs. Miners on the Bitcoin network—which once made a feature out of its low transaction costs—now charge roughly the equivalent of $43 to upwards of a hundred dollars to add a single transaction to the Blockchain. The size of a block on the Bitcoin Blockchain is limited. Currently, it is 1MB. A user-defined transaction fee is broadcast with every Bitcoin transation, and miners add transactions to new blocks in exchange for these fees. Bitcoin mines new blocks every 10 minutes.

I first became broadly aware of Bitcoin in 2011. Back then, the price was $10 a coin, and back then the standard cost of adding a transaction to the blockchain was .0001 BTC, or a tenth of a cent. Whoop! Nowadays, Bitcoin sells for upwards of $14,000 a coin, putting the equivalent price of .0001 BTC up to $1.40. But fees have increased much more than this, because there is more congestion. More users than ever—drawn in by rising Bitcoin prices—are trying to use the network at once, and this is creating congestion. If more than 1MB of transactions are broadcast, then miners will only add the most expensive transactions. The cost of the transaction fees has been bid up and up and up to the point where yesterday it averaged $43 per transaction. That might not be so bad if you’re sending 10 BTC to pay for a Lamborghini, but if you’re not a Bitcoin millionaire and you want to buy a coffee or pizza, or want to send $20 to a friend, or even just want to buy into Bitcoin for a couple of hundred bucks, a $43 transaction fee is a real killer. It makes any use of Bitcoin as a medium of exchange impossible for anything much other than London or Hong Kong real estate, and Lamborghinis, etc. This congestion also means days and days of waiting for transactions to be added to the blockchain.

Ultimately, this problem is preventing Bitcoin from functioning as a medium of exchange.

The problem has gotten so bad that millions of dollars are trapped in small accounts where the network transaction fees are larger than the balance of the account, effectively rendering them worthless. So for a lot of users, Bitcoin has turned out to be a pretty shitty store of value.

Now, a problem is not a problem if you solve it. An obvious solution is to increase the block size, to ease congestion. But the community has failed to implement this.  But there has been a failure to find a solution to this problem of massive transaction fees, which is why they are still very high. Bitcoin’s community—which is controlled by the miners—has totally failed to reach a consensus on how to increase the block size, or indeed whether to increase the block size at all.

Some users allege that larger blocks will result in more centralization, as it will increase storage demands. Developers in the community such as Blockstream instead propose a Lightning Network to solve the problem of congestion. This Lightning Network is a space in the blockchain where multiple Bitcoin users create a contract to store their Bitcoin, and can transact in it among themselves without any fees for accessing the blockchain. But this is a theoretical future solution to a current and practical problem, so it’s not really offering any relief. If it was, we wouldn’t be having this conversation. Plus, even in the Lightning Network vision, users would still have to access the blockchain in order to put their funds into a Lightning Network channel, which would still require them to pay the fees to do so. Furthermore, Lightning Networks themselves might also demand high fees.

Anyway, the idea that larger blocks will cause centralization is extremely dubious. Data storage is very cheap, and getting much, much cheaper. Data transfer rates across the internet are also improving. And even the developers of the Lightning Network admit that in order to serve a global population, block size increases up above 100MB—far above even what Bitcoin Cash has today—will become necessary.

Massive fees, of course, benefit one specific group: miners. So, of course, it’s in their interest to keep the fees high, and to avoid increasing the block size. But by doing so, they are strangling the entire network.

Relief is coming in the form of hard forks. Some Bitcoin users have forked off Bitcoin’s history and started their own versions of the coin, Bitcoin Cash and Bitcoin Gold. These new implementations of Bitcoin are based around the principle of increasing the block size periodically to avoid congestion. Already, these coins already have much lower transaction fees—around 1-2c per transaction. As a result, they’re beginning to capture the market. Bitcoin Cash in particular has increased in price 37% over the past week, while Bitcoin Core’s price has fallen 25%. Other users are migrating away from Bitcoin Core toward other cryptocurrencies such as Ethereum, Monero, Zcash, Digibyte, Dogecoin, and Litecoin, as well as next-gen unmineable coins like IOTA and Rai Blocks. But as more and more users are drawn into the cryptocurrency space by rising crypto prices, other cryptocurrencies based on the basic Bitcoin model of small block size are also experiencing rising transaction fees. Monero and Ethereum in particular have seen their fees greatly spike.

Are transaction fees the thing that kills cryptocurrency? Almost certainly not. Decentralized ecash is a very popular concept that has attracted billions of dollars of investment. Meanwhile, central banking and state-backed fiat money have become increasingly unpopular in the wake of the 2008 financial sector bailouts that funnelled trillions of dollars away from taxpayers and into the pockets of bankers. And there are already many viable alternatives to Bitcoin Core, such as Bitcoin Cash which can function as a medium of exchange, and store of value.

But maybe this will be the thing that kills Bitcoin Core. And given that Bitcoin Core is by far the biggest and most widely known cryptocurrency, that may cause a severe but temporary depression for the wider crypto market that scares away many retail and institutional investors. Time is running out for a solution that drops transaction fees to a manageable level, and allows Bitcoin Core to function again as a medium of exchange and store of value. Bitcoin’s rate of adoption as a medium of exchange is already abysmal, with only 3 out of the top 500 ecommerce websites accepting it as payment for goods and services.

While transaction fees are currently enriching the miners, this rent-seeking is in danger of killing the golden goose. Bitcoin Core’s backers do not have the power of the U.S. government. They can’t force people to use Bitcoin Core to, for example, pay taxes. It’s a voluntary model. So if people can’t use Bitcoin Core as it was originally envisioned—as ecash—then the only people using it will be people HODLing it simply because the price has gone up. That is completely unsustainable. It’s the definition of a bubble, and at least in the tulip bubble the tulip growers didn’t charge their clients huge fees to move their tulips around! As more and more Bitcoin Core users switch to Bitcoin Cash and other alternatives, this bubble will burst.

Yellen: “There Will Be No New Crisis In My Lifetime”

Via Reuters:

U.S. Federal Reserve Chair Janet Yellen said on Tuesday that she does not believe that there will be another financial crisis for at least as long as she lives, thanks largely to reforms of the banking system since the 2007-09 crash.

“Would I say there will never, ever be another financial crisis?” Yellen said at a question-and-answer event in London.

“You know probably that would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be,” she said.

Sounds good, right?


Not really. Perhaps she is being extremely modest in projecting her future lifespan. But regardless of whether she means 5, 10, 20 or 50 years, Yellen sounds hubristic. It’s the kind of off-the-cuff prognosticating that gets you into trouble. Like those um-and-ah gut-driven prognostications from people totally sure that Bitcoin will go to $100,000 by mid 2014. Or that gold will go to $10,000 by late 2012.

Or, like the former occupant of Yellen’s office in 2005 when it came to the housing bubble.

Via Washington Post:

Ben S. Bernanke does not think the national housing boom is a bubble that is about to burst, he indicated to Congress last week, just a few days before President Bush nominated him to become the next chairman of the Federal Reserve.

U.S. house prices have risen by nearly 25 percent over the past two years, noted Bernanke, currently chairman of the president’s Council of Economic Advisers, in testimony to Congress’s Joint Economic Committee. But these increases, he said, “largely reflect strong economic fundamentals,” such as strong growth in jobs, incomes and the number of new households.


Yellen has no data to tell her that there will be no financial crisis. She has no clue what the next crisis will look like, either. None of us do. Each crisis is unique. All she has is the last crisis to go by. Regulatory policy will always be reactive because human behaviour is intrinsically innovative. Market participants will always and by definition seek to bend rules and look for loopholes, and new and exciting ways to eke out a profit. In the long run, that is beneficent. In the short run, it can lead to all kinds of wobbles, and shakes, and tumbles.

As Hyman Minsky put it, “stability is destabilizing.” This is a tricky, trippy, counterintuitive concept to really grasp, so it is hardly surprising that neither Yellen nor Bernanke grapple with it. It is not so much a problem with the arrogance or with the  limited or skewed visions of policymakers as it is a problem with entropy. Stability makes people forget what instability feels like. Policymakers are people. Market participants are people. Heck, voters are people.

The United States had a remarkable and bounteous seventy years of strong, unwavering economic growth with improving civil rights, widening property ownership, rising real estate prices—the thing, lest we forget, that tricked Bernanke—and rising median incomes and median net worths. The United States’ government was led throughout this period predominantly by career politicians and civil servants, with ideas provided by neoliberal economists and political theorists. For the most part, it worked well. But stability is destabilizing. Only historians and bookworms have any clue what it is like to have a pussygrabbing P.T. Barnum-esque showman as emperor. So, in the wake of a great recession and rising inequality—something that was bound to happen sooner or later, even with deft macroeconomic management, after all, stability is destabilizing—the Trump thing happened.

I don’t mean to go off on an anti-Trump rant. That is not the point of this essay. My point is only that stability is destabilizing. No matter how many well-meaning historians, and philosophers, and economists argue against Trump’s flawed anti-trade economics, his authoritarian tendencies, his xenophobic wailing, and so forth, people didn’t listen in the most part. For they didn’t live under Nero, or Mussolini. They didn’t live through the era of Godwinian strongman nationalism in the 1930s. They never lived in Saudi Arabia, or Sisi’s Egypt, or Putin’s Russia. They want to see what it’s like to shake the apple tree. To destabilize things. Stability is destabilizing. Get it yet?

Of course, having that unhinged maniac and his entourage of nutjobs and wackadoodles pissing about in the White House and ignoring sound economic reasoning is a very good tell that Yellen’s prognostications will likely be tested very soon, and why the booming stock market is likely soaring toward a euphoric bubble.

As I have been writing for years and years, modern, developed trade systems are fragile to shocks. That doesn’t mean that we should eschew global trade. Far from it. The more the world trades, the richer it gets. Ricardo was completely correct in his theory on comparative advantage, and trade is overwhelmingly beneficial so long as governments compensate the communities that lose out to trade migration. (Which, the U.S. government has again and again failed to do since the beginning of the great industry migration in the 1980s).

But we should be ready for breakdowns in these complicated systems. We must be ready. And if government is taken over by a group of people who are actively hostile to the trade systems that make the United States richer, doubly, trebly, quadruply so.

I don’t know what the next crisis will look like. But I do know that central banks have already stretched their balance sheets. I know markets are once again, like 2007, engaged in speculative frenzies over exotic asset classes (like, for instance, cryptocoins) that few if any really understand. And I know that Trump is the loosest of loose cannons. One tweet from him can tank a Fortune 500 stock.

The United States has had a run as the richest, strongest nation in the world. But stabilility is destabilizing. And we are well and truly in the destabilization phase now.


Trump’s Awful Tariff Plans Will Hurt America

He plans a 35% tariff on goods manufactured by American firms abroad:

This is less coherent economic doctrine and more puffed-up pseudo-alpha male posturing. Unfortunately, given that the man is about to become President, it will also be executive policy. Things, in other words, are about to get an awful lot more expensive for the American consumer.

Because it will be the consumer who pays the price to subsidize American manufacturing. As this excellent rundown by Taos Turner and Paul Kiernan of The Wall Street Journal explains, that is what happens when countries engage in naked protectionism via import tariffs:

As U.S. President-elect Donald Trump contemplates tariffs and other limits on trade, he might consider the results of such protectionist measures in two economies on the other end of the hemisphere, in Argentina and Brazil.

For decades, South America’s two largest economies have tried to shield their workers from global trade, largely through high tariffs and regulations that promote domestic production over imports. The World Bank ranks Argentina and Brazil among the world’s most closed big economies.

In Brazil, locally made products are enshrined in the constitution. Gadget-loving Argentines often use the black market or go to Miami to buy iPhones, which were barred for years because Apple wouldn’t produce them in Argentina.

These protectionist policies have created tens of thousands of well-paid factory jobs and may have helped avoid factory layoffs like those that rattled Midwestern U.S. states like Michigan. But they have come at a huge cost to consumers, who now pay higher prices, and to taxpayers, who underwrite the subsidies. Taken together, these measures essentially transfer wealth from society at large to a smaller group of workers.

These policies have not transformed Argentina or Brazil into industrial powerhouses. Far from it. These two countries—sitting in 36th and 54th place in the world—lag way behind the United States in terms of manufacturing value added per capita.

In other words, the consumer pays massive tariff costs for the high quality foreign-made goods they want—things like, for example, iPhones, Japanese and German cars, etc—to subsidize unproductive and non-competitive domestic operations. And those subsidized operations don’t do much in terms of adding economic value. That’s because they’re not internationally competitive. Protectionism weakens a country’s domestic industry by shielding it from market competition. A choice between a cheaper but inferior subsidized domestic good, and an artificially more expensive foreign good of higher quality is a choice between the worst of both worlds.

Today, this kind of protectionism may not even do much to create subsidized jobs. Companies may well take up Trump on his offer and manufacture domestically. But that doesn’t mean jobs will come roaring back. Robotics, A.I., and automation are advancing to an extent where automated factories can churn out huge volumes without employing many people.

This would be a worst-of-both-worlds scenario. Domestic production may increase without an attendant increase in industrial employment. International goods will become inordinately expensive, hitting the American consumer—and every American is an American consumer—hard in the pocketbook.

Immigration Makes Us More Prosperous

This is a really important fact that people don’t talk about enough:

That is a huge gap. Immigrants’ economic output is almost three times their weight as a proportion of the population, a difference that adds up to $3 trillion annually.

Why would this be the case? Well, immigrants are typically pretty motivated people. Packing everything up and moving out of the country and into a completely new environment is a very motivated and committed thing to do. It is a signal that says “I want to do something really worthwhile with my life.”

Migration also takes lots of different skills such as the ability to navigate bureaucracy and different legal and cultural frameworks, the ability to learn a foreign language, and the ability to do in-demand work in the destination country.

And while there may be bad apples who go abroad to commit crimes, or leech off welfare, or engage in terrorism—just as there are some native individuals who engage in crime, and terrorism, and welfare fraud—the bigger picture detailed in the McKinsey/IMF study is one of migrants making the world much richer.

Indeed, immigrants commit a disproportionately low amount of crime per person. Skilled and highly-motivated migrants probably have less time or reason to engage in criminal activities.

And, as the FT notes: “The study also cites widespread academic work indicating that migration does not harm domestic employment or wages despite short-term negative effects in limited areas. Instead it emphasises a wage gap of 20-30 per cent between immigrant and native workers, adding that bringing immigrants’ pay closer to national averages would also boost output.”

Of course, these facts do not take away the cultural distress of people who voted for Brexit and Trump, people who may feel left behind by globalization.

But immigration restrictionism to appease these people is throwing the golden goose out with the bathwater. Immigration makes us as a whole much richer. A much more sensible answer than immigration restrictionism is to use public funds derived from the benefits of immigration to address some of these concerns. Such programs should include job retraining programs for factory workers displaced by job migration, providing language and assimilation classes for new immigrants, and screening measures to prevent the movement of people who might intend to commit acts of terrorism.

According to some theories, completely open borders would be even more beneficial, doubling global GDP.

In practice, that may not work, but a sensible migration policy would be to seek to move closer to the paradigm of open borders, to see if the theory holds up. Unfortunately, in the post-Brexit, post-Trump, post-fact world, we see no such policy. And we probably won’t for a long while yet.

Trump’s Election Win Shows That The Bank Bailouts And Quantitative Easing Have Failed

The bigger picture of the early 21st century follows: Western nations experienced a massive blowout bubble of leverage, irrational exuberance, and Hayekian pseudo-money creation.

Yet this money was not going to overwhelmingly productive causes. The real output of the Western world did not follow anything close to the ebullience of the financial markets. Without the growth and jobs needed to service the debt load, many of the debtors—including most famously subprime mortgage borrowers—defaulted.  And thus the securitized debt bubble burst when—in the midst of two large and expensive American wars—the animal spirits of the market turned to panic over debt defaults.

What followed was not, it turns out, enough to right the ship. In theory, when markets are frightened of the future and productive human and financial capital lies idle, government borrowing can re-employ these resources until the animal spirits of the market emerge from their slump. In my view, there are two key measures of this: unemployment, and interest rates on government borrowing. High unemployment rates signify idle human capital. Low interest rates signify idle financial capital.

But this balancing did not occur. Even as the Brown and Obama governments engaged in a degree of fiscal stimulus, voters were not won over by the logic of this, and austerian conservatives came to parliamentary power in both the United States and United Kingdom. Government purse strings tightened. Instead, stimulus came down to central banks, who kept interest rates super low, and used quantitative easing as a form of simulated rate cut to cut interest rates beyond the lower bound of zero.

In my view, the political collapse we have seen since in the last year in both the United Kingdom and United States illustrates that this was not enough. Moreover—and more importantly— the continuation of the low interest rate environment illustrates that this was not enough. If quantitative easing had been worked as intended, interest rates would surely have bounced back by now, rather than remaining depressed? Certainly you can make an argument that we are now in an era of depressed interest rates as a result of our ageing society, where rising numbers of retirees mean that demand for savings is outpacing demand for productive investment opportunities. There is certainly some truth in that view. But ultimately, that is just one of many facts that governments and central banks had to weigh in getting the economy back to normal after 2008.

And maybe more quantitative easing would have allowed the market to bounce back and renormalize faster. Somehow, I doubt it. Why? Because quantitative easing is a Rube Goldbergian form of stimulus. It is a matter of pushing on a string. It is leading the horse to water. But there is no guarantee that the horse will drink. And the horse—in this case, the market—has not drunk. Demand for productive investment has not recovered, in spite the fact that that the central banks have made it super cheap. So the banks that got access to the cheap financing just sat on the money, instead of using it productively.

There is a bigger picture here, and it is something that I referred to in 2011 as Japanization. To wit:

Essentially, in both the United States and Japan, credit bubbles fuelling a bubble in the housing market collapsed, leading to a stock market crash, and asset price slides, triggering deflation throughout the respective economies—much like after the 1929 crash. Policy makers in both countries—at the Bank of Japan, and Federal Reserve — set about reflating the bubble by helicopter dropping yen and dollars. Fundamental structural problems in the banking system that contributed to the initial credit bubbles—in both Japan and the United States—have not really ever been addressed. Bad businesses were never liquidated, which is why there has not been aggressive new growth. So Japan’s zombie banks, and America’s too big to fail monoliths blunder on.

They have now blundered on into full on systemic contagion. Unhappy voters have lashed out and thrown out incumbents—the European Union and David Cameron in Britain, and the Bush-Clinton dynasties in America.

Unhappiness with the economy is at the very core of this. There has already been a quite voluminous debate about whether or not Trumpism and Brexitism were fuelled by economic anxiety or whether they are a traditionalist cultural backlash. Such debates present a false dichotomy. If Trumpism and Brexitism were not about the state of the economy, why did they not occur when the economy was strong? Why did they suddenly start rising after a financial crisis in the presence of a depressed economy—just as they did in the 1930s during the Great Depression? Hitler did not come to power when Germany was economically strong. Mussolini did not come to power when Italy was economically strong. The reality is that economic weakness and economic anxiety open the door to cultural backlash. People who feel that the economy is bad are primed to listen to scapegoating. Immigrants, rising foreign powers, and establishment politicians like David Cameron and Hillary Clinton provide easy targets.

However, even within the false dichotomy of anxiety vs backlash, there is substantial evidence that the Trumpist communities that were falling behind. A Gallup analysis in August of this year found that: “communities with worse health outcomes, lower social mobility, less social capital, greater reliance on social security income, and less reliance on capital income, predicts higher levels of Trump support”. Indeed, as Max Ehrenfreund and Jeff Guo of The Washington Post—who took the “it’s not economic anxiety” position—noted, “there does seem to be a relationship between economic anxiety and Trump’s appeal”, even if that relationship is not as simple as unemployed and poor people diving into Trump’s camp.

The same is true for the Brexiteers. As Ben Chu of The Independent notes: ” new research by the labour market economists Brian Bell and Stephen Machin… suggests the Leave vote tended to be bigger in areas of the country where wage growth has been weakest since 1997″.

The financial crisis of 2008 provided politicians with an opportunity to re-engineer the economic system to prevent these groups from falling behind so dramatically. The system failed, completely and utterly. Policy makers were in a position to re-design it. The financial system could have at very least been re-engineered to provide financing, training, and education to people in areas which lost out on manufacturing jobs thanks to automation and globalization.

Instead politicians capitulated utterly to Wall Street, and bailed out a fragile zombie system, as Japan did in the 1990s. The machine keeps blundering on, sitting on vast quantities of productive capital instead of setting it to work. Later, they set in place reforms like Dodd-Frank to shore up some of the fragilities in the banking system. These—in combination with the ongoing quantitative easing—may have prevented a financial crisis since 2008 (and Trump repealing such things may make the system much more fragile again). But that did not address the underlying problems. The fragility in the financial system was absorbed by the political system, and thus transferred into the political system. And now we reap the whirlwind of those choices, in the shape of a new nationalist populism that blames globalization, trade policies, and migration for the failures of Western politicians.

Trump already is setting his stand out as a builder and an investor in infrastructure, just as Hitler did.

As Keynes wrote in his introduction to The General Theory:

The theory of aggregated production, which is the point of the following book, nevertheless can be much easier adapted to the conditions of a totalitarian state than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire.

The laissez-faire West failed to implement his ideas and avoid an economic depression (albeit a relatively mild one compared to the 1930s) following 2008. Now proto-totalitarians like Trump will get their chance, instead.

Why will people colonize space?


Noah Smith over at Noahpinion does a rundown on why Firefly doesn’t really resonate with him. I agree with his take:

But in Firefly, why do we – meaning the crew of Serenity – go to space? It’s not for a higher purpose. There’s no science being done, no galaxy being saved. The show’s theme song may be about freedom, but unlike many of the people around them, Mal and his crew aren’t colonists. They aren’t going to found a new, more liberal republic on the virgin soil of a distant world. They aren’t going to build a city on a hill. They have no quest, they seek no knowledge, they fight for no cause, they meet no aliens. Their existence is simply a big fat middle finger to the government in the distance.

And for the same reason, it doesn’t resonate with me much, either.

But neither Noah and I are space colonists. I can’t speak for Noah, but I am above all else a science fiction fan, wedded to romantic notions of human expansion into the wider universe as a higher calling. A secular religion, if you will. Being human feels good, mostly (and I say that as someone who has experienced plenty of strife and difficulty, as well as physical disabilty and mental illness). And being human in the technologically augmented universe of fifty  or five hundred years from now — boosted by 3-D printers, artificial intelligence, robots, smart drugs, transhuman implants — will probably be significantly better, just as the present is vastly better (less poverty, less child mortality, less starvation and hunger, greater variety of tools and products, etc) for the vast majority than fifty or five hundred years ago.

So, if being human feels good, why not go forth and make more of the universe human? After all, if we earthly humans — and our vast chain of simpler and simpler evolutionary ancestors — are little more than awakened chemical elements, why not go forth, spread out, and wake more of the universe up? Let more of the universe experience love, emotion, mathematics, music, logic, technology, and all of the other things that make us human. Could there be a more manifest destiny?

In reality, though, I suspect that the motivations for space colonization will be far baser and more mundane. America’s early European colonists were not exactly motivated by the romantic ideals of free speech and free religion. They were much more motivated by lebensraum, and freedom from rulers they did not like.

First, resources. Resources are limited on earth Asteroid, moon and interplanetary mining offering up the potential to vastly expand the human resource base. This, of course, is basic economics. Humans are often greedy and avaricious. On earth, resources are guarded by the international military order and mutually assured destruction. Invading a country to take its resources is, to say the least, increasingly difficult. And I predict it will get more so as more and more technology (e.g. drones) up the stakes in terms of mutually assured destruction.

In space, no such thing. The universe is — to the best of human knowledge — effectively limitless. If the U.S. — or Microsoft, or China, or SpaceX —  seizes one asteroid, there are plenty more to seize. Once we’re done with near-Earth asteroids, beyond that there’s the asteroid built, and Venus, Mars, Jupiter and their moons, and so on. Then there’s the Kuiper belt and Oort cloud and onward and outward to the nearest stars. Beyond the nearest stars are billions more in our galaxy. And beyond that, lie billions more galaxies. If we are alone in the universe, there’s a whole universe for us to bring to exploit (or, in my romantic vision, bring to life). If not, then we may well have to fight other species for that right.

Hunger for resources and for lebensraum, I expect, will be a very major factor in bringing humanity to the stars, then.

But so too will also be the need to stick a “big fat middle finger to the government in the distance.” In absolutely no way are we humans ideologically homogeneous. Watching the rise and fall and rise of Donald Trump and American nationalism is reinforcing this point.

I am a universalist humanist, and that view stems directly from my view of humanity as a planetary species with the potential to go interplanetary. The vast majority of humanity are substantially more tribal than I am. And very many different tribes of people alienated by the earthly mainstream are likely to want to go. Racial and religious and ideological and tribal supremacists will go to space seeking out their own pure paradises, where rules are set by them, and not by the mainstream. And let them go, these Nazis, and radical Islamists, and cultish sects, and neo-Confederates. Let them fly off to some distant planet or asteroid or space station off in the black infinities to pursue their authoritarian dreams, rather than have them subjugate a corner of the Earth.

The point is that these ideological minorities have far more concrete reason to travel away than anyone from the mainstream. Our species is not homogeneous. That is one of our strengths. Our decentralization allows us to experiment with different modes of government and ideology. Our species over the aeons of history has undoubtedly been carried forward to each new generation by many men and women that we today would deem to be insufferably awful — genocidalists, bigots, rapists, murderers, alongside a few who, I assume, we would see as good people.

It doesn’t matter if we are carried to the stars by the dull and the bad. The point is that we are going. And we — the species — are as a whole species neither dull nor bad. Our children all possess the capacity to deviate from us. Such is the long and winding road of genetic and cultural evolution. Maybe that doesn’t make for great science fiction. But often reality is unspeakably dull, and unspeakably bad.

Beyond Good And Evil


It is tiring to hear voters complain about having to stump for a lesser evil.

The whole notion of purity in life — but especially in politics — is Manichean at best, and sophomoric at worst. Every choice in life and politics is a shade of grey. Pretending that any political candidate is anything other than a mesh of good and ill — much of it unintentional — is facile. Bernie Sanders and Jill Stein and Gary Johnson are shades of grey. Policies that appear to be unadulteratedly pure and progressive can have negative consequences for many people. Ban fracking? Lose jobs, reduce economic activity. Never intervene militarily in a foreign country again? Fail to prevent another Rwanda or Nazi Germany. Turn away from free trade agreements such as NAFTA and TPP? Lose cheap imports, reduce economic activity globally, and risk expensive and damaging trade wars.  Overturn Citizens United? Quieten wealthy campaigners you agree with, as well as those you disagree with.

That’s not to say that those policies would not also have some positive effects, too, for some people. The reality is that the outcome of these supposedly pure and progressive policies is a patchwork quilt of good and ill, just as it is for any policies. Politics is an art of trying to counterbalance to maximize the positives against the negatives. This is tough. And politicians are trying to do it in foresight, not hindsight, which makes it much harder.

The pursuit of purity and perfection in politics is a delusional pursuit, and a showcase for naïveté. Every choice in politics is about trying to identify and pursue the lesser evil (or, in other words, the greater good). It was forever thus. Hillary Clinton makes no bones about being a pragmatist, and a shade of grey. Yes, the Clinton Foundation accepted money from  countries with questionable human rights records. Yes, she voted for the Iraq war (a decision she accepted in hindsight was wrong and apologized for).  Yes, she voted for the bank bailouts. All of these choices have had mixed effects, a combination of good and ill.

I admire her pragmatism, and her rejection of puritanism. She’s no High Sparrow. (Nor is she Mussolini, another ardent political purist). And I like that about her.