Climate Change - The confession of a Watermelon

This post should be seen as a call for reason within the Climate Activism movement. 

The other day, thousands of people around the world marched for the Climate. In UK, over the last year, what has been in focus for is the Divestment Campaign, calling for funds and Universities to divest their holding of fossil fuel stocks.

I have essentially two objections to this; minimal impact of campaign (thus the rising opportunity costs of doing it) and the lack of influence over dictatorial State-run oil companies. Note, this is not a discussion over climate change, over exact impact of fossil fuel-usage, temporal effects of damaged or the causation problem in arguing a "Stop Climate Change" reasoning. This is simply an observation to how the suggested means relate to the alleged ends.

But first, let me make a confession; I used to be a watermelon too. I see the temptation in these campaigns and I can follow the Kantian approach of "If it's wrong, don't do it". Also, the argument posed heavily by the people over at 350.org is pretty convincing:
"If it's wrong to wreck the planet, it's wrong to profit from that wreckage".

Problem here, though, is twofold. The first part involves a two-step "very-low-chance-of-success". That is, first you need to get all Universities and pension funds aboard - which has a very low chance of happening - secondly, the impact of the entire thing should you pass the first obstacle, is very limited. In order to show this, I grabbed some numbers from ShareAction, a similar organisation calling for pension funds to divest.

On its own account, the ShareAction campaign claims that the UK private pension system has more than £3 trillion worth of assets. Let's exaggerate and use £4 trillion to be on the safe side, also including some private savings and University Endowments etc. (£4trillion is about 1,5x the British Economy, by the way, so adding another trillion is not just a rounding error..).

Let's also assume ratios of fossil fuel exposure to rest of portfolio at between 2-5%, as seen below (from the Oxford Stranded Assets Report).

5% of £4 Trillion = £200 bn. 

The total Market Capitalization of the Big Five oil companies (Chevron, Exxon, BP, Shell, Total) is around £730 bn. If using this number, again, numbers will come out on the side of overestimating the effect Pension Funds have, because there are quite a few additional fossil fuel companies - but I'm using these companies as a proxy for the entire industry, thus benevolently exaggerating the effect the campaign might have: £200bn/£730bn = 27%. Interestingly, the share prices of these companies have had differences between top and bottom price over the last few years larger than 30%.

That is the entire chunk of fossil fuel investments (all British University Endowment, Pension funds etc) represent a value in these companies less than what regular share appreciation/depreciation already does in normal markets.

In other words, even if the campaign would be instantly accepted, face no objections and all funds/Universities would sell off their fossil fuel assets, the effect would be minimal. This, again, not even considering that there quite possibly would be neutral buyers for these shares, counteracting the effect aimed for by the Fossil Fuel Divestment campaign.

The Oxford report on divestment of Fossil Fuel companies concludes exactely that:

In this report we find that the direct impacts of fossil fuel divestment on equity or debt are likely to be limited. The maximum possible capital that might be divested by university endowments and public pension funds from the fossil fuel companies represents a relatively small pool of funds. .  - Stranded Assets Report Smith School of Enterprise and Environment

My Second Objection

Going after publicly-traded fossil fuel companies in the west is misdirected. Why?

This chart explains it pretty neatly; the vast majority of fossil fuel production is made by National Oil Companies, predominantly in dictatorship or questionable democracies (Russia, Venezuela etc).

That is, the argument about divesting obviously has a further aim than just to annoy oil companies. Climate Activists want to stop the production of oil, so that the impact of climate change is halted. But going after the companies in the West that represent a minor piece, some 20% of global production, is misdirected. If these countries (Saudi Arabia, Iran, Qatar) won't even accept internal criticism and protesters are violently put down, why would foreign University students protest be any of their concern?

A formula for success would look something like this:

Result = (Large IOC share of global production [x] percentage Unis/pension funds hold [x] chance they would comply with the Campaign demands)

We know roughly two of these componens, (Share of IOCs = 20%; and percentage all Funds can affect, estimated to less than 27%). We don't know how successful the campaign might be, but it is reasonable to assume that not all will divest. Still, 0,2 x 0,27 x Y = a very small amount, even if Y turn out to be close to 1.

What I am saying here is that the campaign is completely misdirected; if you care about climate change (which watermelons normally do) you'd be much better off/having a much greater impact if you went vegetarian, got a your bike instead of driving or switched your electricity provider to a non-fossil-fuel one.

[Another One] of the Inherent Contradiction(s) of the Left

I previously wrote a piece on how Lefties are contradictory when they simuntaneously protect women's right to their bodies in Abortion debates, while refrain from the same protection in Labour Market debates. Here's another amusing contradiction:

A few months ago, during my heavy rampaging at those poor Lefties at People & Planet, I made a post about feminist economics. Since there's a major wave of socialist and feminist ideas tumbling across both my native country of Sweden and my current home, Scotland, I thought to re-introduce a special feature of the Feminist argument. Here's what I wrote about the Wage Gap:

"Wage gap. All kinds of numbers are generally presented to support this idea; women make 15% less than men, £5000 less in a year; higher in private sector (19%) than public (13%) etc, etc. What does this mean? How is this measured? The simplest of comparisons are made through dividing all income by women by the amount of women to the same ratio for men. Clearly inaccurate, because that would compare the pay of a female working minimum wage at tesco with a handsomely payed lawyer. Most studies then controll for other factors, most obviously what profession you're in. But even then, same questions arise; differences in productivity, experiences, in certain education etc. Some studies controll for more factors than others, but very few of them are conclusive in the sense that they add such tiny things as choices or personal adequacy.
Truth to be told, when more factors are accounted for (education, experience, career choice or even negotiation skills) the gap narrows into virtually nothing. There is no wage gap, there's only choices. More extensive reading here."

Libertarian Uni March 8, 2014.

Also, yesterday I shared the picture below on facebook, resulting in some pretty decent discussions about related issued. Now, I'm still looking for the sources to some of these claims, such as more likely do die at work or how the 14% "more time at work" is calculated. If anyone knows, please give me a shout!

Let's Get Down to Business!

Literally, actually. So, feminists claim women earn a percentage of what men earn (77%, 95%, 85%, whatever the specific number might be, but you get the idea - it's below 1). To a superficial reader that's accurate, and nobody is actually disputing that the following calculation gives us a number less than 1: 

<Total Wages Earned by Women>

<Total Wages Earned by Men>

After giving it a moments thought, though, you realize that this calculation compares people on minimum wage with Wall Street Excecutives. Or Steve Jobs, or J.K Rowling. The rest of us are not refuting this calculation - we're just laughing at its sillyness and the conclusions drawn from it ("OMG, DISCRIMINATION IN THE WORKPLACE").

There's more to the story. You have to control for things such as location, education, productivity, presentational skills, perhaps humour, fashion or whatnot a feature employers might value in any given employee. Studies that do, generally get a smaller "Gap". As Ellen Fishbein greatly points out, though, most studies never claim that this "gap" is discrimination - their authors say it is due to measures they didn't take into consideration.

Ok, so where's the contradition here?

If, as the Lefties say, women 

a) are just as good as men at a particular task in a particular field, and 

b) are payed less on average because of gender discrimination, 

another one of their favorite claims would come into question: Profit-Maximization. 

If a firm, simply by substituting women for men, could save 10%, 15%, 23% on their labour costs without loosing out on productivity or output (because of a above), AND they're constantly seeking to max out profits - Why wouldn't all firms stop hiring men and substitute women for men?

They could pocket a decent profit and still lose out on nothing. 

So, if we add Profit-Maximizing to the equation, our contradiction is complete:

A) women are just as good as men at a particular task

B) women are payed less on average because of gender discrimination

C) Firms are profit-maximizing entities

The only conclusion that follows is: Women would be prefered/have higher employment in doing such a task. 

Since that is not the case, illustrated by our friends on the left, one of these premises have to go. As I explained above: if firms could have double-digit returns on substituting women for men (without losing output), and we're not seeing that happening - one of our premises are incorrent. One has to go. 

Which one is it gonna be, Lefties?

Feminist Economics - an extension

This is the 7th part of the "Leftie Serie" which I created after attending the People & Planet Conference on the 8th of March 2014. 
Here are links to the other posts: Feminist Economics, Inequality, Financial Crisis, Layoffs vs. Bonuses, Defending the 1%, The Austerity Myth

After a few very rewarding discussions following my post on Feminist Economics the other week, I had enough material for an extension on the subject.

Most of the critique I had regarded the idea that I, simply, missed the actual point of feminist economics. Also, when a friend of mine explained how naturally the alleged wage gap disappears when accounting for all variables (including say lifestyle choices), that moved my perception a bit further. Great discussion!

Anyways, his argument was as follows: if we assume a patriarchy within the workforce, women systematically being discriminated against, rewarded less wages for their labour regardless of experience/knowledge etc. The entire feminist story, essentially. If we assume that, we'd consequently have to assume that women value certain things (say leisure, or providing care, or rather stay home with the kids etc) more than do men. My argument is based entirely on this valuation, where I claimed it was inherently individual and thus acceptable. However, my friend pointed out, what if - given said assumptions - women are taught to value certain things more than they naturally or individually would have done absent such teachings?

Such a statement could obviously be questioned epistemologically. But, if taken at face value it does change the outcome of the argument, and I would be inclined to accept the raison d'être of feminist economics.

However, obvious criticism occurs. Questioning why an agent value a good or service in a certain way, which is at the bottom of this new foundation of feminist economics, leaves the field of economics. Economics take valuations and actions by individuals, corporations or government as given. We question what incentives govern the outcome and how these incentives and actions change; but economists regularly don't take into account why an individual prefer a certain type of goods over another. It is simply taken for granted, assumed to be beyond the field.

Also, examining why individuals value certain actions over others is the subject of other fields; psychology or sociology instantly comes to mind. Thus, the sociological/political notion of feminism, adjusted for economics with a somewhat different point of view (including differing valuations between individuals/groups of individuals) instantly sends it straight outside the field again.

In this sense, feminist ideology applied to economics might be more relevant. However, it also firmly distinguishes itself from economics as an academic field, thus making "Feminist Economics" look like an oxymoron. 

The AUSTERITY myth

This is the 6th part of the "Leftie Serie" which I created after attending the People & Planet Conference on the 8th of March 2014. 
Here are links to the other posts: Feminist Economics, Inequality, Financial Crisis, Layoffs vs. Bonuses, Defending the 1%

Austerity in Britain. If you open a newspaper, watch the news or talk to people you'll regularly find one statement; The UK Government is imposing austerity measures on the economy, and all kinds of notions of what effect these cuts have to the lives of regular people. Since 2010, the Government's explicit target has been to reduce Public Deficit, impose cuts to public spending and, essentially, lead an austerity-based revolution in the UK. Sure enough.

Regardless of whether you approve of austerity as a measure or not, we have to find out if that is actually the case. After all, austerity doesn't happen because the Government SAYS so, or explicitly wants it to occur. It also has to act accordingly, and the desired effect can't be offset by other factors, in order for us to actually talk about austerity. That is: if you cut £10bn from one department and increase the spending of another department by £20bn you are not imposing austerity, regardless of your rhetoric. You're simply re-arranging funds.

For instance, my constant opponent these days, Lefties and organisations such as People & Planet, makes three claims which I intend to look into:

1) The welfare State is under attack
2) Inequality is on the rise
3) Worker's rights are being eroded

As for #2, I've shown several times how the idea is misleading and that the statement in itself is incorrect. I won't deal with worker's rights just yet, but will focus on the alleged attacks on the Welfare State. Is the Welfare State under attack? Is Austerity being imposed in the UK?

Austerity, the argument goes, means the government is slashing Public Spending, removing benefits for the poor, increase taxes and reduce funds for health care. Sounds scary and quite bad. Now, let's see if that's the case.

PUBLIC SPENDING

This chart shows total Public Spending in the UK from 2001 until 2012. Beyond that (the red staples) are figures for projected spending (what they hope to achieve). Government spending has been continuously increasing.

= No sign of austerity here.

But that doesn't take Inflation into account, so let's go with real terms:

In real terms, Government Spending in the UK has virtually doubled since the late 80s. Almost regardless of government, the trend is undeniable; increased government spending. If we focus on the last few years and the accusation of austerity, there's a slight downturn in 2011, itself smaller than the increase after 2008 financial crisis. Generally, during recessions government spending hikes because of increased benefit payments/redistributions when more people are unemployed etc. That is, should the UK government have changed nothing, the curve over the last few years would look something like that above; an initial big hike in response to recession, than slowly reduced as more people get back into work and unemployment comes down. If austerity would have been imposed, the drop would have been significantly larger than what the chart tells us.

= No sign of austerity here. 

But, if we take the economy as a whole into account. What happens? How large a part of the UK economy is represented by the Government Spending?

Yet again we have a projection made by the Treasury (the last 5 staples). Let's ignore that, and have a look at actual reported numbers. Last accessible; 2011-2012, which shows a little over 45% of GDP consisted of Government Spending. As in the previous section, we see a hike during the recession (2008-2010), and a gradual reduction. Also, the current level is substantially above the levels for the last 15 years. 

(Note: a "reduction" here is not necessarily a reduction; if the economy grows and spending stays the same, the percentage would be falling and the chart would look something like above.)

All of this is consistent with the news that the UK Economy is growing again, which means Government Spending as a % of GDP is gradually decreasing. 

= No sign of austerity here

WELFARE STATE UNDER ATTACK?

Ok, so what about the Welfare State? What about the alleged cuts to the NHS?

Financing the NHS has been a great political discussion since it was created. And guess what? Throughout these 65 years (time for retirement anytime soon?) the claims have been consistently the same; NHS lacks funds; NHS needs more money!

As seen, UK has never spent as much money on the NHS as it currently does. Also, the percentage of national income that we allocate to the NHS is way above previous levels.

Here's a more detailed view for actual spending over the last decade or so:

Clearly, rapidly increasing spending for Health care or NHS. 

= No sign of Austerity here.

________________________________

Bottom Line: Austerity has not been imposed in the UK, despite the explicit target and attempts by the Government. 

That means the entire discussion about austerity occurs in a theoretical framework, that is, for economists, philosophers or historians to argue about whether it can work or whether it has worked in the past. 

What we see today is not austerity. It's a government that wants to impose austerity measures, but is unable/fails to do so.

Next time someone refers to the "Austerity in the UK", you know they have no clue. Let's stop rely entirely on what people say about something and more about what they actually do - or what's actually going on.

Austerity in the UK is a myth.

Defending the 1% - a story of legitimate wealth

This is the 5th part of the "Leftie Serie" which I created after attending the People & Planet Conference on the 8th of March 2014. 
Here are links to the other posts: Feminist Economics, Inequality, Financial Crisis, Layoffs vs. Bonuses

I hear a lot of talk among Lefties about the "top 1%", the richest in society. Especially the last few years with the Occupy movement where these issues have been heavily discussed. The idea is that the richest 1% make so much more money than does the poorest, or even average worker in a country - and for some reason that this should be unjust, unfair and bad. Fair enough: the argument has some appeal to it - why should anyone make riddiculous amounts of money, when workers at McDonalds are payed minimum wage?

The discussion can be prolonged even further, considering the 1% of the 1%, that is, the top 0,01% of income-earners. In the U.S, the limit for entering this exclusive club is around $10m/year. Quite a hefty salary. Are they worth it?

Greg Mankiw, a Harvard economist I'm somewhat in love with, wrote a longer piece about income and inequality (here), where he presents compelling reasons for why the premises of the arguments of the left are incorrect, thus invalidating the arguments. The shorter New York Times version can be found here.

Interesting is his comparison to the main actor in the block-buster Avenger, payed an astonishing 50 million dollars. However, that represents only 3% of the total revenue of that movie. Or, to put it differently, for every $8 ticket someone payed for going to the movies to watch his performance for two hours, 25 cents went to the actor. Is that "overpayed"? Riddiculous amounts? Hardly, and few people would disagree. The effect that happens, Mankiw argues, is that globalisation and technological improvements means billions instead of millions can watch such a movie; that Apple products are sold to a market of billions instead of millions. Surely, because of the pure scale itself, salaries for those kinds of people skyrocket.

Mankiws words are well-expressed:

"People are similarly unperturbed when they learn that in 2013, E.L. James, author of the 'Fifty Shades of Grey' triology, earned $95m or that in the same year the basketball star LeBron James earned $56 million in salary and endorsements. When people can see with their own eyes that a talented person made a great fortune fair and square, they tend not to resent it." - Greg Mankiw, NY Times

Problem is, the rest of the 1% (or the 0,01%), make money in ways that people don't intuitively understand, using their talents in ways people don't see how that generates a great fortune. The problem is thus not that some people are handsomely paid; the problem is that their critics don't understand why.

Hence the "Deserving 1%" or "Legitimate Wealth". 

Why Bonuses and Layoff have nothing in common

This is the 4th part of the "Leftie Serie" which I created after attending the People & Planet Conference on the 8th of March 2014. 
Here are links to the other posts: Feminist Economics, Inequality, Financial Crisis


I wanted to add "or the struggle for incentives" to the end of this post, but my posts already have very long names. That would, however, be a substantially shorter answer to the issue of Layoffs vs. Bonuses.

This discussion originates in articles like this one, comparing two essentially different business activities with eachother - simply because they seem to be in contradiction with one another. The general idea, and which was also lifted among the Lefties with whom I spend last weekend, is that laying off workers at the same time as paying bonuses to excecutives is inherently immoral, evil and straight out bad; they could cut the bonus and keep the worker instead! The top (usually rich) is getting wealthy at the expense of the bottom (poor). Shame!

I'll argue the position that this is not the case. My point is that two different business activities (1: Excecutive Payroll, 2: employment/worker's salaries) can occur at the same time, without affecting one another. Why is that? In order to answer that question we need to outline what excecutive bonuses are and what worker employment is.

First: employment, considered from a firm's perspective. Employment occurs when the benefits yielded from an employee outweights the costs associated with employing this person. (that is, the work/knowledge this worker provides is, for different reasons, more valuable than the costs of wages, taxes, providing him/her with office/phone etc, etc). In a normal market economy those numbers are very close; if benefits are substantially above costs, other competitive firms would gain advantage by offering that person a higher wage, thus reaping the benefits instead of the initial firm. If the costs are substantially above the benefits, the company is essentially making losses employing that person, and yet again competitive firms would gain advantage by employing workers at lower wage than the initial firm. Employment is determined by the differences between benefits and costs, as well as demand for that particular skill/knowledge or need for the work provided by the worker.

Secondly: Excecutive. The role of an excecutive within a company is quite different from that of the worker. The entire field of management is filled with different theories for how to improve performance. The rationale for paying high salaries is essentially incentives (in economics called efficiency wages); that is, if payed more handsomely, it will 1) attract better-performing applicants, 2) will perform better because the oppurtunity cost of loosing the job is higher. But this is not always efficient or even enough, and often create what economists call Principal-Agent problem. Essentially, the owner of the business/board doesn't necessarily know if the excecutive is doing everything he can in order to improve the business; the excecutive is payed regarless if he does a splendid job or just a rather decent one.

Bonuses, then, are used as means to align the interests of the excecutive with the business. Often they're made through awarding shares in the company (if the company performs well, shares tend to rise in value, thus providing the excecutive with incentive to increase value of company), but also bonuses if certain targets or criteria are achieved. Essentially, the purpose of bonuses are to create incentives and enhance performance.

This is how these two effects are completely unrelated; bonuses paid if criteria achieved, worker's salaries/employment occur when the benefits they provide outweight the costs they incur.

Student Analogy (we're still at a University, dooh)

I'll try to explain this using an analogy most students would be familiar with. I, as a student, take up student loans to finance my studies and my living expenses while I study. What I do occurs in two different actions:
1) I take loans,
2) I spend that money.

The idea for this analogy to work is that if I change my way of spending money, I could take on less loan. Since loans are generally considered to be a bad thing, less loans would essentially be better for me as a person/my financial wellbeing.

Arguably, money that I spend on one hand, can be said to be in direct relation to the loans I take up. For instance, it's not impossible to make the case that I'm taking up loan in order to consume chocolate. The statement is, in essence, true; I take up loan, and parts of those funds are used to purchase chocolate from time to time. If I didn't purchase that chocolate, I could take on less loan. Most people inherently sees how this is a riddiculous way of approaching the subject, however it's no less true.

But it's also incorrect from the point of view that 'chocolate' and 'student loans' fulfil different tasks; I take loan in order to pay expenses (say food or rent) that are required to pay regardless. And I eat chocolate to keep focus, concetrate better on my studies (essentially, enhance my performance) - also, occationally enjoy/relax, which in turn can be argued to be a neccesity for improving my studies.

Same with a company; yes, in essence it could cut the bonuses and keep more staff around, but that's not the purpose nor the aim of the company. They are two different actions, occationally occuring at the same time.

So yes, in principle, I could eat less chocolate (thus, perhaps performing worse) and with less expenses take on less loan. But because chocolate helps me study longer/focus 100% on lectures thus enhances my performance, skipping chocolate might also reduce my performance and result of my studies. Those studies then, were the initial purpose to be here in the first place => it would defeat the purpose.

All in all - sometimes things seem to be contradictory and especially in the case bonuses vs. layoffs, it bothers people. But when broken down into pieces, they are actually quite different things, whose purpose are different and are determined by very different backgrounds. Thus, they are not contradictory in any sense; laying off workers at the same time excecutive is recieving bonus is not contradictory, bad, greedy or even wrong.

_____________________
Analogy Translation:
Chocolate = Bonuses;
From a certain perspective deemed useless/waste of money, but from individual or firm, it represent the incentives/measures with which performance is increased.

A leftie analyses the Financial Crisis of 2008

This is the 3rd part of the "Leftie Serie" which I created after attending the People & Planet Conference on the 8th of March 2014. 
Here's a link to the other posts: Feminist Economics, Inequality

Here's a passage from page 14 in The Austerity Machine, a pamphlet I got at the Leftie conference, that is just so entertaining! On page 14 it tries to explain the origin of the 2008 financial crisis which is such a great example for how the left likes to look at the world: superficiously, of course, and with very little insights.

"Banks continued to give new loans even when it was clear the borrowers would not be able to repay. The sub-prime mortage crisis in the US, which sparked the financial crisis, was a clear case of banks targetting poor borrowers, selling them expensive mortgages that they could not repay. Although this doesn't sound sensible, the banks had a strategy: they sold on the mortgages to other banks and investors in 'bundles', 'packaged up' with good mortgages so they looked less risky. This is just one example of the way finance started developing new ways of trading, to hide high levels of risk." - Economic Justice Project

Now, this is just like the famous Keynesian economist Paul Krugman goes on about everything; He's not technically lying or stating incorrect statements, but he twists them and hides certain facts that change the meaning of what he's saying.

Same thing here. Yes, the crisis originated in the US, it occurred after a housing boom, banks did sell 'Sub-prime mortgages' and they did mix them into packages with high-credit mortgages, obtaining AAA-credit rating on those products. Yes, they targeted the poor (thus: 'sub-prime', = below prime: that is costumers that actually can't afford/support a loan because they, for instance, had no income). That is, banks were injecting risk all over the financial system and these risks were hidden through the rating given to them.

The left makes this look like how the banks are awful, how their greed deliberatly caused the world economy to crash - and especially that bankers are so obsessed with their trading that not even risk matters to them.

Let's think about bankers and evil capitalists that only wants to make money for a moment. Let's assume these traits are true. What, in a free market, stops these capitalists from going crazy, lending money to everyone in order to make as much profits as possible? The risk of loosing the initial money, obviously. If they loose their own money after going mental, that's their lose - no problem for the rest of us.

Now, let's wonder for a moment why bankers did sell loans to poor people that clearly couldn't sustain them, or why they even would do that to begin with. Sub-prime costumers represented a HUGE risk for bankers, why would they risk their capital to low/no-income borrowers who would never be able to pay that money back? The left story is simple; because they're evil, greedy and want to exploit the poor as much as possible. The more truthful story is a bit more technical. Since the Clinton era in the US, there had been a political goal of making all Americans own their homes - not too different from UK politics. For this reasons, the administration used something called Government-Sponsored Enterprise (Fannie Mae & Freddie Mac), designed to purchase mortgage loans from other banks, making sure normal banks always had a second market for their loans. Essentially, the risk associated with lending money to someone was transferred to these companies. Banks lended to everyone because Fannie and Freddie would buy that mortgage straight away - leaving the banks with initial profits, but Fannie and Freddie with all the risks.

Fannie and Freddie (and further down the line, Goldman Sachs or Leeman Brothers etc also) packaged these "risky" loans with proper, "good" loans into a financial product, which, by the incentives of rating agencies and Fannie & Freddies government-sponsorship, recieved AAA ratings and were deemed to be very safe. Effect: banks, investors and individuals around the world bought them, because they yielded good returns, while on paper exposing them to very low risk.

Now, when the debtors of the initial bad loans eventually defaulted, a domino fell through the system, causing loses to be made all over - and the rest is, as they say, history.

Yes, if you want to make the superficial analysis that "look, a product bankers made spread risk throughout the system - IT'S THE BANKER'S FAULT!", you can make that. It just simply doesn't deal with the fundamental mistakes made that eventually caused a financial crisis to occur.
Misguided incentives, however, does. Politically-governed idea that "all should own their home", an interest rate held substantially below its market rate and the hydra of moral hazard that GSEs, Sub-Prime purchases and Bank Bailouts represent are more accurate explanations. 

Stop messing around with absurd accusations of "bankers and SPECULATION causing the financial system to crash". Politicians and messed-up incentives did. Like governments, state and politicians do most of the time.

This is a perfect example to when Lefties take one glance at something, find an explanation - regardless of how inaccurate it might be - that fit their worldview and start accusing one of the following 1) capitalism, 2) bankers, 3) rich people, for x, y and z.

Sorry guys, it doesn't work that way.


_______________________

For an extensive story on the Financial Crisis see here, or a more technical, economic debate, see Austrian Theory of the Business Cycle.

GINI - or the increasing inequality between the rich and the poor

This is the 2nd part of the "Leftie Serie" which I created after attending the People & Planet Conference on the 8th of March 2014. 
Here's a link to the other posts: Feminist Economics

As in any gathering of political lefties, inequality is a often-discussed topic. There are very decent debates around and differences to what this actually means, what equality would be and how equality is to be gained - but generally, most lefties agree on the notion that inequality is bad. 

At the conference these ideas were frequent. "The rich are getting richer, the poor are getting poorer" has echoed throughout the world since Seattle, "UK inequality is raising", probably been said since Thatcher or before that even, "rich getting rich at the expense of the poor" are repeated until they stick. Question is, how accurate are they?

We were presented with the following charts of  Wilkinson & Pickett showing the how more equal countries are better countries, also notions heavily worshipped within the left. The chart plots countries according to Income Inequality (measured as GINI) and an index consisting of various problems, obesity, teen pregnancy, mental health, violence etc), showing how more equal countries tend to have less of those social problems.

Discussion

This discussion is twofolded. The left argument is something like this:

P1: "Inequalities are increasing"
P2: "Inequalities are bad and must be prevented"
C = we must prevent the inequalities from increasing, preferably reduce them

I'll address these in turn.

Let's have a look at income inequalities as measured by GINI, then. Here's a chart which compares the UK (Red square) with Scandinavian countries, Germany, France and the US.

Source: Ekonomistas, based on OECD numbers. UK GINI inside the red square.

The trend for continental Europe and Scandinavia is indeed upward over the last 30 years, but from very low levels. In the case of UK, on the other hand, the income inequality has been stable since 1990, actually falling slightly over the last few years. The notion that income inequalities in the UK are increasing is simply not true. Also consider the article published in the Guardian last summer about how income gap in the UK is at its lowest point for 25 years.

The other discussion often involved here is that the rich are getting rich at the expense of the poor, as news regularly imply when posting these kinds of arguments. That discussion is wider and regards the economic foundations and structure of a company. Suffice to say that level of bonus vs layoffs have very little to do with one another.

If we turn our heads to a more global scale, Johan Norberg's In Defense of Global Capitalism, comes to mind. He shows systematically how capitalism increased the living standards around the world and made people better off. He also describes the following, taken from a Forbes article when the book was first published:

"As for the argument that the rich are getting richer, well, they are, according to Norberg: The top fifth of the population made an average $14,623 in 1998, a 75% increase over 1965 wages. But the poor are getting richer faster. The bottom fifth, making $1,137 in 1998, doubled their 1965 wages." - Forbes

That is - yes, the richer are indeed getting richer, but not as fast as the poor. Yet again the Leftie's notion is inaccurate.

Is inequality bad?

Following the first section, the second becomes more philosophical; if inequalities aren't increasing, it matters less whether or not they are bad. Even if they are, it's still less of a problem than the global left claims. And surely, if the levels of inequalities experienced in the UK in 1990 were sustainable, given the increased living standrads since then, surely UK 2014 would be a better place than 24 years back. 

Anyway, the discussion finds most of its academical value in Wilkingson & Pickets work, which relies entirely on correlation. They plot their charts and break law #1 in Academia: don't mix Correlation with Causation. But the Left, hardly creditted with academical excellence or consistency, takes their research and use it for certain proof that inequality is bad. 

How would that even be possible? Inequality is a strictly relative term, not too different from Relative Poverty (which I wrote about some time back); that is, indicators of inequality could be up, even though everyone in a society was better off. Besides, all the effects discussed occur on individual levels (obesity, violence, mental health etc) - why would I suddenly become more violent because a banker across town gets a bonus or because cleaners in a different part of the country suddenly make more money than me? Inconceivable.

Defending the 1%

In addition to all of this, the recent discussion in US media about the top 1% should be taking into consideration. The Harvard economist Greg Mankiw published an article in the NY Times a few weeks back vividly defending the 1% and their contribution to society/world. He also provides compelling reasons to why the Lefties' notions about the richest of the rich are incorrect. More extensive reading can be found in his article 'Defending the 1%'.

Conclusions 

The notion of increasing income inequalities in the UK is incorrect; GINI has remained stable for the last 20 years, marginally falling/raising over the last decade. The rich around the world are indeed getting richer - but so are the poor, and at a rate faster than the rich.

The starting point of the Left ("Inequality is bad") doesn't have more support than the correlations provided by The Spirit Level. Since correlation ≠ causation, this gives us nothing more than a hint towards further research. Also Mankiw's arguments about the top-1% should be taking into account; why are transactions that make both parts better off and at the same time creating income inequalities undesirable?

The question I have for you lefties is simple: why exactly is inequality bad?

Feminist Economics

After the countless amount of ideas, statements and reasoning I was exposed to at the People & Planet Conference on Economics today (the "Lefties Conference", that I refered to previously), I decided to make an extended series. Every day for the coming weeks or so, I'll be posting something that originated at this conference and address the flawed reasoning and/or incorrect premises used in reaching their conclusions.

First up, in honour of the day, I'll dedicate my first blog post to Feminism. Now, I'm not a particularly big fan of feminism, depending obviously of what you choose to fill that concept with. This position I've addressed elsewhere. However, at the Conference I was introduced to the field of "Feminist Economics", and as this blog overwhealmingly focus a lot of its attention of economics, obviously I was curious.

The way I understand Feminist Economics, it includes the regular presuppositions given by marxian approach to class remade and re-organised for Sex or Gender; structure, exploitation, traits inherent to those groups that determine their actions etc. Wendy McElroy has done extensive works in that particular area. Anyways, we touched upon 3 specific areas that came up during the session.

1) Domestic work done by women is excluded from measures of the Economy.
2) Women are forced to choose between Career and Family.
3) Stats and the Wage Gap


1) Domestic Work
The argument here is that domestic work (care ex or relatives of children, household cleaning, cooking) is unpaid, doesn't involve a measurable transaction and is not included in the GDP, thus in the economy as a whole. Feminist Economics try to distinguish itself from 'Traditional Economics' by including such unpaid work into their models and measurements of the economy.

2) Career or Family?
Such an ancient question, constantly been part of the feminist movement. How is a woman to choose? Does she even have to? Can she have both? The discussion here is that there's a social pressure for women to focus on family, a structure implicitly telling women they're bad mothers if they spend too much effort/time on their careers. Because men doesn't face these questions, all things equal, women will be disadvantaged by such anticipations.

3) Stats and the "wage gap"
We had three sets of statistics presented to us. Taking them at face value, they were "Women hold 70% of jobs paying the minimum wage"; "30 000 women are sacked each year because they are pregnant"; "Average Domestic work for women are 3x the domestic work of men".

Also included the discussion about the wage gap, that is men making more money than women, within the same occupation.

Addressing these issues resolve mainly around two things; Refutal of the "Wage Gap" and the notion of Choice. In the first two areas, choice is a dominant factor, largely ignored. Let me give you a hypothetical. Let's say the entire economic society went 'equal' overnight; supply and demand randomly created an equal pay for everyone (women included) and sectorial work identital between men and women. No wage gap, no involuntary part-time work, no penalty for choosing family etc. Now then let's also say there's a change in attitude towards leisure in the case of some women whilst the pattern of leisure/work for men is held constant; these women now prefer staying home, planting flowers in the garden, watch tv, involve themselves in community work and whatnot to a larger extent than before. They substitute some work for leisure and are therefor better off (First, they had a certain ratio between work and leisure that they were happy with; now the change in preference altered that ratio, resulting in a higher rate of leisure, and they recieve more personal benefits from this - otherwise they would stay in the same ratio as before, like the other women did). 

How would we see this? We would see that 1) the wages of men would outstrip women (if women work less and pay is perfectly equal, their aggregate wage is reduced), 2) men would work more than women, 3) women would be overrepresented in part-time jobs. Not too different from the story Feminists tell us today.

My point here is that domestic work is a choice; relationships, assumed here to be male-female, are determined by their reciprocal relations. Simply, in living together, men and women decide who is taking up what task, who is doing what. If that choice comes out with 5 vs 15 hours work respectively, what does it matter? Two people voluntarily choose to distribute domestic work in a certain pattern. No more, no less. Domistic work is, by its nature, unpaid, because it is what you do in your home. The fact that women happen to do more of such work than men means very little, especially for the entire economy. Irrelevant.

Second point: Wage gap. All kinds of numbers are generally presented to support this idea; women make 15% less than men, £5000 less in a year; higher in private sector (19%) than public (13%) etc, etc. What does this mean? How is this measured? The simplest of comparisons are made through dividing all income by women by the amount of women to the same ratio for men. Clearly inaccurate, because that would compare the pay of a female working minimum wage at tesco with a handsomely payed lawyer. Most studies then controll for other factors, most obviously what profession you're in. But even then, same questions arise; differences in productivity, experiences, in certain education etc. Some studies controll for more factors than others, but very few of them are conclusive in the sense that they add such tiny things as choices or personal adequacy.

Truth to be told, when more factors are accounted for (education, experience, career choice or even negotiation skills) the gap narrows into virtually nothing. There is no wage gap, there's only choices. More extensive reading here.

Bottom Line: if there is no wage gap due to sex, and the domestic issue is largely determined by choices, the fundamenta for "Feminist Economics" is largely pulled away.

___________________________

P.S: There was also a discussion about particular male characteristics that women allegedly had to embrace in order to become successful career-wise (ie, the idea that 'female traits' such as emotion or care is less usefull in business and career than are 'male traits' like logic or self-discipline and whatnot). A widely-used UK example is Margaret Thatcher, who, allegedly, wasn't female enough.
That's a perfect example to what I mean with "Epistemology" in my story of Feminism: how can we know that? How is such knowledge obtained? How is even 'male traits' to be defined?

Also, the idea of "Sacked because of Pregnant" faces the same issue; how do we know? Because such an action is illegal in the UK, it's not simply to gather statistics of "reason for redundancy". Furthermore, Wendy McElroy has a great outline of why exactly discrimination is justified.