Thou shall not sell environmental crimes indulgences

Sir, albeit a bit late, I refer to David Sheppard’s Big Read “Carbon trading: the ‘one-way’ bet for hedge funds” FT August 23.In his Encyclical Letter 'Laudato Si’ of 2015, Pope Francis wrote:

"171. The strategy of buying and selling “carbon credits” can lead to a new form of speculation which would not help reduce the emission of polluting gases worldwide. This system seems to provide a quick and easy solution under the guise of a certain commitment to the environment, but in no way does it allow for the radical change which present circumstances require. Rather, it may simply become a ploy which permits maintaining the excessive consumption of some countries and sectors."

With “permits” Pope Francis was here de facto referring to some type of “indulgences”, which help pardon environmental sins. 

It was Martin Luther’s attacks on the Catholic Church’s sale of indulgences for the remission of temporal punishment for forgiven sins, which caused the rift that led to the creation of the Protestant Church. Therefore, more than 500 years since Luther in 1517 (supposedly) nailed his “Ninety-five Thesis” on the door of Old Saints' Church in Wittenberg, I found it curious (and equally correct) to read a Catholic Pope accusing many protestants who favor carbon trading, for sort of a similar procedure.

As a protestant belonging to the Swedish church, ser wife and catholic children, I do not like carbon trading, as I previously explained in a letter you published, I much prefer high carbon taxes shared out equally to all, as that would align the incentives in the fight against climate change and the fight against poverty. 

http://ourpiedaterre.blogspot.com

@PerKurowski

John Kenneth Galbraith could very well have been asking for the impeachment of current bank regulators.

Sir, Rana Foroohar writes “Americans still fundamentally accept the idea that the private sector always allocates resources more efficiently than the public sector. It is a truism that dies hard” and she uses John Kenneth Galbraith… “concept of countervailing power”, put forth in his 1952 book American Capitalism… a critique of the “market knows best”, as back up. “Old economists can teach us new tricks”, June 3.

Indeed but for a different perspective she should also read John Kenneth Galbraith’s ““Money: Whence it came where it went” 1975. 

I quote: “For the new parts of the country [USA’s West]… there was the right to create banks at will and therewith the notes and deposits that resulted from their loans…[if] the bank failed…someone was left holding the worthless notes… but some borrowers from this bank were now in business...[jobs created]… 

The function of credit in a simple society is, in fact, remarkably egalitarian. It allows the man with energy and no money to participate in the economy more or less on a par with the man who has capital of his own. And the more casual the conditions under which credit is granted and hence the more impecunious those accommodated, the more egalitarian credit is… Bad banks, unlike good, loaned to the poor risk, which is another name for the poor man.”

So, what would Galbraith had said about current regulator’s risk weighted bank capital requirements? Those that favor credit going even more to those who perceived as safe are already favored, and less to those perceived as risky who already have to pay higher interest rates and get less credit? That which guarantees especially large bank crises, from especially big exposures to what’s perceived as especially safe, against especially little capital?

Sir, I believe Galbraith could very well have joined me in a “Let’s impeach those regulators”.

And for the why these regulations are not sufficiently questioned, let me also quote Galbraith: “If one is pretending to knowledge one does not have, one cannot ask for explanations to support possible objections”

PS. More than forty years ago, in Venezuela, John Kenneth Galbraith autographed my heavily underlined pocketbook version of “Money”

http://subprimeregulations.blogspot.com/1997/06/puritanism-in-banking.html

http://subprimeregulations.blogspot.com/2019/06/are-these-reasons-not-enough-cause-for.html

https://subprimeregulations.blogspot.com/2016/03/decreed-inequality.html

@PerKurowski

Three questions for Angus Deaton, the chair of The Institute for Fiscal Studies’ wide-ranging review of inequalities in UK

Sir, I refer to Angus Deaton’s “Inequality in America offers lessons for Britain” May 15.

I have three questions for him:

Regulatory subsidized credit for the purchase of houses, which has helped morph houses from being homes into investment assets, how much increased inequality has that caused between those who own houses and those who do not?

The increased benefits for those who have jobs, how much increased inequality has that caused when compared to those without jobs?

The risk weighted capital requirements for banks, which very much favors the financing of the “safer” present over the riskier future, how much inequality is it producing between current and future generations?

PS. Decreed inequality

@PerKurowski

The “having just enough” opens the door for a discussion on relevant and irrelevant inequalities

Sir, I refer to Janan Ganesh’s “The holy grail of having just enough” April 6.

It is a great article, though because of its honest shadings, those who want to see all in black or white will criticize it. But its real importance could be in helping to put the finger on the need to redefine all discussions and measuring of inequality, by allowing these to focus much more on the relevant existing inequalities, and much less on the irrelevant inequalities.

That some “filthy rich” has decided to use his purchase power to buy a yacht, something which makes yacht builders happy, or to contract a yacht crew, something that gives those crew members a job, or freeze $450m of it in a painting, such as Leonardo da Vinci’s Salvator Mundi, which should make the one who sold him that painting very happy, does not make me feel one iota unequal to him. But, I can perfectly understand that the fact I own a house, a car and a reasonable amount of money, can make many owning much less feel unequal to me, and many who have nothing feel unequal to all.

And clearly those without a job must feel unequal to those with a job… and in that case unequal to the yacht crew, not unequal to the yacht owner.

In these days when redistribution and polarization profiteers seeding so much hate and envy, at zero marginal costs, create so much odious societal divisions, it behooves us to, as a minimum minimorum, make sure those divisions are in reference to something real and relevant, and not just fake divisions that can lead to absolutely nothing good.

PS. My generous feelings towards what the “filthy rich” own, are of course based on that they have obtained all that wealth in legal and decent ways.

My tweet on why the world is becoming a much angrier place than what’s warranted by the usual factors.

Sir, Chris Giles writes “Britain is an angry place: furious about its politics, unsure of its place in the world and increasingly resigned to a grinding stagnation of living standards” “Anger and inequality make for a heady mix” March 1.

Giles analyzes the increasing discontent as a function of the economy, in terms of economic growth, inflation, income inequality, weak productivity and employment rates, whether existing or expected.

That is certainly valid but, sadly and worrisome, there is much more to the much higher levels of anger brewing than could seem be warranted by that. That goes also for the rest of the world. 

Sir, what is happening? Here is my own tweet-sized explanation of that.

“Shameless polarization and redistribution profiteers, sending out their messages of hate and envy through social media, at zero marginal cost, are exploiting our confirmation bias, namely the want or need to believe what we hear, up to the tilt. It will all end very badly.”

https://perkurowski.blogspot.com/2010/05/speakers-corner-speakers-have-moved-to.html

@PerKurowski

For social harmony, in our time, we need a big enough and a small enough universal basic income.

Sir, Chris Giles refers to a “1994 OECD study [which] contained a warning of the dangers in store for countries that failed to tackle problems in their labour markets. “It brings with it unravelling of the social fabric.” “Improve employment rates to tackle inequality” February 15.

Giles opines, “Flexibility and social protection is a winning combination for advanced economies. While it does not prevent all employment problems, whether you take a right-of-centre “work not welfare” attitude or a left-of-centre “a hand up not a handout” stance, in general the combination works.”

I agree! An unconditional universal basic income, large enough to allow many to reach up to whatever jobs are available, is “a hand up not a handout”.

And an unconditional universal basic income, small enough so as not allow many to stay in bed, is also “work not welfare”.

So what’s keeping an UBI from being implemented?

To begin there’s not sufficient recognition of the real conflicts, basically a class war, between those who having a job want better pay and those who want a job at any pay.

But, first and foremost, it is those who profit, politically and monetary, on imposing their conditionalties when redistributing tax revenues, who strongly oppose a UBI, since it, naturally, would negatively affect the value of their franchise.

PS. The Chavez/Maduro regimes are clearly outliers among the redistribution profiteers but just as an example I once calculated that the 40% poorest of Venezuela had received less than 15% from the Bolivarian Revolution than what should have been their allotment had Venezuela’s net oil revenues been shared out equally to all. On the other side many of the odious profiteers pocketed many thousand times what should have been their share.

@PerKurowski

John Kenneth Galbraith would probably include Alan Greenspan among men of wisdom that missed the point.

Sir, Robert Gordon, reviewing Alan Greenspan’s and Adrian Wooldridge’s “Capitalism in America: A history” writes: “Three themes are highlighted — productivity as the measure of economic progress; the “Siamese twins of creation and destruction” as the sources of productivity growth; and the political reaction to the consequences of creative destruction.”, “After the gold rush”, October 20.

I have not read that book yet, I will; creative destruction plays absolutely an important role in the acceleration and sustainability of growth.

I do not know Adrian Woodridge, but, when it comes to the former Fed Chairman Alan Greenspan, I have an inkling that if John Kenneth Galbraith was still around, he would suggest Greenspan does not have all what it takes to write that book.

Let me explain that by quoting from Galbraith’s “Money: Whence it came where it went” 1975: “For the new parts of the country [USA’s West]… there was the right to create banks at will and therewith the notes and deposits that resulted from their loans…[if] the bank failed…someone was left holding the worthless notes… but some borrowers from this bank were now in business...[jobs created]

It was an arrangement which reputable bankers and merchants in the East viewed with extreme distaste… Men of economic wisdom, then as later expressing the views of the reputable business community, spoke of the anarchy of unstable banking… The men of wisdom missed the point. The anarchy served the frontier far better than a more orderly system that kept a tight hand on credit would have done…. what is called sound economics is very often what mirrors the needs of the respectfully affluent.”

Alan Greenspan clearly fits in with those “Men of economic wisdom” (of the East) who are distasted by unstable banking. To make banks stable, he supported risk-adverse risk weighted capital requirements, much lower for what’s perceived safe (the present) than for what’s perceived risky (the future). 

Sir, and if one is to tellthe real “full, epic story of America's evolution from a small patchwork of threadbare colonies to the most powerful engine of wealth and innovation the world has ever seen”; which is how this book is being promoted, one would need to begin with the willingness of its people to take risks.

What would have happened to America if banks with risk-weighted capital requirements had met its immigrants? Probably that imagined 1620 meeting in Davos about the future world, in which “one region goes unmentioned: North America. The region is nothing more than an empty space on the map” would not have found its way into this book.

The saddest part of all this is that our current generation of central bankers and regulators, like Alan Greenspan, those who prioritized bank stability over growth, as if these two aspects could be separated, anyhow did it totally wrong. With their risk weighted capital requirements, they only guarantee that banks will end up with especially big exposures, against what’s perceived as especially safe, against especially little capital; something which can only cause especially big crises, like that of 2007-08.

PS. Galbraith’s book also explained that, de-facto, regulators had also decreed inequality

PS. Gordon writes about “millions of immigrants being drawn in from Europe as the ever-expanding railroads, enjoying massive government subsidies in the form of free land, in turn subsidised the new arrivals so that they would populate the west.”.  I am not sure that amounted to “massive government subsidies”. If not zero, most of it must have been extremely low valued land. It was those migrants who with their sweat, inventiveness and willingness to take risks built up the value of that land.

PS. Gordon complains the book has “only a page or two reckons the human cost of underpaid labourers, including the consequences of malnutrition [and on] labour unrest”. That reads just like political correctness’ flag waving; and belief in that if only the task of development was assigned to the right kind of central planners, his kind, it would be achieved in a nice and fair way, with no sufferings and no inequality.

PS. In Venezuela, during a conference, 1978, forty years ago, John Kenneth Galbraith autographed “Money” for me. Mine was the only one he signed explaining he did so because it was a pocket book and much underlined  J His book inspired the first Op-Ed that I wrote, more than twenty years ago.

@PerKurowski

When the “filthy rich” buy assets, they might do it good or bad, but they are de facto voluntarily redistributing money.

Sir, Tim Harford writes “Researchers concerned about the concentration of money in the hands of a small number of people tend to focus on the income or wealth share of high earners”, “All things are not equal in measuring inequality” August 18.

Indeed, all things are not equal, the income or wealth shares of high earners, c'est pas la même chose.

The debates on inequality, promoted mostly by redistribution profiteers, conveniently ignore that the moment money, meaning Main-street purchasing power, is exchanged for an asset, it has effectively been redistributed, to the vendors of those assets.

So yes, governments can redistribute money, but that does not mean it can redistribute wealth as easy, and without possibly serious unexpected consequences.

Not long ago, someone really wealthy, by means of a sort of voluntary tax, froze US$ 450 million of his real purchasing power on a wall, by acquiring Leonardo da Vinci’s Salvator Mundi. How do you redistribute that painting? One way is to get another filthy rich to redistribute his money buying it, most probably for less. Another way might be cutting it in thousands of small-certified pieces and thereby allow many much less wealthy to buy these, and thereby perhaps redistribute much more than US$ 450 million. Should we proceed to hack up Salvator Mundi?

Sir, at the end of the day, the one question that always lingers is, who redistributes money the best? The usual answer “Me!” or “Us!”

@PerKurowski

Preferential access to bank credit for those buying houses have also turned houses in attractive investments, and so a house is no longer just a house

Sir, I refer to Sarah O’Connor’s “Cities only work if they accommodate rich and poor” March 21.

She is correct although it would be more precise saying that cities only work if they accommodate all those workers required to make a city work.

Here is my take on this issue.

By politicians and regulators giving so much preference to the purchase of houses, the prices of houses have been inflated beyond reflecting the need of houses, and so have also turned houses into attractive investments. That has created a financial disequilibrium because most workers who would anyhow struggle to pay for just houses, will find it impossible to service mortgages that also reflect the value of investment assets.

Most politicians would naturally want to be seen as helping people buy affordable houses, but they do wrong in that. What they should do is to help people to be able to afford housing, something which is absolutely not the same thing.

Before we clear out this distortion, our cities will suffer from what O’Connor’s describes. Alternatively, current house asset owners, might be required to start building houses where they allow the indispensable workers to live at a reduced rate… something that could affect the value of their houses.

In many places that are too distant for the firefighters to arrive in time, we have already heard of building houses in order to provide homes close by to these.

PS. For the purpose of the capital requirements for banks regulators have risk weighted  residential mortgages with 35% and loans to entrepreneurs with 100%, which means bank can leverage much more with residential mortgages than with loans to entrepreneurs, which means banks earn much higher expected risk adjusted return on equity with residential mortgages than with loans to entrepreneurs, which mean we will end up sitting in houses without the jobs that could provide the income to service mortgages or utilities.

PS. How much of current house prices is the direct result of easy financing? I ask because it would be interesting to know how much we are financing with easy financing of houses the easy financing of houses.

PS. One of the biggest pension crisis will be when we see all those who trusted houses to be safe investments, trying to cash out in order to convert these back into main-street purchase capacity to use in older days L

PS. Too much preferential finance for the purchase of houses, which increases demand for houses, which increases houses prices, and turns safe homes into risky investment assets, also promotes inequality as those without a house are further left behind… until L

@PerKurowski

Like algorithms humans can also produce peculiar and unjust decisions, and be almost just as faceless.

Sir, Gillian Tett writes: “as institutions increasingly rely on predictive algorithms to make decisions, peculiar — and often unjust — outcomes are being produced.” “The tragic failings of faceless algorithms”

Indeed, but humans are also capable of producing peculiar and unjust decisions.

What could be more peculiar than regulators wanting banks to hold more capital against what by being perceived as risky has been made innocous to the bank system, than against what, because it is perceived as safe, is so much more dangerous?

And what is more unjust than because of these regulation allowing easier financing to those who want to buy houses, than to those entrepreneurs who are looking for a possibly life changing opportunity of a credit. 

Ms Tett quotes mathematician Cathy O’Neil’s Weapons of Math Destruction with: “Ill-conceived mathematical models now micromanage the economy, from advertising to prisons,” she writes. “They’re opaque, unquestioned and unaccountable and they ‘sort’, target or optimise millions of people . . . exacerbating inequality.”

Well “opaque, unquestioned and unaccountable” that applies equally to the bank regulators who do all seem to follow late Robert McNamara’s advice of “Never answer the question that is asked of you. Answer the question that you wish had been asked of you”

And on “exacerbating inequality”, the regulators de facto decreed inequality

https://subprimeregulations.blogspot.com/2016/03/decreed-inequality.html

PS. An aide-mémoire on the major mistakes with the risk based capital requirements

@PerKurowski

Here are some actions we should take in order to reduce the threat inequality poses to our democracies.

Sir, the discussions about growing inequality, that tend too often to concentrate on either income or wealth inequality expressed solely as a linear function of monetary terms, are dangerously simplified. Once some basic and non-basic wants have been met, loading up some extra millions does not produce the same amount of marginal benefits per dollar.

But of course for those who do not have the income to satisfy their needs and basic wants inequality matters, a lot. And so more important than worrying about inequality, is to worry about how increase the incomes of those earning less. 

Sometimes the lower incomes for some can have to do with some few other earning unjustifiably or even incorrectly too much, but most often it has little to do with that.

But the redistribution profiteers want to hear nothing of that sort. They prefer to feed envy, with for instance their so frequent mentions of how few wealthy posses more wealth than a billion or so of the poor. That of course can only increase the threat inequality signifies to our democracies that Martin Wolf lays out well in his “Inequality is a threat to our democracies” December 20.

Going from “a stable plutocracy, which manages to keep the mass of the people divided and docile” to the “emergence of a dictator, who rides to power on the back of a faux opposition to just such elites” is what sadly happened in my Venezuela.

What can we do?

When Wolf writes “The market value of the work of relatively unskilled people in high-income countries seems very unlikely to rise” we could for instance see what role risk weighted capital requirements for banks play:

In terms of equality what’s the difference between someone owning a home and someone renting a similar one?

Not much, that is unless the value of the house owned increased a lot and, as a consequence, rents also increase, sometimes more than what the renter can compensate with increased salaries.

That’s what happens when banks are allowed to hold residential mortgages against much less capital than when for instance lending to entrepreneurs; and as a consequence earn higher risk adjusted returns on equity with mortgages than when financing entrepreneurs; which mean banks will make the financing of house purchase abnormally available; which means house prices will go up… until

That is also what happens when central banks inject liquidity that benefits mainly the owner of assets; “now your house is worth more so take out a new loan against it” is not an offer that one renting will hear. 

When Wolf refers to “a desire to enjoy some degree of social harmony and the material abundance of modern economies, [being a] reasons to believe the wealthy might be prepared to share their abundance.” We should be careful of promising more than what could be obtained, because much of that abundance is not easily converted into effective purchase power or transferable income to others; for instance when some wealthy, by means of what could classify as a voluntary tax, decides to freeze on a wall, or in a storage room $450m of his purchase power, in a Leonardo Da Vinci “Salvator Mundi” how do you efficiently reverse that? Of course what’s important here is not the buyer’s paid $450 million but to where the $450million received are going.

Sir, I believe the following actions would go a long way to “ensure the survival of liberal democracy”

1. Getting rid of the distortions produced by bank regulations

2. A monthly Universal Basic Income (UBI) that is sufficient to help you get out of bed but not so large as to permit you to stay in bed. 

3. A Revenue Neutral Carbon Tax that helps fund the UBI and aligns the incentives for saving the environment and reducing inequality. 

4. A special tax on profits obtained under the cover of intellectual property rights to help fund the UBI.

5. Have Facebook, Google and alike pay a minimum fee into the UBI fund for any advertising that they send to us on the web. That would also help us to make sure they do not waste so much of our very scarce attention span.

@PerKurowski

Those who because of scalability can bother us excessively should not be able to do so at a zero marginal cost

Sir, Martin Wolf writes: “Scalability means that an intangible good can be enjoyed by one person without depriving another of its benefits. In an economy where scalability — frequently turbocharged by network effects — is important, some businesses will quickly become huge. These winners may also enjoy huge incumbency advantages.”, “Challenges of a disembodied economy”, November 29.

Indeed, but also look at how a zero marginal cost allows the social media to drown us in such an excessive amount of ads, fake news and irrelevant information, which so dangerously wastes our very limited attention span.

So when Wolf writes “governments must also consider how to tackle the inequalities created by intangibles, one of which (insufficiently emphasised in this book) is the rise of super-dominant companies” let me (not for the first time) suggest the following:

Charge social media, like Goggle and Apple, a very small bothering-tax, like a hundredth of a $ cent, every time they reach out to us with something that does not originate in something specifically allowed by us, like the direct messages from our friends.

That could, at the same time it builds up funding that could be used for a Universal Basic Income scheme, which helps to take the sting out of growing inequalities, reduce dramatically the bothering of us and allowing us more of that so necessary boredom we need for creativity and thoughtfulness, which we humans so specially need now when we have to interact more and more with artificial intelligent robots.

@PerKurowski

If Martin Wolf wants to help the poor at the bottom, why does he not help me arguing for getting rid of the risk weighted capital requirements for banks?

Sir, Martin Wolf, morphing into an activist, describes the Republican tax plan as “a determined effort to shift resources from the bottom, middle and even upper middle of the US income distribution towards the very top, combined with big increases in economic insecurity for the great majority”, “The Republican tax plan built for plutocrats”, November 22.

But, since Wolf refuses to discuss the distortions caused by bank regulators, let me here ask him, in quite similar terms: What is the risk weighted capital requirements for banks if not something that stops the “risky” bottom, middle and even upper middle of the US income distribution, from accessing those opportunities of bank credit that could help to propel them upwards?

Day-by-day it is becoming clearer to me that Martin Wolf is just another statist that thinks it is just great that sovereigns are 0% risk weighted and unrated citizens 100%.

I agree of course with Wolf in that “the reductions in corporation tax will [not] lead to a big rise in business investment”. But that, among others, is precisely because the regulators have seriously damaged one of the primary transmission channels of freed resources, namely bank credit.

What is not clear to me though is to what Wolf refers to when arguing that the rich will benefit more from tax cuts. Does he mean in paid US$ in taxes? Because if so I would say it is quite natural that anyone who is paying more $ taxes will pay less taxes when taxes are cut.

We read: “In the more cautious Senate version, households with incomes below $75,000 would be worse off.” Does Wolf want to imply these would now have to pay more in taxes? If so, I am totally on his side on this issue… but I sort of doubt that. $75,000 sounds like a quite normal civil service salary, and you usually don’t go after you own, on any side of the aisle.

@PerKurowski

Climate-change fight profiteers capture governments (and perhaps FT too). Only citizens can really fight climate change.

Sir, you write “The UN issued a stark warning last month on the scale of the challenge, noting that even if governments act on their plans to cut or slow emissions, national pledges so far add up to only a third of the reductions needed to meet the goals of the Paris accord. Negotiators meeting in Bonn this week are supposed to be crafting rules to ensure countries step up their efforts.” “A sharp reality check on the climate challenge” November 15.

Forget it! The Paris agreement was just another great photo-op. If you really want to be able to do what it takes to save our pied-à-terre, you have to keep out the few big green profiteers able to lobby governments (and perhaps You too), and incorporate all the citizens in that quest.

How? Huge national carbon taxes with all its revenues shared out equally to all citizens. The moment a citizen gets a check and is himself turned into a small profiteer of the fight against climate change (and of the fight against inequality) all changes.

Sir, you have published a letter of mine before describing this type of solution, but you might be mightily targeted by those green profiteers too. So beware!

@PerKurowski

Now, ten years after, have not all quantitative easing and low interest rates just kicked the crisis can down the road?

Sir, Martin Wolf writes: “A… criticism is that easy money policies have worsened inequality, especially of wealth. But keeping the post-crisis economy in recession in order to reduce wealth inequality would have been insane. In any case, wealth inequality matters less than inequality of incomes, where the effect of raising asset prices is to lower returns for prospective owners, so improving inequality in the longer term. Above all, the worst form of inequality is to leave millions of people stuck unnecessarily in prolonged unemployment.” "Unusual times call for unusual strategies from central banks" November 13.

We are now into ten years of post-crisis. How can Mr. Wolf be so sure that if painkillers like Tarp and quantitative easing had not been prescribed, that we would now be in a worse position in terms of unemployment and in terms of inequality? Perhaps that all just kicked the can down the road, a can that could begin to violently roll back on us.

Sir, in August 2006 you published a letter of mine titled “Long-term benefits of a hard landing”. In it I wrote: 

“Why not try to go for a big immediate adjustment and get it over with? Yes, a collapse would ensue and we have to help the sufferer, but the morning after perhaps we could all breathe more easily and perhaps all those who, in the current housing boom could not afford to jump on the bandwagon, would then be able to do so, and take us on a new ride, towards a new housing boom in a couple of decades.

This is what the circle of life is all about and all the recent dabbling in topics such as debt sustainability just ignores the value of pruning or even, when urgently needed, of a timely amputation.”

I agree with that “wealth inequality matters less than inequality of incomes” but when Wolf then holds that “the effect of raising asset prices is to lower returns for prospective owners, so improving inequality in the longer term”, it would seem he would also agree with the benefits of a hard landing… that is as long as it is not on his watch.

In my Venezuela we have seen how millions of citizens who had reasonable expectations for the future, are now in desperate conditions. They have learned the hard way that no matter how much they might hold in assets, this means little if at the time you want to convert your assets into actual street purchasing capacity, there is no one there to buy these. And, as we sure have learned, to move from very good to very bad can be lightning fast. 

And I will keep on arguing… if government and regulators prioritize the financing of the sovereigns and of houses so much more than the financing of SMEs and entrepreneurs, we will be heading to a future of much poverty, lived out in an abundance of less and less maintained houses.

Wolf ends with: “given the instability of finance, today’s low neutral interest rates and the unwillingness of governments to use fiscal policy, the willingness of central banks to adopt unconventional policies may be all we have to manage the next big downturn.

Yes we might be in dire need of “unconventional policies”, but not necessarily from the central banks.

For instance we should urgently think of creating decent and worthy unemployments, to face the possibility of a structural lack of jobs. For that I would begin studying how to tax robots and artificial intelligence, and or how to reduce the margins of the redistribution profiteers, in such a way that it permits us to design and fund a universal basic income.

The UBI could initially be small, perhaps just US$ 100 per month, something to help you get out of bed, not so large as to help you stay in the bed, but the system has to be in place before social fabric breaks down, or before populists make hay of our problems.

PS. Today’s low neutral interest rates are artificially set low neutral interest rates

@PerKurowski

An all out war against inequality would be extremely harmful to us all.

Sir, Tim O’Reilly writes: “Clayton Christensen’s, “law of conservation of attractive profits” holds that once one thing becomes commoditised, something else becomes valuable.” And that “Hal Varian, Google’s chief economist, noted that ‘if you want to understand the future, just look at what rich people do today’. “People power, not robots, will overcome our challenges” October 20.

But I ask, does that not require a strong supply of rich and unequally wealthy, in order to power that demand for the new, that which majorities never generate? And, if so, does that not put a dent on the argument of: “the fundamental question of our economy today is not how to incentivise productivity, but how to distribute its benefits”?

Sir from this perspective the current all out war against inequality could be extremely harmful for all. For instance, as I have, unanswered, often tweeted to Mr. Thomas Piketty “Visit the Museum of Louvre in your Paris and try to figure out how much of it would have existed, had it not been for extreme inequality.”

And O’Reilly, as a source of jobs refers to that “there is the looming spectre of climate change”. Indeed but who is going to pay for the fight against it? If government takes on debts to fight climate change, who will volunteer to repay those debts tomorrow, whether we are successful or not? No one!

That is why I have argued so much in favor of creating a whole new generation of social incentives, which could help get the world to work in the same direction on at least some important issues.

For instance, if there was a huge carbon tax, which revenues did not go to the redistribution profiteers but were shared out equally among all citizens, then we could link up the fight against climate change with the fight against inequality, without affecting the remaining societal incentive structure… that which helps to create the inequality we need.

PS. And please never forget, just in case there will not be enough jobs tomorrow, to think about how we can create decent and worthy unemployments.

@PerKurowski

Much more than the Paris Climate (photo-op) Agreement, our pied-à-terre needs revenue neutral carbon taxes

Sir, Martin Wolf writes: “In no area are global spillovers more significant and co-operation more vital than climate… The main obstacles to such action are three. First, specific economic interests, notably in the fossil fuel industry… Second, free-marketeers, who despise both governments and environmentalists, reject the science, because of its (to them) detestable policy implications. Third, few wish to…threaten their standard of living, for the sake of the future or people in poorer countries” “Climate change puts poorest nations at risk”

Not so fast! There are those of us who believe that the threat of climate change is so real that there is no need to convince us with the “people in poorer countries” argument. The best interests of our grandchildren suffice. And there are those of us that despise the idea that so much of the important sacrifices required could be dilapidated enriching governments and environmentalists. To mostly attribute “specific economic interests” to the fossil fuel industry is to be too biased.

Of course the poorer countries should be helped, but the brunch of the climate change war effort, needs to be carried out as much as possible by sending out strong market signals, letting the markets operate freely assigning resources; and aligning the incentives as best as possible.

For that I strongly believe that a huge carbon a tax, shared out entirely to the citizens, is what first should be happening. Let us for instance suppose that petrol (gas) was sold all over the world at Norway’s current price of about US$2.10 per liter (Venezuela would have to increase its prices US$2.09 per liter) and that 100% of what that tax produces, goes directly back to the citizens.

Then we would fight climate change and inequality at the same time; which would be great since as Martin Wolf rightly holds: “The linked challenges of climate and development will shape humanity’s future.”

Sir, nothing in the Paris Climate (photo-op) Agreement seems to me remotely as powerful and effective as revenue neutral carbon taxes.

Similar to what I proposed for Mexico City

http://ourpiedaterre.blogspot.com

@PerKurowski

It is the lower capital requirements when lending to AAArisktocracy that stops banks from lending to “The Risky”.

Sir, Gillian Tett writes about the growing sector of private funds that, instead of banks, are now lending to the “riskier”, like SMEs and entrepreneurs. “Ham-fisted rules spark the creativity of lenders” October 13.

That is explained with: “these funds only exist because there is a tangible need: mid-market companies need cash, and banks are reluctant to provide this because the regulations introduced after the 2008 global financial crisis make it too costly for them to lend to risky, small clients.”

No! Before risk-weighted capital requirements were introduced, all cost and risk adjusted interest rates were treated equally whether these we offered by sovereigns, AAA rated, mortgages, small and medium unrated businesses or anyone else. Not now, and especially not since Basel II of 2004.

Now banks can leverage those offers more when lending to “The Safe”, so they earn higher risk adjusted returns on equity when lending to The Risky, so they lost all interest in lending to The Risky.

In this respect the de facto cost of trying to make banks safer has therefore been reducing the opportunities to bank credit of those perceived as riskier, which of course increases inequalities.

Sir, please try to find any bank crisis that resulted from excessive exposures to The Risky. These always resulted from excessive exposures to what was ex ante perceived as belonging to The Safe.

@PerKurowski

You redistribution profiteers: There’s very little cash in “cash”; and wealth is mostly just frozen purchasing power

Sir, Eric Platt writes about “the lack of detail…typical of the 30 large US-domiciled companies analysed by the FT that hold more than $10bn of cash and other securities on their balance sheets”, “Patchy disclosure gives investors little to chew on” September 28.

The article should help to indicate to you how little real cash there really is in all that cash to which so many, time after time, including FT, have referred to in terms of that it should be repatriated, so as to put to better use.

As we can see, the fact is that most of the $262bn of cash and cash equivalent held by Apple has already been deployed, one way or another; which means that even if Apple does not use it for its own purposes, that does not mean it is not being used by others for other purposes.

Sir, the whole very valid debate about offshore wealth and growing inequality, would be greatly sanitized by the acceptance of the facts that there is very little cash in “cash”; and that wealth is mostly just frozen purchasing power.

Perhaps then we would also be allowed to discuss such political incorrect issues such as what assets would not exist but because of great wealth and great inequalities.

Then perhaps we could at last focus more on the much more important cause of fighting unproductive unequal wealth creation, than about how to getting our hands on wealth after it has been created.

Unfortunately the redistribution profiteers, those who need to instigate hate against wealth and inequality in order to maximize the value of their franchise, will fight tooth and nails in order to stop such debate taking place.

https://perkurowski.blogspot.com/2016/10/i-tweeted-how-do-you-morph-200-million.html

https://perkurowski.blogspot.com/2015/08/if-we-are-going-to-squeeze-rich-let-us.html

@PerKurowski

If central banks offered “unimpeachably safe liquid assets” to all, how much negative interests would these pay?

Sir, George Hatjoullis writes: “Only the central bank can provide unimpeachably safe liquid assets…[so] allow individuals and corporate entities to hold deposit accounts with the central bank… The banking system would be free to pursue its risky credit provision role and individual entities would have their safe liquid haven”, “Allow deposit accounts within central banks” September 25.

That is based on two false premises. The first one is that central banks really are riskless. Though they can always print money, there’s no guarantee they won’t print too much money, and therefore repay with money worth less.

The other is that you could provide some with “unimpeachably safe liquid assets… a safe liquid haven” at no costs. The opportunity cost of that, is not sharing into the benefits of risk taking.

When it comes down to risk management I always start by asking: “What risk is it that you can least afford not to take?” That is because the worst certainty comes hand in hand with the avoidance of all risks.

Sir, to allow some to have access to unimpeachably safe liquid assets, while others take the risks, just guarantees putting inequality on steroids. The society should not do that! An adequate bank system allows everyone to share, at least ever so slightly; in the risk-taking the society needs to move forward.

@PerKurowski