There's a new class war brewing, that between employed and unemployed.

Sarah O’Connor, discussing the challenges of the Gig economy writes, “Offering employment benefits to drivers might well help to snap up the best workers and hang on to them. But if customers were not to shoulder the cost, investors would have to.”“Uber and Lyft’s valuations expose the gig economy to fresh scrutiny” January 2.

Sir, to that we must add that if the investors were neither willing to shoulder that cost, then the gig workers would have to do so, or risk losing their job opportunities.

That conundrum illustrates clearly the need for an unconditional universal basic income. Increasing minimum wages or offering other kind of benefits only raises the bar at which jobs can be created, while an UBI works like a step stool making it easier for anyone to reach up to whatever jobs are available.

Sarah O’Connor also mentions how a collective agreement was negotiated between a Danish gig economy company and a union. Great, but let us not forget that in the brewing class-war between employed and unemployed, the unions only represent the employed… and we do need decent and worthy unemployments too, before social order breaks down.

PS. There's another not yet sufficiently recognized neo-class-war too. That between those who have houses as investment assets and those who want houses as homes.

@PerKurowski

Regulatory risk aversion exposes our Western civilization to the risk of a “Mom, dad, you move down to the basement!”

Claire Jones writes on Alexandru saying: “Out of every 10 of my friends, only one works. It’s not a good situation for my generation,” Alex says. He and many of his friends still live at home with their parents. “When I talk to them about the past it sounds better. They all had a job and the opportunity to have a family.” “Temporary fortunes” July 6.

And Ms Bellieni “lives with her young child and husband, who also does many temporary jobs, in a property that belongs to his parents. “Otherwise we couldn’t make it”

Banks are allowed to hold much less capital when financing houses than when financing SMEs and entrepreneurs, as regulators think the former is much safer for the bank than the latter. As a result banks can earn much higher risk adjusted returns on their equity financing houses than financing “the risky”.

But since SMEs and entrepreneurs are job creators par excellence, could these regulations create an excess of basements in which the unemployed or underemployed young can live with their parents, and a substantial lack of jobs?

Mario Draghi, the Chair of the Financial Stability Board and his ECB officials clearly do not see this as a problem, hey they might not even see it as a distortion. That could be since like overly worried nannies they are totally focused on avoiding bank crises, and do not care one iota about how banks do their job in the in-betweens.

Sir, the younger generations, squeezed by this anti Western civilization value of risk aversion, and an increased loss of jobs to robots and automation, could at some point become sufficiently enraged so as to say… “Mom and dad, you move down to the basement, it is our turn to live upstairs!”

Note: Not the first time: 2009: "Please free us from imprudent risk-aversion and give us some prudent risk-taking"

@PerKurowski

Nations need unions that represent the unemployed and to get a small universal basic income going, before it's too late

Sir, Anne-Sylvaine Chassany, interviewing Laurent Berger writes: “The leader of France’s largest trade union has warned Emmanuel Macron not to rush labour market reforms as the country’s new president kick-starts negotiations over a bill seen as crucial to revamping the eurozone’s second-biggest economy.The warning is a reminder of the labour relations minefield awaiting the pro-business president” “Macron warned by union leader not to rush reform” May 24.

That evidences how much France and all other nations also need unions that represent the unemployed, in order to create some equilibrium among the forces that influence labor politics.

And of course, setting up a universal basic income system, starting it with a small amount, in France perhaps €150 per month, would also begin to open up the roads to that new society in which robots and automation seem to create structural unemployment.

As I have opined since some years we do need decent and worthy unemployments... before its too late.

http://myubi.blogspot.com/2017/01/my-universal-basic-income.html

@PerKurowski

Brexit contains more true catastrophic risks for the EU and the Euro than it does for Britain

Sir, I refer to Martin Wolf’s “Britain’s leap into the unknown” February 8.

Do I disagree with him? No, if I look at Brexit as Wolf does with a microscope focused solely on Britain. But, from a wider perspective, looking at so many other unknowns, his Brexit concerns takes on some Lilliput against Blefuscu war characteristics.

Why? Many would probably start by mentioning the environmental problems of the earth and overpopulation. But setting these aside there are many other challenges that needs to be considered so as to weigh correctly what could be coming with Brexit. Let me just briefly mention the following three.

First, I have the impression that Brexit carries with it more risk of true catastrophes for EU and the Euro than what it has for Britain. This is not a case Britain leaving a happy family behind. It is more like running away from a very messy dam full of repressed feelings of discontent, ready to burst at the urgings of any able populist, and to which its comfortable and full of themselves technocracy is unable to respond to adequately.

Second the banking system. Its regulators, with their risk weighted capital requirements, manipulated and distorted the system in such a way that the real economy is not being fed the nourishment it needs; and the banks themselves are bound to collapse, as would collapse any casino that had its roulette table equally manipulated.

Third, the growing structural unemployment caused by robots and automation. The only reasonable response to that seems to be some sort of Universal Basic Income floor, and that is something that must be much easier to develop within a nation. Just thinking of some EU Commissioners having to agree to a uniform Universal Basic Income policy applicable to Germany and Greece is too challenging.

Of course Brexit represents difficulties… but like all difficulties it also encompasses some opportunity. My dear English friends think of it like this. You are now sailing back to your homeland and soon, for good or for bad, you will at least be able to see the white cliffs of Dover again. 

@PerKurowski

PS. And of course you want to be as far away as possible when the Eurozone's debt bomb explodes

Influential columnists, like Martin Wolf, are much more responsible for current state of economies than Donald Trump

Sir, Martin Wolf sneers disgustedly, with besserwisser gusto, at what president elect Trump has been proposing in order to tackle current difficulties, and in many cases brand new economic circumstances. “Trump’s false promises to his supporters” November 15.

Many, not all, of Wolf’s warnings are indeed very correct, though I must say his own lately what-to-do instead main suggestion, is not much convincing either. 

For governments to take advantage of low interest rates, to invest in infrastructure, is based on the premise that the interest rates are not low because of artificialities, like regulatory subsidies and QEs; and that the government is capable to embark efficiently on a major infrastructure constructions. Both those premises seem quite doubtful.

For instance last week Olivier Blanchard, the previous Chief Economist at IMF, when referring to my argument that current capital requirements for banks are lowering the interest rates of public debt, answered that the possibility of that needed to be researched, and, if true, the first order of business must be to eliminate the distortions.

I would of course also ask Martin Wolf how much he himself would be willing to invest in long term public debt at current rates… or is that supposed to be done solely by pension funds, insurance companies or profit-squeezed banks desperate for any solution that would keep them out of jail if events turn really sour?

Sir, Mr. Wolf would do well remembering that as a very influential columnist he is, until now at least, much more responsible for whatever conditions the world economies find themselves in than president elect Donald Trump. Where was Wolf in 1988 when the Basel Accord decided that the risk-weight of the Sovereign was 0% and that of We the People 100%? Where was Wolf in 2004 when Basel II assigned amazing much importance to the criteria of some very few human fallible credit rating agencies? And those questions are just for starters?

PS. What would I do? I would grandfather all current capital requirements for banks’ current assets, and then eliminate all distortions that stand in the way of SMEs and entrepreneurs having equal to all access to bank credit, foremost those that favor the government but also including those that favor the financing of houses. And then I would sit down and do nothing for six months, except of course trying to reach approval for a Universal Basic Income scheme that could benefit working and not working citizens.

@PerKurowski

“We need worthy and decent unemployments”… and a Universal Basic Income could be useful for that.

Sir, Tobias Buck quotes Marcel Jansen, a professor of economy at Madrid’s Autónoma university with “More than a quarter of unemployed workers in Spain have been out of a job for more than four years. Their chances of getting back into the labour market are very dire” “Spain’s first quarter job losses less severe than usual” April 29.

It relates directly to an Op-Ed I wrote in Venezuela (before I was censored there) titled “We need worthy and decent unemployments”. I quote the following from it:

“What politician does not speak up for the need to create decent and well paid jobs for young people? But, if that's not possible, and the economy is not able to deliver that on its own ... What on earth do we do?

Society must of course do its utmost seeking to solve the problem of youth unemployment ... including taking leisure to levels never thought of… six months vacations! But it also needs to prepare itself to handle a growing number of unemployed, not cyclical but structural, that is, those who never ever in their life will have a chance to get an economically productive job.

The power of a nation, and the productivity of its economy, which so far has depended primarily on the quality of its employees may, in the future, also depend on the quality of its unemployed, at least in the sense of these not interrupting those working.”

And recently I have reflected on that a Universal Basic Income, as that is not-having-a-job-or-not related social contribution, could be a significant part of the efforts needed.

@PerKurowski ©

Should you include a job simulation experience in your cv?

I always read with much interest articles that discuss the employment of the young, such as Sarah O’Connor’s “Stepping inside the workplace simulator at a London school” April 27. And I do so because of two reasons:

The first is because I am convinced of that, by means of the risk weighted capital requirements for banks, concocted by the Basel Committee, we are making it very difficult for banks to finance what in the long run creates new jobs, because that takes a lot of risk-taking.

And second, because I am equally convinced of that no matter what we do, we will end up with many persons who will never ever have had a job, and it is a true and vital societal challenge to think about what to do with them.

PS. And of course, the question in the title of this letter, is just a bit too valid for my taste.

Urgently fire those damn bank regulators who abandoned the young and ignored their needs for jobs and a future

Sir, I refer to the true tragical horrors described by Tobias Buck in “The fear and despair of Spain’s young jobseekers” March 2.

And I tell you again, though you will most probably ignore me again, that nothing as serious as that would have happened had not some few powerful and arrogant bank regulators, while trying to level the field for banks to compete, unleveled the real economies’ access to bank credit.

Read the chapters of “Capital adequacy and the Basel Accord of 1988” and “The BCBS and the social sciences” in Charles Goodhart’s “The Basel Committee on Banking Supervision: A History of the early years 1974-1997” 2012, Cambridge Press and you will understand. There is not one single reference to that how banks allocate credit to the real economy was of any concern whatsoever to regulators. And most probably it still is not.

Had they given that banks’ social purpose the slightest thought, they would have understood, unless too dumb, that their credit risk weighted capital requirements for banks impeded banks to adequately serve the economy.

Allowing banks to leverage equity differently based on “risk”, allows banks to earn higher risk adjusted return on equity on what is perceived or deemed to be“safe”, than on what is perceived as “risky”

So now “The safe” get too much credit on too lenient terms, while “The Risky” have no access to bank credit, that is unless they pay much higher risk adjusted premiums than they would ordinarily have to pay in an undistorted market.

Houses are safe so lend to that, but SMEs and entreprenuers the job creators are risky so cut them off!

Sovereigns are safe so lend to these, but the private sector is risky so, except for the AAArisktocracy, cut it off!

And so now our banks do not finance the “riskier” future they just refinance the “safer” past.

These regulators must be stopped! They are financial terrorists who threaten the future of our kids. And you FT must stop covering up for them.

“A ship in harbor is safe, but that is not what ships are for” John Augustus Shedd, 1850-1926

But not even ships are safe in a safe harbor if that harbor gets to be dangerously overpopulated.

@PerKurowski ©

Here a call in Spanish to the young to demand the risk taking they need

Here a letter in Spanish to the King asking for him to help the youth of Spain

The Basel Committee has never cared one iota about the purpose of banks, like that of industrial revivals.

Sir, Patrick Jenkins writes: “A structurally low-profit banking system was the price Germany decided to pay for its industrial revival”, “European banks set their sights on German expansion”, September 15.

Compare that to the current banks, living in an environment of credit risk weighted capital requirements for banks. Banks are now allowed to make massive profits, derived from massive leverages of their equity and the support received from society, as long as they stay to something that is perceived or can be construed as being absolutely safe.

No! Not a single second did the overanxious and overprotective bank nannies in the Basel Committee for Banking Supervision waste thinking about the purpose of banks, like that of industrial revival.

Sir, I ask you again: Whose dreams should regulators most try to help come true, the bankers’ or those of entrepreneurs or unemployed?

@PerKurowski

FT, why should bank regulators have the right to game the capital requirements with their credit risk weights?

Sir you write: “bad accounting practices can contribute to financial instability. Booms flatter their measured profitability, which encourages them to take more assets on to their balance sheets. Thus leverage begets more leverage throughout the banking system, until asset prices can rise no longer and the whole edifice comes crashing down.” “Banks should not be able to game accounting rules”, September 3.

Of course you are absolutely right we need the good accounting practices, but, frankly, don’t you think that no matter how bad the accounting, it could never have caused the kind of bank leverages that the regulators allowed for with their credit-risk weighted capital requirements. For example what about the over 60 to 1 leverages authorized in Basel II for bank exposures to AAA rated securities or to sovereigns rated like Greece was until November 2009? What about that infinite leverage authorized by Basel I in 1988 when regulators decreed the risk weights for OECD sovereign to be ZERO percent? If that is not gaming what is?

Sir, why do you insist in covering up for the fundamental mistake of the Base Committee; or when will anyone in FT dare to explain why these regulations do not dangerously distort the allocation of bank credit to the real economy?

And you also write: “Bankers complain that a tougher regime might force them to realise more losses in the short term. Tough.”… Yes, tough on banks… but, because of banks then having less capital, and the risk weighted capital requirements, it would also be tough on all those borrowers who would have even less access to bank credit… something which would also be tough for many unemployed.

@PerKurowski

When the young get hold of what bank regulators are doing to their future, they will revolt… Ättestupa?

Sir, Ferdinando Giugliano writes about an “unholy alliance in support of the elderly” that expresses itself in “sparing pensioners and older workers from the cuts their governments need to make as they seek to reduce their budget deficits.” “Left and right across the bloc unite to protect pensioners” June 26.

He states: “many pension systems will pose a rising burden on government spending. But since the age of the median voter will also rise, it will become more tempting to penalise younger workers — for example by raising taxes and social security contributions — rather than cut pension benefits…reducing the incentive to work and, as a result, lowering growth. This would undermine the stability of the very pension systems they vow to protect.”

That is correct, but it is even worse than that. In essence, by means of the credit-risk weighted capital requirements for banks, regulators have imposed on banks investment/lending criteria much more appropriate for pensioners with few years life expectancies, than for the young who need much more risk-taking in order to have a chance to obtain jobs and be able to enjoy reasonably good retirements.

It is all so unsustainable. There is no way that when the young finally understand the hurt that is being done to them, that they will not revolt… and then perhaps suggest to us the reinstatement of “Ättestupa”

Sadly small businesses, entrepreneurs, and unemployed, have little reason to celebrate ECB’s/Draghi’s QEs.

Sir, Martin Wolf divides the opposition to ECB’s/Draghi’s QEs into those who think this “takes the pressure off governments to deploy expansionary fiscal policies” and those “who think QE is close to being an invention of the devil…hyperinflation… and that it will lift the pressure on governments to [structural] reform”, “Draghi’s bold promise to do what it takes for as long as it takes” January 23.

Wolf does so mainly because he believes that “the eurozone did not fall into a slump because supply-side problems suddenly became worse. It faltered because demand collapsed.”

I don’t think so. I am certain that had it not been for the Basel Accords credit-risk-weighted capital requirements, made worse by means of some ideological weightings in favor of government borrowings, the preceding debt-fueled anticipation of consumption boom might not have happened, but neither the “slump”.

Why is it so hard for Martin Wolf to understand that if banks had to hold as much equity against assets like loans to sovereigns, AAArisktocracy and real-estate, than what they are required to hold when lending to the “risky” small businesses and entrepreneurs, all our economies would be much sturdier.

In July 2012 Martin Wolf wrote: “Per Kurowski, a former executive director of the World Bank, reminds me regularly, crises occur when what was thought to be low risk turns out to be very high risk." And yet he does not comprehend what I really meant with that, namely, if so, then… how risky can a borrower perceived as risky really be?

I perfectly understand why the markets and asset holders celebrate Draghi’s announcements. I just wish it were the small businesses and entrepreneurs, and consequentially the unemployed, who had the real reason to celebrate.

Getting rid of those odiously discriminating and distorting credit risk weighted equity requirements for banks and having the ECB put the €1tn in as temporary equity in Europe’s banks, well that would be something really bold, and something which all could celebrate.

What does stealing a show among adoring fan means? Draghi should dare to address a room full of unemployed young Europeans

Sir, Mario Draghi, as the former chairman of the Financial Stability Board, is one of the responsible for the risk-weighted capital requirements for banks, which, because regulators think that is too risky for the banks, stop banks in their tracks from lending to medium and small businesses, entrepreneurs and start-ups.

And so now, when Gavyn Davies reports that “Mario Draghi steals the show at Jackson Hole” August 27, I have to wonder how Draghi would be received by a crowd of well informed young unemployed Europeans? I really doubt he would there be able to steal a show, most likely he would have to retire running.

Our young unemployed, in order not to become a lost generation, might depend on artificial intelligence entering the Basel Committee.

Sir, though the theme was in general quite worrisome for a human, there was at least some source of hope when reading that Anjana Ahuja believes “Thinking machines are ripe for a global takeover” June 11.

Any remotely smart machine, if invited into the Basel Committee, would immediately detect two major flaws with the risk-weighted capital requirements which is the pillar of current bank regulations.

First, by simply looking at empirical data and observe that all major bank crisis have always resulted from excessive exposures to what was ex ante perceived as “absolutely safe”, and never ever because of excessive bank exposures to what was ex ante perceived as “risky”; it would conclude in that the risk-weights of 0 to 20 percent for the “infallible sovereigns” and the AAAristocracy must have gotten mixed up with the 100 percent risk weights for the medium and smaller businesses, entrepreneurs and start-ups.

Secondly it would probably also ask the human regulators why they were looking at perceived risks that were already being cleared for by the bankers, by means of interest rates size of exposure and other, something which is bound to distort the allocation of credit in the real economy; and why they were not looking instead at some of the important though usually ignored risks, like that of the credit risks not being correctly perceived by bankers and credit rating agencies.

If so, and if the Basel Committee did not throw the thinking machine out, and in all modesty accepted their natural intelligence was not sufficient and proceeded to correct those mistakes… then perhaps our current unemployed young would not have to become a lost generation.

PS. And of course FT will also find it much easier and digestible to believe in “Eugene Goostman” the machine, than to believe in Per Kurowski the human.

Note: June 2023 I began to dialogue with AI - ChatGPT and Grok.

We should not ignore the contentment of the structurally unemployed when measuring economic recovery.

Sir, though surely a healthy economy requires quite a dose of confidence, Wolfgang Münchau is quite correct in that “Confidence is a poor measure if economic health”, April 28.

And I sympathize entirely with the idea that time like ours “when the economy is inherently unstable, when it does not return to equilibrium-the steady state around which [we at least believe] it should normally fluctuate… [makes] forecasting difficult and unpleasant.

But I am not fully convinced that “the employment rate as a percentage of the working-age population” would be the best way to measure whether an economy is recovering. And I say that because a recovering economy might also signify an increase in the contentment of many structurally or voluntarily unemployed. For instance a recovering economy, would perhaps provide for a better return on the savings of all those who have been hit by the double whammy of losing a job and not earning enough on their savings.

Also, focusing more on the contentment of the unemployed might have a very special significance, as there can be little as socially disruptive as the discontent unemployed.

Different types of sacrifices can solve the entitlement crisis. How about an ättestupa?

Sir, Peter Peterson concludes his “Sacrifice can solve the entitlement crisis” March 20, by citing the German theologian Dietrich on the ultimate test in moral society being the world it leaves for the children, and saying that “It is time for us to become worthy and moral ancestors.”

 

To a baby boomer like me, that sounds indeed like a gloriously grand-eloquent reason for giving up some entitlements, but I have to confess though that, back in my mind, also lies the real possibility that if we don’t give something up, perhaps even quite a lot, the children will one day tell us, “it is time for you, worthy and moral ancestors, to start thinking about an ättestupa” by which they would mean those very high cliffs where supposedly the old Scandinavians, in time of the Vikings, threw themselves from, when they became a burden to society.