Monday, July 01, 2013

The Contradiction of Capital Markets

I will have some unusual and skew-perspective takes on all the transparency-related news, from Google Glasses to the NSA revelations.  In fact, an article of mine should appear in the July 16 issue of Variety: Google Glass: In the Long Run, the Benefits Outweigh the Risks. And another one in a major newspaper.  Till then, and while I am traveling to Chicago and Ft. Worth, here is a riff that I've stored too long.  Something that needs saying.

== Can companies really gain investment capital via the stock market? ==

GuidedAllocationElsewhere I have commented on how easily capitalist/entrepreneurial markets can and do get warped by cheating and parasitism.  Some of it is inherent, as Adam Smith described way back in 1776. What could be  more natural for human beings to do – for example – than insider trading? Even primly honest folks will do it, inadvertently, We set up rules, and then lay patches on cracks that inevitably open in the rules, then bandaids on the patches….

Across 6000 years, no civilization ever tried so hard to create fair and open arenas within which humans can engage in creatively cooperative and creatively competitive positive-sum games.  Those who claim that markets are “natural” are romantics who know no human history and who have never even cracked open Smith's classic, Wealth of Nations

Markets are far from natural!  They are marvelous, wealth generating machines. Human inventions that need constant tuning, tweaking and re-adjusting.  Especially since cheaters (in other words humans) are all over the place, looking for ways to exploit those cracks. If they must, they will use camouflage and call themselves socialists… or oligarchs… or champions of enterprise, -- whatever garb will let them blend into the favored sanctimony of their environs.  But pay less attention to surfaces and polemics than to outcomes.

HFT-Stock-skynetWitness how the emphasis in the U.S. economy has shifted, since the 1940s, away from goods and services to finance. Companies once founded by innovators start to fail when taken over by “business majors.” The clade of parasitical meddlers has an endless supply of rationalizations, such as those concocted by the HFT or High Frequency Trading industry, claiming that – by leaping to suck away the intermediate value between buyers and sellers – they are somehow doing both parties a service, by helping markets to settle on the "proper (intermediate) market price."  This catechism-incantation allows them to shrug aside the blatant fact that they benefit while producing nothing, even as the buyers and sellers and producers of goods and services starve for capital, languish and fade.

(Aside: one reflex will be to to accuse me at this point of "socialism" - even though every word of mine so far has been in praise of honest trade and competitive market forces, in a capitalism free of what biologists and disease experts call "parasitic-burden.")

(Another aside: some have written in to suggest that I should distinguish between new shares issued as dilution (described above) and those issued in an initial stock offering or IPO.  The latter events are often filthy affairs, rife with cronyism, insider trading, corrupt under-the-table dealings and grotesque market distortions in which the little guy seldom has a chance.  Almost anyone could design a system that would "bleed" into the market enough option-warrants in an open fashion, that would serve to help set an actual price for the IPO, instead of the bizarre and self-serving activities we see performed by most IPO underwriters. It is one more way in which we are not served by the cartel of "seated exchange members." Still do note. Much of the IPO cash does go to the company. Purchasers should always know how much.)

== The "mutant" CEO ==

DefendingFreeEnterpriseElsewhere I have also discussed the flawed reasoning that defends today’s outrageous compensation packages for CEOs and other managers who create no product or service whatsoever. Think about it. Market forces are supposed to correct imbalances!  Hence, by the very logic of capitalism, high CEO salaries should attract new talent to the field of corporate management until the supply of brilliant corporate managers outstrips demand and the prices -- or compensation for such managers -- finally fall. That is capitalism!

It is the absolute core catechism of their faith… completely ignored when convenient. Members of the collusive CEO caste never ever, ever mention this -- that the system they claim to admire should result in a smooth and natural limitation on these French Royalty level compensations. And the failure of a correction to appear - after decades of incessant pay raises to stratospheric levels - is essential proof of a collusive market distortion.

The one excuse I've heard is that the very best managers are mutant-level good. They are like tall, fast NBA players, nonlinear and by far worth any price! But there's a rub.  NBA mutants can prove they are worth it by clear statistical performance measures and ticket sales! In contrast, there is famously almost no correlation between CEO compensation and company health.  Rather, studies have shown a near-perfect correlation with how many members of a very small clade of 5,000 or so lordlings you play golf with. Stuff each others' corporate boards with pals and what else do you need?  Can anyone out there point to a "market force" that would prevent this?

== The myth that equity markets efficiently raise capital ==

But let's go back to the stock markets. You can step back and question the fundamental rationale for equities trading, altogether! Oh, sure, people should be able to sell their shares to others who deem the company has better prospects. But for the most part its sense of importance masks a gambling den. It is justified by the claim that companies use the NYSE and NASDAQ and other exchanges as “capital markets,” to fund their RandD plus the building of productive plants and equipment. (Ironically, much of their catechism on this goes back to Karl Marx!)

The whole notion that a company benefits very much, when its stock price rises, is absurd. It is a Big Lie on the scale of an Emperor who people suddenly realize has no clothes.  Companies can draw new investment funds from the stock market only when the price rises AND the company's board issues new shares to sell at that higher price. 

That will, indeed raise capital! Current stockholder value is diluted, but presumably it rises back up as a result of  new activities and products that the fresh capital allows. To do this requires sober calculation and convincing existing stockholders that the dilution will prove beneficial.  And it just doesn't happen that much.  Nowhere near enough to justify the 99% of trading that is pure speculation, gambling and manipulation.

Let me reiterate; I am not calling for an end to equities markets! Current stock-owners should be able to trade, fine, but let's stop pretending that companies benefit from any but the tiniest fraction of NYSE or NASDAQ activity. To the contrary, managers are terrorized by stock value fluctuations into making rapid, near-term decisions that can prove short-sighted, even catastrophic.  (Secondary note: none of this applies to commodities markets, though those have their own problems.)

NewSharesIn any event, that cycle of ownership dilution and re-investment via new share issuance is the activity that should be tax favored, and NOT the passive clipping of gambling profits from the trading of old shares to "greater fools." Re-stating that again… the issuance of new shares - the proceeds of which go to new products, capital equipment and so on - should be tax-favored, and not (gambling) dividends and capital gains that benefit competitive capitalism not... one... iota.

Aside #1- The favored flows would go directly to the company's investment in productive capacity and competitive activities.

Aside #2- Assuming we also constrain cheat-methods like proliferating a zoo of share types with sneaky-variable voting rights, the result of new issuance would be a steady decline in the power of large bloc stockholders as dilution spreads ownership ever-wider.  In order to hold onto control, large-bloc owners would have to keep plowing dividends back into buying new shares.  So, either the ownership becomes more broadly spread (resembling democracy), or else the "kings" are forced to be hands-on, involved and committed to the firm.  Either way, vigorously competitive investment in new goods and services would be the favored outcome.

Indeed, although it is a separate matter, I believe that these "radical" measures to save capitalism from cheaters should include a limit to shell holding companies.  No share of voting stock in any company should be more than two layers from a living, breathing human being. (Or charitable foundation or pension plan.)

React viscerally.  Call this "socialism."  In fact, there is not one molecule of socialism in this proposal.  Just anti-parasitism, plus a will and eagerness to see so-called "capital markets" actually function as advertised, for a healthy version of capitalism.

Idealism-pragmatism-1Let me swivel now and point my finger in the opposite direction: left-wingers who blame "capitalism" for our recent messes should replace the word with "cheaters."  I consider healthy "Smithian" capitalism to be one of the top five victims of the malignantly incompetent rule of the recent U.S. GOP.  There are no outcome metrics of national health under which the Republican Party's tenure in command did not wreak harm upon the people of the United States, on human civilization, and upon healthy capitalism… and upon the spinning ghosts of Barry Goldwater and William F. Buckley.

Okay.  It's been said. When was the last time you saw such a fiercely radical "j'accuse" denunciation, issued in defense of our present economic system, against the enemies of enterprise, who claim to be its great defenders?  Well well.  This is Contrary Brin!

More… anon… Meanwhile… and just to clear the decks… here are some political miscellany.

== Who won the Iraq War? ==

WhoWonTheIraqWar“We lost out,” said Michael Makovsky, a former Defense Department official in the Bush administration who worked on Iraq oil policy. “The Chinese had nothing to do with the war, but from an economic standpoint they are benefiting from it, and our Fifth Fleet and air forces are helping to assure their supply.”

Not to mention that Iraq is now largely a satrapy of Iran.  What a great idea that pair of trillion dollars was.  And you would even consider trusting those goofballs with a burnt match, let alone any role in political life?  

(And while this proves the American right to have been completely loony, the far-left is little better, if they continue to nurse the insane delusion that these wars ever, ever, ever had anything at all to do with "grabbing oil." Um... show me the oil? Moderates rise up! The left-and-right wings are out of their freaking minds.)

== Political-News ==

An infographic rates countries based on the state of freedom of the press. Many criteria are used, including violence against journalists to legislative measures to curb press freedoms.

An interesting look at how unusual it is to see the Republican Party without a clear next front-runner.  "For decades, the party has drawn from a small pool. There was a Bush or a Dole on every national ticket from 1976 through 2004. For 20 years before that, Richard Nixon was on the ballot in every election but one."

EnergyGapTracking progress toward US energy independence: a handy chart, from Popular Science.

A provocative essay, Radical Centrism and the Return of Ricardo, reminds us that Adam Smith was not the only founder of enlightenment economics. Ricardo also played a major role. I cite both of them in that they knew what most "free market" economists have forgotten, that economic distortions will always be generated by toxically massive accumulations of wealth. A healthy market system - like an ecosystem - needs recycling, not just for "liberal" reasons of justice and equity and outcomes, but for the very health of the system itself, so that competition remains a real, vibrantly creative force, with a maximum number of empowered participants on a relatively flat playing field.  This proposal for a radically altered tax and property system has no chance of ever being implemented outside of a sci fi novel. And I only agree with half of the aspects.  Still it shows real thought.

How 1% of 1% dominate U.S. elections.  Yes it is Mother Jones and I don't always agree with their polemics.  But unlike Fox, they use actual facts. And they show where all of this will head, so long as the agenda of The Insatiables is the re-establishment of feudalism.

It would be one thing if -- as I portray in Existence -- the re-emerging oligarchy took seriously their need to be intelligent rulers. It is another thing to blithely assume they are smart while undermining every institution and enlightenment system that brought them all they own. Do they actually plan to ignore where history says that this will lead?

Finally, a science-fictional side: Here's hoping that Hugo voters will consider that Stanley Schmidt has just retired after his long and brilliant tenure as editor at ANALOG Magazine.  It is his last year of eligibility and it might be nice to honor him, at long last.


Jim Baca said...

Sooner or later the 'cheaters' will be be sent to remedial education camps to learn about morality and decency. I wish.

Alfred Differ said...

Hmm... If we call them cheaters we need to be specific about exactly how they are cheating and what rule they are breaking. I agree that calling them 'capitalists' is worse, but this is a decades-old judgement error on the left. It won't be corrected with a simple word swap.

Alfred Differ said...


My understanding of the fear executives have for stock price dips is the threat of a share-holder lawsuit. From a corporate perspective, the Board is supposed to represent share holders by 'governing' on their behalf. One thing that SHOULD happen when stock prices dip is buy-back out of reserve cash unless the company can justify using the reserves like we use savings.

Equity prices aren't just about gambling for the same reason bond prices aren't. The prices move as a measure of our approval of corporate policies and the perception of the business environment.

When a CEO stands up and says something stupid, the stock price takes a hit and the lawyers gear up for the suit. Savvy execs could do that on purpose to arrange buy-backs, so it's not like shareholders shouldn't care.

Alex Tolley said...

You misunderstand the role of the market. For there to be an efficient market, there have to be both buyers and sellers, and speculation is fine. Liquidity is important. Try to run a mutual fund with illiquid stocks (like those penny stocks) and you will soon see why liquidity is important. That liquidity removes liquidity risk and keeps prices than they otherwise would be.

Having said that, how much liquidity do you need, and what is the economic value of the players. I would agree with you that it marginal, possibly negative. I think there are valid concerns that the financial sector is ~30% of corporate profits - I doubt that is due clever security creation, but rather due to extraction of value from the rest of the economy.

As regards CEOs - couldn't agree more. The stacked boards, crony compensation committees and the clear negative performance of high paid CEOs indicates that these people are more predator than talented. It is the job that sociopaths are drawn to.

I think the rot set in during the 1980's. The equity markets (tiny compared to bonds and currencies) became more like poker games, and Mike Eisner set the high salaries ball rolling at about the same time. It has only become more nakedly self serving since then.

Alex Tolley said...

@Alfred - "If we call them cheaters we need to be specific about exactly how they are cheating and what rule they are breaking."

Good point. I would say that cheating for executives is obvious. Cheating by breaking laws (e.g. Tyco, Enron, Madoff). Cheating by stacking the deck (compensation committees) in your favor is not illegal, but clearly hypocritical and self serving.
Finally, I would argue that cheating by breaking our societal future - e.g. buying the government, obfuscating/lying about health and environmental issues.

Robert J Frey said...

Prior to the advent of HFT in the late 80s bid-ask spreads were at least an order of magnitude larger than today. HFT is to a degree a shift of an exceptionally profitable activity from exchange-sanctioned to outside-agency. The problem is not those HF traders who are compensated for providing liquidity to make the approximation of a continuous market workable. Rather, it is those, primarily existing within large firms, who take advantage of non-public information, e.g,. their customers' order flow, to produce profits which add little or nothing to market liquidity and fairer pricing. Letting large investment banks undertake proprietary trading activities conflicts with their primary fiduaciary responsibility of best execution of agency (customer) trades.

Also, it is not true that secondary trading of equities adds nothing to the economy. Without those markets the valuation of such equities would be more difficult. That would lower the demand for capital and, therefore, increase its cost. Not a good outcome.

Finally, I fully agree that "free" markets do not equate with "unregulated" markets. In fact, markets and the activities that surround them must be regulated for the invisible hand to do its magic. The success of markets of all types within the United States have much to do with a regulatory and legal system which is (relatively) free from corruption, where consumers are protected, and where contracts are enforceable. A free society requires fair laws enforced by an effective police force.

Acacia H. said...

Here's two interesting articles, Dr. Brin. First, an article about Canada's rise as a Petrocountry and on the stripping of environmental laws, respect for science, human rights attitudes, and so on. Rather interesting were these two sentences near the end: Countries that become too dependent on oil and gas riches behave like plantation economies that rely on "an unsustainable development trajectory fueled by an exhaustible resource" whose revenue streams form "an implacable barrier to change." And that's what happened to Canada while you weren't looking.

Second... hmm, this seems familiar somehow... ;)

Rob H.

David Brin said...

Mr Frey alas, you miss the points. Fist, HFT is fundamentally cheating simply by virtue of the fact that the seated members of exchanges may trade among themselves for free. That is a titanic and egregious cheat that biases the system and creates conditions for unfair HFT.

That cartel must be broken up - at minmum by forcing seats to be spit into ten and sold off. Better yet by eliminating the entire concept and replacing commissions with a simple transaction fee/tax.

Paul451 said...

Robert Frey,
If HFT produced better information about true prices, the market would become less volatile. (Or at least the volatility confined to a smaller range around the "true" value.) Instead it has measurably increased market volatility.

David Brin said...

The "finding the true value" cult incantation has no justification in actual economics, nor any parallel in biology or physics. It simply siphons away the wager between buyer and seller, making the whole transaction of such low value that neither one bothers to do serious due diligence. It is a case of verybright MENSA types concocting an excuse for engaging in inexcusable behavior.

locumranch said...

First, the very concept of 'true value' is both specious & wrong because all 'value' is subjective & arbitrary, subject to supply, demand & fickle desire, as if God concerns himself with setting the 'true' price of bread.

Second, the new issuance of stock does not necessarily lead to the 'steady decline in the power of large bloc stockholders (by) dilution', mostly because there is a traditional separation between Common (non-voting) stock ownership and Preferred (voting) stock ownership, for the same reason that most leaders (democratically elected, autocratic or otherwise) do not tend to give up power in a voluntary fashion.

Third, Makovsky's argument in regard to the Iraq War could just as well apply to the Allies in WW2 because, apparently, they (the Allies) lost that one too as evidenced by the Marshall Plan & current German economic dominance of the EU. Quite contrarily, we could also argue that China lost the Iraq War becaues the USA, China's single largest debtor, is now ill-equipped to pay them back.

All & all, these arguments are merely perspective games, revealing more about the inherent assumptions of the arguer than of the topic at hand.


sociotard said...

Recommended Reading: The Dictator's Handbook: Why Bad Behavior is Almost Always Good Politics
It describes politics (corporate politics included) using three broad castes. The book points out that selling more shares does not necessarily affect corporate governance, because it just increases the size of the least important caste, the interchangeables. Small shareholders are too unorganized and allocate too little attention to their companies information to make a difference.

Of course, if someone could invent a system to help people connect and to allocate their attention to what their holdings were up to, that would make all the difference.

In other news, Harry Potter and the Methods of Rationality has new chapters up.

Alfred Differ said...

When it comes to 'cheating' I'd focus upon the social rules being broken and not worry too much about the written law. Everyone knows how corruption alters the written law and how arguing over it brings in the lawyers. IF people are breaking laws, it is fair to point it out, but that isn't really 'cheating' in the social sense.

I'm thinking of 'discovered law' when it comes to cheating. What are the mostly unwritten social expectations we have for CEO, equities traders, and science fiction authors? Breaking these rules might not result in jail time or broad consensus, but the reflection needed to discover the rules might result in establishing objectives for flash mobs. 8)

David Brin said...

The germans were always fated to dominate central europe. We won because the very nature of what it means, mentally & morally, to be a "german" was utterly transformed. It was the best and greatest victory conceivable because it worked in al ways, even morally and karmically. To not see that is obdurate and pig headed addiction to cynicism.

madtom said...

Thanks again for stellar commentary on some exceedingly important issues!

I'd make just one small expansion: Many of the problems you discuss have a common cause.

Wealth and political power are interchangeable (nearly identical), in that they give their owners the ability to alter and/or evade any rules of any game, including wealth and power games.

Thus any significant concentration of either wealth or power creates a positive feedback (in the engineering sense, not the feelgood sense) that inevitably dominates, unbalances, then destroys the system. We can all hear the developing shriek of a PA system in feedback and quickly move to kill the loop. But when our whole society is starting to squeal . . .

The big challenge is to integrate this unavoidable positive feedback into a negative feedback loop that restrains the concentration of power/wealth within such limits that the system continues to function well.

History shows how seldom this restraint has been achieved constructively, and how commonly social breakdown provided the final restraint.

I hope we can do better, but your writings (fiction definitely included) provide one of the few signs I see that anyone is even aware of the larger issues. Sloganeering and narrow views seem to dominate, everywhere else I look. Thanks for your efforts!

Alfred Differ said...

The Germans were fated to what?

The northern plains of Europe are open to invasion along what has proven to be a mostly unstoppable east-west corridor. There are no significant geographic boundaries upon which to anchor national boundaries. Poland is here one century and over there the next century.

The nation-states on the northern plain have both pros and cons for dominating the region and history shows this. They've often gone to war with each other not so much for what is currently happening, but sometimes on what could happen. Both France and Russia have anchor positions that enable the closest thing to a natural border while Germany has a recent history of working together at the cost of personal preference, but even the current buffer states have had episodes of relevance and dominance.

If Germany was fated for anything it wasn't until after unification AND the terribly harsh lessons that they couldn't dominate through violence. Even a backward facing nation like Stalin's Russia managed to bleed them badly enough to make that war unwinnable.

Roger Kent said...

US Energy Independence is a phrase that has been bandied about since the time of President Nixon. It has many meanings, including the one used by the US Energy Information Agency. The one used by the US EIA is not the one most people in the United States use. People in the United States generally believe that "energy independence" means that the United States will pump so much oil from the ground at a cheap price that the price at the gas pump will also be cheap. The price in the US right now is expensive, and it is creeping upward to the price just before the world economy collapsed. The price is so expensive that it is driving down demand, that it is driving down driving cars. I have talked to a whole bunch of people, and some people have decided to NOT buy a house in the suburbs, which is what some have defined as part of the American dream.

The EIA has information about total energy use then some people claim we are achieving "energy independence" when no such thing is happening. At the current high oil prices, North Dakota tight oil becomes affordable with hydraulic fracturing and horizontal drilling enhanced oil recovery (EOR). The EOR technology is not brand new, but actually decades old. It seems to me that people may be forced to change their behavior, ie drive cars less, because of high fuel prices. People seem to buy fewer single family houses in the suburbs. Perhaps we may invent some incredible technology in the future like some low cost liquid alternative fuel. Perhaps electric vehicles may become much cheaper, have greater range, and become rechargeable in much shorter time. That may be possible in the future, but that future seems like an ever receding horizon.

matthew said...

James Clapper lied to his Senate oversight committee, calls it "clearly erroneous" testimony in a new letter. Any attempt to paint Edward Snowden as anything else than a whistleblower has now been rendered BS. Not a spy, not a traitor, but a real valiant American turning the spotlight of the public eye on honest to God malfeasance by our spooks. And remember that blog posting I copied here a few weeks ago, claiming the NSA is blackmailing our elected officials, including a wiretap on our President? I know that we venture into crackpot territory here from time to time, but this one is getting more and more and more dirty as it goes on.

locumranch said...

Based on the hurried nature of his response & thematic history, I think our host's comment on Germany being "fated to dominate central europe" refers to it's thoughtful regional contributions to 'The Enlightenment' rather than its more extensively partisan 'uber alles' tendencies.

Of course, such opinion calls to light certain inconsistencies between enlightenment theories & their subsequent application, including the concept of Fate, which (IMO) appears to represent some sort of Faustian bargain between secular science & humanist theology.

More & more, the concept of Fate appears to be an empty deception: Mankind is fated for greatness; our culture is fated to triumph; and James Clapper is fated to lie.


Alfred Differ said...

The only version of energy independence for the US that matters to me right now is the kind that separates our foreign policy objectives from our energy needs. If gasoline prices have to be high to accomplish that, I don't mind. If we finally reach the point where demand cringes at the price, I don't mind. High energy costs motivate the research needed to find alternatives. This is the way of all commodities.

David Brin said...

Home again. And Bah. Germany was fated to be dominant, once-unified, because germans OUTNUMBERED every other ethnic group in central and western Europe. I mean duh? Try going for the simplest explanation? That plus industriousness and a lot gets explained... delayed by 500 years by division into tiny squabbling baronies

David Brin said...

On a macintosh, some programs start when the machine starts up and I cannot figure out how to STOP them from starting up automatically. I want Skype & Chrome, especially to be turned on when *I* want them on, not involuntarily.

Apple should have a simple way to do this. I've been waiting for 20 years.

Tim H. said...

David, try this, under system preferences, select "Users and groups, click "Login items". Uncheck the offending applications.

David Brin said...

A FB friend gave me the solution. Items in the dock can be right-clicked and you can turn off starting up at log in .

Yes, in Users and Groups there it is, a hidden startup controller… that STILL won't let you control whether or not it startsup on login! All you can do is control whether or not it starts up VISIBLY or secretly. You still must hunt down the ap, put its icon into the bar, right click to stop it on startup, then remove the icon from the bar.

Anyway, problem solved and thanks. Now let me once again recommend QUicKeys. If you are not using a macro assignment program to automate tedious tasks like logins or standard email responses or phone numbers, anything you regularly type… then you just don't get it.

reason said...

"Having said that, how much liquidity do you need, and what is the economic value of the players. I would agree with you that it marginal, possibly negative. I think there are valid concerns that the financial sector is ~30% of corporate profits - I doubt that is due clever security creation, but rather due to extraction of value from the rest of the economy."

I think people are missing something obvious with the amount of income being captured by finance.


If I create money (as banks can) and make a secured loan to you to buy some stocks, what is happening. The existing owner gets cash (which slowly loses value), I the bank actually own the stocks (although you nominally own them, you have to pay me back for them) and you get a debt and nominal ownership. As credit expands, so does the effective ownership of the economy by the money men.

And episodes of of credit contraction and insolvency actually transfer more nominal ownership to the money men.

Tim H. said...

Reason, it's ever thus, finance types are great at taking ownership, but usually break the system. They can learn this but their grandchildren have to find out their selves. We have the misfortune of being in the part of the cycle where the powers that be don't understand the value of history or actively misrepresent it. In short, like a cat with a mouse, they'l play the system until it dies.

Alex Tolley said...

@ reason.
As credit expands, so does the effective ownership of the economy by the money men.
Your analysis is incorrect.
1. Buy stock. Borrow from bank to do so.
2. Stock pays CASH dividends. Pay down loan.
3. When loan is paid, you have no debt, you own the stock, and you keep getting cash.

No net ownership loss there.

This works as long as the rate of return on stocks (adjusted for bankruptcies) exceeds the cost of bank loans, which is true most of the time.

It is only during times of distress that loan defaults result in transfer of ownership to the lenders.

As credit expands with the economy, so do the cash payments to reduce the loans. Obviously excessive debt/leverage is a problem. But you don't personally have to get involved in that (mostly).

Jumper said...

Sometimes the hard nosed influence policy.

WatchfulBabbler said...

In defense of the "far left," the Iraq War *was* about oil, if only proximately (Saddam invaded Kuwait to seize oil fields that Iraq had asserted its rights over and in order to force negotiation over Iran-Iraq war debts; we got involved because Kuwait is an oil-rich ally; we had a decade of bottling up Iraq because our oil-rich allies Kuwait and Saudi Arabia were afraid of Saddam). US forces also, let it be remembered, moved to secure oil facilities before Iraqi government and even military facilities.

I mean, we've seen what happens when resource-poor nations invade each other -- we wring our hands, refer it to UNGA, and send a special envoy to try and set up peace talks.

This isn't irrational -- crazy right-wing talker Ann Coulter said at the time, "Why not go to war just for oil? We need oil." She wasn't wrong, just as Eisenhower wasn't irrational in fomenting covert ops against Iran, Syria, and Egypt because he was afraid a Soviet-dominated Middle East would cut off fuel supplies to Europe. It ain't nice, but international affairs, like revolution, ain't a dinner party.

Having said that, the desire to create a stable source of oil doesn't mean that it should be a US-dominated source, a calculation the Bush administration quite openly took into account -- they were cognizant that having US firms dominate the nascent Iraqi oil market would be an optics disaster, so they looked to France, Russia, etc. to bid for projects. Oil, as a fungible commodity, really isn't all that sensitive to which countries manage extraction -- generally speaking, if CNOOC runs Kirkuk, it has the same effect on global prices as if it were Texaco. So the end effect -- a stable, growing oil supply -- is achieved even if Turkey, China and Russia benefit more than US companies.

sociotard said...

This isn't irrational -- crazy right-wing talker Ann Coulter said at the time, "Why not go to war just for oil? We need oil."

Do we need Justice? Do we need Compassion? Do we need Rule of Law? Do we need Freedom?

Now, if we invade countries to secure oil, are we just? Compassionate? Lawful?

My international policy stance isn't based on what I need to make a living. It is based on what I want to be.

sociotard said...
This comment has been removed by the author.
Joel said...

Happily, a coalition of banks and investment firms in Canada have decided to rid the world of High Frequency Trading:

Unfortunately, I offered my services as a Business Analyst and was politely turned down (though they requested my resume)... by the CFO. I think they're short staffed and not quite ready to be a player just yet.

The dirtiest part of the Capital Markets (IMHO) is the issuance of stock by a company. I'm aghast that you think it should result in Tax Favoured status. Aargh!

1) For any real legitimate business (i.e. profitable and stable) we little guys NEVER get access to those IPO shares. The shares will jump 20% before the public has access.

2) After which, the price is supported (aka price manipulation) until the big guys are all out. Then the other shoe drops, and the price drops like a stone to its real unsupported value. Recent examples? Facebook, Groupon, LinkedIn

3) IPO's occur when the market is drunkenly buying anything and everything. One of the indicators of a market top is the number of IPO's skyrockets, and fewer to no withdrawals of IPO's (common in bear markets). In my mind, IPO's mostly occur when the market has gone stupid and that makes IPO's the equivalent of taking candy from a baby. Supply of new issues overtakes demand. Market collapses. IPO's are part of the reason.

Finally, CEO's are overpaid and I think I have a simple reason. They're rich. They're old. They actually realize there's better things in life than work. But they have experience and legitimacy that cannot be replaced by young, ambitious brilliant MBA's. Given the choice between a far cheaper but less tested CEO, and the business hardened, respected ex-CEO who's looking to spend time with his grandkids - shareholders will offer the grey hair the job every time. And it costs them.

Acacia H. said...

Except, Joel, the average lifespan of a CEO these days is only a couple of years. If a CEO has not caused significant benefit to a company within 1.5 years (and often less than that) then the CEO is tossed out and a new one is put in place.

Rob H.

David Brin said...

Iraq War Phase 1 was justified. In fact it was ludicrous. Saddam invaded Kuwait during the ONE year when we had a full NATO land army only a thousand miles away with ZERO opponent to pin it down after the WARSAW Pact dissolved. A year later, at least a third of it would have dispersed.

Kicking Saddam out was justified. What was not justified... and a permanent stain on our honor, was Bush Sr. shameful, dastardly order to stop short of Basra, where the shiites were in revolt, and instead letting Saddam Slaughter them. It was dastardly horrific and we paid for it. Had we given the Shiites the same no fly protection we were already giving the Kurds, we would have received "kisses and flowers" and Saddam's rump Sunni middle would have had no oil. And a general would have put a bullet in his head.

Bush Sr stopped on orders from the Saudis.

Iraq phase 2 was doomed from the start because of this. It was done in the worst series of worst ways. All of the senior officers I know hate Donald Rumsfeld with volcanic passion, even more than they hate George W. Bush.

reason said...

Alex Tolley,
you are correct after the loan is paid back. But the stock of outstanding loans keep increasing. This is the difference between a macro view and a micro view - i.e. not seeing the forest for the trees.

reason said...

I should have mentioned, that not only is the stock of outstanding loans increasing (in general, perhaps not just at the moment), but it is increasing as a fraction of total wealth. So the fraction of wealth (housing, stocks etc) paying tribute to the banks is increasing.

Alfred Differ said...

meh. Yes they outnumbered every other cultural group, but they still couldn't secure their borders or sustain the traditional way a European power dominates. They tried twice and got their heads handed back to them. Germany only dominates through peaceful economic integration or the collapse of its competitors on the northern plains.

I get that numbers determine market sizes and strengths, but that's not much help when you can't secure your border. Such a nation winds up choosing a non-optimal growth plan because they plan for the war that always seems to happen. That's how we helped reshape Europe after WWII. We made it hard to go to war in any other way except an utterly destructive one. They planned as best they could, but the US bore the brunt of the costs while France and Germany were married at the hip. It is actually a Franco-German alliance that dominates Europe today.

Paul451 said...

More of the perpetual off topic:

To save Ian the effort, since he's sick - Israeli TV reporters smuggled a 3D printed plastic gun into the Knesset viewing gallery, bringing them within firing range of the Israeli PM, getting the reaction they wanted.

Jumper said...

David's waving of Buckley made me curious (I merely found the man's masterful vocabulary and superb education made him a successful obfuscator and prevaricator) and I found myself reading this amusing review of Atlas Shrugged, by Whitaker Chambers, on National Review.

Alex Tolley said...

@reason I should have mentioned, that not only is the stock of outstanding loans increasing (in general, perhaps not just at the moment), but it is increasing as a fraction of total wealth.

Probably a good idea for you to look at some historical data before making such broad claims.

1. total credit will generally increase with GDP. So as long as GDP increases so will credit. This is NOT a bad thing.
2. Debt as a fraction of GDP fluctuates. We've been through another peak and are in the process of deleveraging again.

If you ever want to reduce the debt/GDP fraction, give the lenders a whiff of inflation to reduce the value of old fixed interest debt.

LarryHart said...


This isn't irrational -- crazy right-wing talker Ann Coulter said at the time, "Why not go to war just for oil? We need oil." She wasn't wrong...

On the contrary, she's "wrong" on so many levels.

If we need something that belongs to someone else, we could always, I dunno, BUY it, or trade for it, or work for it.

Or as you say, we could go to war for it. But then we can't pretend we're the good guys at the same time.

What you are advocating is equivalence between the United States of America and the mafia. Are you sure you want to go there?

LarryHart said...


I found myself reading this amusing review of Atlas Shrugged, by Whitaker Chambers, on National Review.

Until recently, Ayn Rand wouldn't have been accepted by the mainstream right any more than she would be by the mainstream left. Her militant atheism alone would have made her a pariah among Republicans.

Somehow, the far right now claims her as their icon, but in 1957, I doubt either US political party saw any use for her.

sociotard said...

Dr. Brin, I really hope you'll read "The Dictator's Handbook". I'd love to talk to you about the books views on foreign aid and the Marshall Plan.

Mitchell J. Freedman said...

Capitalism is often feudalism hidden by the medium of money. That is why capitalism did fail, as it usually does, in the 2008 recession. It rebounds, however, and that is also a feature of capitalism. Usually, though, there is government somewhere, either passive in the form of not prosecuting the cheaters, or active, in the Hamiltonian nation building sense.

David is simply sounding like a "Problems of Communism" guy when he wants to avoid talking about actually existing capitalism and its discontents. In other words, it's not a bug, it's a feature.

And aren't we tired of endorsing Buckley and Goldwater at this point? I think Corey Robin's inquiries have shown they are consistent with the longer arc of conservatism being the realm where one fights for the power of the privileged elite against the mass. What makes Robin's formulation so delicious is that it turns back the rhetoric so effectively used against "New Deal liberals" and so-called "left liberals" for 70 years and applies it against conservatives themselves.

David Brin said...

Bah, Mitchell F. You sit there, wallowing in wealth and tools and toys and pleasures and abilities and freedoms and empowered capabilities that aren't just greater than those of other times, but many orders of magnitude greater, to levels that are almost godlike. You live amid - and take for granted - more positive sum games than you could readily bring to mind if you tried. (But you won't try.)

And yet, you do not consider yourself to have any moral, intellectual or other obligation to bear a burden of proof, when disdaining those positive sum games.

We are awash in simplistic dolts. Leftists who decry and denounce competition, which is the one great creative force of the universe and the ONLY method that creates positive sum games.

...and rightists who zealously proclaim themselves champions of competitive markets... while doing everything in their power to ruin them, by bringing back the great enemy of competition -- oligarchy.

The chief difference between these two wings of fanaticism is not the degree to which they are wrong. It is the fact that one wing has become a army of 100 million AMerican marching morons, tightly disciplined, chanting insane dogmas and helping oligarchs to ruin the country.

The other mad wing infests a few hundred university soft studies departments... and San Francisco... and (thank God) has no power except the power too look stupid and say stupid things... while pragmatic liberals sigh and proceed to move us forward.

Hence, I spend most of my political time fighting the Mad Right. And I use Goldwater and Buckley quite effectively as symbols or how far into madness their movement has fallen. And your incapability to grasp such methods speaks ill only of you, not me.

But thanks for the illustration that leftism is a snarling pit of ingratitude, as well. Useless at combating the rightist madness and wallowing in indignant silliness. Like ignoring the fantastic effectiveness of a level, fair, competitive market system, ignoring the forces that have lifted half the world out of poverty, and ignoring the desperate need to SAVE capitalism from its ancient oligarchic/lying/cheating foe.

But that's okay. Folks who cite Marx without ever having read him (or Smith) give me a hoot. I laugh because I cannot bear to cry.

LarryHart said...

Dr Brin:

We are awash in simplistic dolts. Leftists who decry and denounce competition, which is the one great creative force of the universe and the ONLY method that creates positive sum games.

...and rightists who zealously proclaim themselves champions of competitive markets... while doing everything in their power to ruin them, by bringing back the great enemy of competition -- oligarchy.

In the sense that the original Captain Kirk (in "Wrath of Khan") said he didn't believe in the no-win scenario, today's right-wing seems not to believe in the positive sum game.

They proceed from the Ayn Rand-like assumption that everything belongs to the oligarchy in the way that everything in 1789 France belonged to the aristocracy. The oligarchy expects to have to (grudgingly) give some of its wealth in wages and benefits to the lower classes, but only the absolute minimum required to induce those people to perform work for them.

To them, a positive sum game implies some profit which went in the wrong direction, a bit of wealth that belongs to them but is instead being enjoyed by a poor person or by the commons. And that, they cannot abide.

There was a very insightful Dilbert cartoon back in the 90s which had the boss say to Dilbert, "Job satisfaction is like stealing from the company." The current corporatists seem to actually believe in that assertion as a motto.

David Brin said...

LarryHart I agree with much that you say... except that zero-sum thinking infests other areas than the right, as well. Most leftist thinking is also zero sum.

Indeed, it is the poisonous ultimate implication of Marx's Labor Theory of Value, which is widely viewed as a moral improvement over scarcity-value, but actually leads to catastrophe.

You appear to be reaching toward a conclusion about Any Rand that I explore in detail at:

There I demonstrate that Rand was a devoted acolyte of Marx, when it comes to his fundamental assumptions and teleology and mental methodologies. She betrays her master in just TWO basic differences. Otherwise, she is the purist Marxist around!

I agree with you that capitalism has no defenders, nowadays. The right has been taken over by idiots who side with the ancient enemies of market fairness.

But that does not make the far left correct. By failing to recognize the market positive sum game for what it blatantly is -- the force uplifting billions out of poverty and the method that provided all their tools and toys -- they show their own unworthiness of power.

Fortunately, there are liberals. Though I HATE having to go to only one source for sane politics. One reason that I hammer on conservatives in in hope that they'll snap out of this madness and return to being folks we can argue with, and maybe learn from, now and then.

LarryHart said...

Dr Brin:

I consider myself a liberal, not driven so much from economics, but from a sense of fairness and an inability to abide bullies.

I'm also practical enough to realize that you can't simply legislate bullies out of existence, you need a countervailing force to discourage them. The current rightist fad of declaring government itself to be illegitimate only serves to empower and enshrine bullies. It's ironic, because I grew up in the sixties when the left was all "Do your own thing, man!" and the right was for "Law and order." Even now, I can't entirely wrap my head around the idea that the right is against government and the left (according TO the right) favor government thuggery.

But, I've often argued that you can't simply claim to be "for freedom". You have to declare whether you're in favor of freedom FROM bullies or freedom FOR bullies. Because it's going to be one or the other.

All this by way of saying that I'm an unashamed liberal, but I'm not a leftist or a nanny-stater, and I'm thankful that you are one of the few writers I've seen who recognizes a difference.

LarryHart said...

Dr Brin:

I agree with much that you say... except that zero-sum thinking infests other areas than the right, as well. Most leftist thinking is also zero sum

Sure, but I don't think that is a point of contention. You, I, and Ayn Rand would all concede that the far left is misguided about economics. The point I was addressing is why the nominal defenders of capitalism--the right--also can't think in positive sum terms.

There was a fake advertisment in an old Mad Magazine that touted how cheap a music recording was as compared to what it would cost you to hire a band, build a studio, and produce the thing yourself. If it would have cost $100,000 to produce a music CD from scratch for yourself and you can instead buy one for $20, you and I see that as the whole point of a positive sum game. I think there are those among today's right-wingers who honestly believe that the $99,980 in "savings" represented above "belongs" to the corporation producing the artifact.

David Brin said...

All great points

Acacia H. said...

I recently made a comment on Facebook that I think rings quite true (it was in regards to the Obama Administration's war on medical marijuana). Today's Democratic Party has become yesterday's Republican Party. And the Republican Party has become the Apeshit Insane Party.

Thus I nominate the Libertarian Party to come forward as the new politically powerful party to replace Republicans. For all its right-leaning tendencies, one thing Libertarians believe in is personal liberties, which includes pro-choice and freedom of privacy. We need a party that is for that.

Rob H.

useless.old.fool said...

There is no merit to the current compensation for CEOs and management.
Golden parachutes, and legal cheats have prevented any accountability.
Parasitism is not being checked by shareholders, workers or even civic action.

Remember there is no market force that establishes justice.
Only a well regulated free market with strong civics can provide social justice.

Also it is a sad fact that even when fraud and White Collar crime is successfully prosecuted.
Only pennies on the dollar are ever returned to the wronged parties.

So we need to change the rules for corporate compensation and collect Collateral to protect the public.
Instead of stock options for compensation force a change to treasury securities that get payed out over a number of years.
When management is a bad actor the treasuries are then used as collateral to address harm.
Talent, inventors, and main street worker should have stock options not managers, board members or CEOs.

Mitchell J. Freedman said...

I'm a bit surprised by David's reply to my comment.

I am also struck by his assumption that the wealth we enjoy in America comes from capitalism as opposed to a mixed economy. The great American middle class came through the New Deal reforms more than anything else, and those involved the type of government policies Buckley and Goldwater detested.

The initial wealth that Hamilton helped usher in, with help from Gallatin, Clay and Lincoln, also was done despite the hostility of the genteel folks of the American Southern aristocracy, and despite the hostility of the faux populism of the Jacksonians, who supported the shopkeeper not the nation builder.

Also, how have I misread Marx or even Smith for that matter? Smith understood mercantile principles in practice and his Theory of Moral Sentiments anticipates Daniel Bell's thesis of the Cultural Contradictions of Capitalism.

It is rather crude of David to compare me to a Tea Party stereotype when I have sat in quite a few corporate board rooms where important decisions are made, and understand quite well the manner in which the economic world works. David is acting more akin to Chuck Todd and Peggy Noonan looking for that usual false equivalency, when David knows better that one side more than the other is anti-science, anti-intellectual and against the Enlightenment. That one may also recognize the limits of science (eugenics), intelligence (neo-abstract art, French Marxists, etc.) and the Enlightenment (slavery, primitive accumulation, imperialism) does not render one the equivalent to the Tea Party or Taliban.

LarryHart said...


I recently made a comment on Facebook that I think rings quite true (it was in regards to the Obama Administration's war on medical marijuana). Today's Democratic Party has become yesterday's Republican Party. And the Republican Party has become the Apeshit Insane Party.

I'm beginning to realize that Democrats think they have to govern like Republicans in order to prove they are grown-ups (or as Krugman would have it, to prove they are serious). Thus you get Democrats pretty much conceding that organized labor has to go, that the enviormnent must be sacrificed for jobs, and that Social Security and Medicare are bad ideas, distinguishing themselves from the GOP only in their supposed sympathy for the constituents they throw under the bus.

And what pains me is that while it might have been necessary to prove their bona-fides thus in times past, it should no longer be. Supply-side economics as a working theory was all but dead by 2006, and the crash of 2008 proved that self-regulation was so much vaporware. Democrats had a chance to legitimately stand for something different, and failed to do so.

Thus I nominate the Libertarian Party to come forward as the new politically powerful party to replace Republicans. For all its right-leaning tendencies, one thing Libertarians believe in is personal liberties, which includes pro-choice and freedom of privacy. We need a party that is for that.

In theory, there is no difference between theory and practice, but in practice, there IS. :) Your idea is good in theory, but the current Libertarian Party seems to be the party of Ayn Rand. Yes, they stand for personal freedom and privacy, but they equate that solely with freedom and privacy from GOVERNMENT. They won't fight for freedom and privacy from intrusive PRIVATE interests--in fact, they will fight for the freedom OF the powerful to intrude on our lives, and THEIR right to privacy to hide their infamy.

As I said above, you can't just be "for freedom." You have to be for freedom FROM bullies or else for freedom FOR bullies. And the Libertarian Party seems clearly on the latter side. More's the pity.

Anonymous said...

So as someone mentioned above, the IPO market is indeed inefficient and an insider game. But it's also true that one of the only true benefits of the capital markets is getting those primary shares sold and giving the company resources to grow their business. An auction model solves those problems...

The other piece of the puzzle might be a tiered capital gains tax, where you get a lower cap gain rate if you hold the stock longer. If you hold if just a few minutes, you should be charged a fee, if you hold it a year, it drops, two years or more drives it even lower. That exists to some extent already, but pushing that a bit makes a lot of sense as it promotes investors taking a longer term perspective.

David Brin said...

Robert, I had hoped that the Libertarian Party would be calm and appear acceptable as a home for distraught sane Republicans to flee to… and that the influx would thereupon weaken the grip that the Rand-Rothbard cult now holds over the movement, making it unattractive to anyone but goggle-eyed lapel-grabbers.

Alas, that did not happen. Given that Gary Johnson tried hard to put that on the table, I do not blame him. I blame the character trait that is most endearing and most frustrating about Republicans… their tenacious loyalty. It is admirable in some ways but it empowers them to shrug aside or rationalize the most fantastic political insanity in America's lat 100 years. And it kept the grand exodus from happening.

At this point, I doubt they will ever have their "Miracle of 19 47"

Mitchell F, you are committing bait-and-switch. You started this exchange by making bald and blanket denunciations of capitalism… then backpedal to say you were only objecting to my giving ALL the credit to capitalism.

Given that I have here spoken in praise of the Mixed Economy and defended FDR from the campaign to portray him as Satan Incarnate, it is no surprise that I find mostly agreement with the "good" Mitchell Freedman we see in your post just-above.

Nu? If you wish to backpedal into a more nuanced and reasonable position, fine. Just don't pretend that it isn't a shift. Your earlier post deserved everything I said in reply to it.

Larryhart I agree that my main blog posting this time should distinguish between new shares issued as dilution and those issued in an initial offering or IPO. The latter are often filthy affairs, rife with cronyism, insider trading, corrupt under-the table dealings and grotesque market distortions. Almost anyone could design a system that would "bleed" into the market enough warrants in an open fashion, that would serve to help set an actual price for the IPO, instead of the bizarre and self-serving activities we see performed by most IPO under-writers.

Anonymous said...

For years I've been asking questions regarding the relationship of share price and corporate value. I never found a convincing answer, seemed like gambling and a form of income redistribution. Even Al Capone thought it was a 'racket'. Thanks for your viewpoint, gives me something to think about. -- Josef

Mitchell J. Freedman said...

Not back pedaling at all. Your post was that we should not call what the banksters did "capitalism" but "cheaters." My initial comment was that it's all part of capitalism, good and bad. And then I spoke about government being passive or active in relation to capitalists, which I thought was sufficiently clear for this website to be reminding people about the degrees to which government plays a role, either active or passive (i.e. enabling).

Still, in this latest rejoinder, I'm glad you're remembering the 'good' Mitchell Freedman...:-)

Jumper said...

I would give credit to a somewhat non-political part of history, the human mind, insofar as Luddism has been outflanked, which is, granted, political. Even the Soviet Union began mass-production, improving the material well-being of people.

Changing topics, I give credit to the spy business for the invention of the microchip. Once circuit printing was initiated, it took no genius to realize that the process is miniaturizable. It was already being done with microfilm.

Jumper said...

Mea culpa. Not quite true, my supposition... but interesting.

Jumper said...

Someone named Charles Durcase found a method and patented it in 1927, to photochemically etch circuit patterns onto various strata. Odd that he is almost untraceable and has no biography I can find yet.

Alex Tolley said...

" IPO. The latter are often filthy affairs, rife with cronyism, insider trading, corrupt under-the table dealings and grotesque market distortions. Almost anyone could design a system that would "bleed" into the market enough warrants in an open fashion, that would serve to help set an actual price for the IPO, instead of the bizarre and self-serving activities we see performed by most IPO under-writers."

Can you be more explicit what these bizarre and self-serving activities are, and what the evidence is that they are performed by most IPO under-writers?

AFAIK, IPOs are priced by supply and demand before and during the "road show". While the issuer has the choice of under or overpricing the IPO, generally they underprice, as you would expect from a party with little skin in the game. Of course this can lead to corruption (c.f. Frank Quattrone). However, I know of no guaranteed fair way, even with an auction, to allocate shares without the allocation be subject to gaming from investors with extra information.

David Brin said...

Alex, before an IPO the company can issue advance purchase warrants that jostle as if in a market and seek the expected value.

Alex Tolley said...

@DB - I'm afraid I have never heard of an "advance purchase warrant", nor can I find any reference to it. I assume you mean a warrant to convert to the stock at issue. The price would reflect the true share price. While it sounds attractive, I think it just changes the mechanism of cheating. For example, an investment bank could buy up most of the warrants, control the price and go through the usual process, or simply tip off a favored client to buy the warrants. I don't see that this mechanism makes this process more transparent, nor more importantly, fairer for most investors. I'd certainly be interested in the idea as I teach Corporate Finance and this might make a good classroom discussion or assignment.

Perhaps you could more fully explain the process you envisage as part of a future post?

Paul451 said...

"Thus I nominate the Libertarian Party"

The problem is that the standard-bearers for the Libertarian political movement aren't really libertarians. And small-l libertarians are closer to a pacifist movement, except with much more whining (a pacifist-aggressive movement, perhaps?) Hence the leadership of both libertarian factions are just as bonkers as the Republican leadership. They do not represent a sane new not-Left you can negotiate with.

Mitchell J. Freedman,
"I'm a bit surprised by David's reply to my comment. I am also struck by his assumption that the wealth we enjoy in America comes from capitalism as opposed to a mixed economy."

If you read back through David's posts over the years, you'll find the "competition" he praises isn't just within capitalism, it's everywhere. Having the different parts of society, such as government and corporations, in a reasonable balance, is part of a healthy competition. In the same way that "being rich" isn't bad, provided there's a countering social force that prevents the current rich from preventing competition to their heirs from the cleverest of the middle and lower classes.

"Someone named Charles Durcase found a method and patented it in 1927, to photochemically etch circuit patterns onto various strata. Odd that he is almost untraceable and has no biography I can find yet."

This is the bane of all time travellers. They underestimate the amount of social support you need to bring an out-of-time idea into early development. So many hopeful discoverers of temporal portals have seen such poor results for their efforts.

Unknown said...


Recent experimental psychology studies show that wealth inequality leads to confirmation bias that serves to justify unethical and illegal behavior. Here is a PBS newshour segment on the phenomena:

PBS News Hour Segment

And here you'll find a link to the paper that is referred in the PBS story. But there are many repetitions of that study, and it appears to be a valid result.

This problem is inherent to our psychological makeup and gives rationale (even if irrational) to economic positive feedback cycles that promote wealth inequality. Yet clearly such economic outcomes do not represent maximum efficiency market solutions. As you note, such parasitism actually destroys value creation.