Tag Archives: financial crisis

2017 in Review

Most frightening stories of 2017:

  • January: The U.S. government may be “planning to roll back or dilute many of the provisions of Dodd-Frank, particularly those that protect consumers from toxic financial products and those that impose restrictions on banks”.
  • February: The Doomsday Clock was moved to 2.5 minutes to midnight. The worst it has ever been was 2 minutes to midnight in the early 1980s. In related news, the idea of a U.S.-China war is looking a bit more plausible. The U.S. military may be considering sending ground troops to Syria.
  • MarchLa Paz, Bolivia, is in a serious crisis caused by loss of its glacier-fed water supply. At the same time we are losing glaciers and snowpack in important food-growing regions, the global groundwater situation is also looking bleak. And for those of us trying to do our little part for water conservation, investing in a residential graywater system can take around 15 years to break even at current costs and water rates.
  • April: The U.S. health care market is screwed up seemingly beyond repair. Why can’t we have nice things? Oh right, because our politicians represent big business, not voters. Also, we have forgotten the difference between a dialog and an argument.
  • May: We hit 410 ppm at Mauna Loa.
  • JuneThe Onion shared this uncharacteristically unfunny observation: “MYTH: There is nothing mankind can do to prevent climate change. FACT: There is nothing mankind will do to prevent climate change”. It’s not funny because it’s probably true.
  • July: Long term food security in Asia could be a problem.
  • August: The U.S. construction industry has had negligible productivity gains in the past 40 years.
  • September: During the Vietnam War the United States dropped approximately twice as many tons of bombs in Southeast Asia as the Allied forces combined used against both Germany and Japan in World War II. After the Cold War finally ended, Mikhail Gorbachev made some good suggestions for how to achieve a lasting peace. They were ignored. We may be witnessing the decline of the American Empire as a result.
  • October: It is possible that a catastrophic loss of insects is occurring and that it may lead to ecological collapse. Also, there is new evidence that pollution is harming human health and even the global economy more than previously thought.
  • November: I thought about war and peace in November. Well, mostly war. War is frightening. The United States of America appears to be flailing about militarily all over the world guided by no foreign policy. Big wars of the past have sometimes been started by overconfident leaders thinking they could get a quick military victory, only to find themselves bogged down in something much larger and more intractable than they imagined. But enemies are good to have – the Nazis understood that a scared population will believe what you tell them.
  • December: A lot of people would probably agree that the United States government is becoming increasingly dysfunctional, but I don’t think many would question the long-term stability of our form of government itself. Maybe we should start to do that. The Consumer Financial Protection Bureau has been doing a decent job of protecting consumers and reducing the risk of another financial crisis. The person in charge of it now was put there specifically to ruin it. Something similar may be about to happen at the Census Bureau. A U.S. Constitutional Convention is actually a possibility, and might threaten the stability of the nation.

Most hopeful stories of 2017:

Most interesting stories that weren’t particularly frightening or hopeful, or perhaps were a mixture of both:

  • January: Apple, Google, and Facebook may destroy the telecom industry.
  • February: The idea of growing human organs inside a pig, or even a viable human-pig hybrid, is getting very closeTiny brains can also be grown on a microchip. Bringing back extinct animals is also getting very close.
  • March: Bill Gates has proposed a “robot tax”. The basic idea is that if and when automation starts to increase productivity, you could tax the increase in profits and use the money to help any workers displaced by the automation. In related somewhat boring economic news, there are a variety of theories as to why a raise in the minimum wage does not appear to cause unemployment as classical economic theory would predict.
  • April: I finished reading Rainbow’s End, a fantastic Vernor Vinge novel about augmented reality in the near future, among other things.
  • May: The sex robots are here.
  • June: “Fleur de lawn” is a mix of perennial rye, hard fescue, micro clover, yarrow, Achillea millefolium, sweet alyssum, Lobularia maritima, baby blue eyes, Nemophila menziesi, English daisy, Bellis perennis, and O’Connor’s strawberry clover, Trifolium fragiferum.
  • July: Ecologists have some new ideas for measuring resilience of ecosystems. Technologists have some wild ideas to have robots directly counteract the effects of humans on ecosystems. I like ideas – how do I get a (well-compensated) job where I can just sit around and think up ideas?
  • August: Elon Musk has thrown his energy into deep tunneling technology.
  • September: I learned that the OECD Science, Technology and Innovation Outlook named “ten key emerging technology trends”: The Internet of Things, Big data analytics, Artificial intelligence, Neurotechnologies, Nano/microsatellites, Nanomaterials, Additive manufacturing / 3D printing, Advanced energy storage technologies, Synthetic biology, Blockchain
  • October: Even if autonomous trucks are not ready for tricky urban situations, they could be autonomous on the highway with a small number of remote-control drivers guiding a large number of tricks through tricky urban maneuvers, not unlike the way ports or trainyards are run now. There is also new thinking on how to transition highways gradually through a mix of human and computer-controlled vehicles, and eventually to full computer control. New research shows that even a small number of autonomous vehicles mixed in with human drivers will be safer for everyone. While some reports predict autonomous taxis will be available in the 2020s, Google says that number is more like 2017.
  • November: It’s possible that the kind of ideal planned economy envisioned by early Soviet economists (which never came to pass) could be realized with the computing power and algorithms just beginning to be available now.
  • DecemberMicrosoft is trying to one-up Google Scholar, which is good for researchers. More computing firepower is being focused on making sense of all the scientific papers out there.

I’ll keep this on the short side. Here are a few trends I see:

Risk of War. I think I said about a year ago that if we could through the next four years without a world war or nuclear detonation, we will be doing well. Well, one year down and three to go. That’s the bright side. The dark side is that it is time to acknowledge there is a regional war going on in the Middle East. It could escalate, it could go nuclear, and it could result in military confrontation between the United States and Russia. Likewise, the situation in North Korea could turn into a regional conflict, could go nuclear, and could lead to military confrontation between the United States and China.

Decline…and Fall? A question on my mind is whether the United States is a nation in decline, and I think the surprisingly obvious answer is yes. The more important question is whether it is a temporary dip, or the beginning of a decline and fall.

Risk of Financial Crisis. The risk of another serious financial crisis is even scarier that war in some ways, at least a limited, non-nuclear war. Surprisingly, the economic effects can be more severe, more widespread and longer lasting. We are seeing the continued weakening of regulations attempting to limit systemic risk-taking for short-term gain. Without a pickup in long-term productivity growth and with the demographic and ecological headwinds that we face, another crisis equal to or worse than the 2007 one could be the one that we don’t recover from.

Ecological Collapse? The story about vanishing insects was eye-opening to me. Could global ecosystems go into a freefall? Could populous regions of the world face a catastrophic food shortage? It is hard to imagine these things coming to a head in the near term, but the world needs to take these risks seriously since the consequences would be so great.

Technology. With everything else going on, technology just marches forward, of course. One technology I find particularly interesting is new approaches to research that mine and attempt to synthesize large bodies of scientific research.

Can the human species implement good ideas? Solutions exist. I would love to end on a positive note, but at the moment I find myself questioning whether our particular species of hairless ape can implement them.

But – how’s this for ending on a positive note – like I said at the beginning, the one thing about 2017 that definitely didn’t suck was that we didn’t get blown up!

Summers: “better than even” chance of recession in next 3 years

Larry Summers is concerned about the stability of the international economic, financial, and political systems.

While high equity prices and low volatility may seem surprising, they likely reflect the limited extent to which stock-market outcomes and geopolitical events are correlated. For example, Japan’s attack on Pearl Harbor, the assassination of President John F. Kennedy, and the 9/11 terrorist attacks had no sustained impact on the economy. The largest stock-market movements, such as the 1987 crash, have typically occurred on days when there was no major external news…

Financial markets are widely cited, including by US President Donald Trump, as providing comfort in the current moment. But a relapse into financial crisis would likely have catastrophic political consequences, sweeping into power even more toxic populist nationalists. In such a scenario, the center will not hold…

But recessions are never predicted successfully, even six months in advance. The current expansion in the US has gone on for a long time, and the risk of policy mistakes there is very real, owing to highly problematic economic leadership in the Trump administration. I would put the annual probability of recession in the coming years at 20-25%. So the odds are better than even that the US economy will fall into recession in the next three years.

He goes on to say that recession is not even what he is most worried about, but a downward spiral where people lose faith in their governments and elect people who will actually act to destroy the effectiveness of governments. In this environment, autocrats can seize control by rallying the population against internal and external enemies, whether real but exaggerated, or completely fictional.

December 2017 in Review

Most frightening stories:

  • The U.S. has lost ground relative to its peers on road deaths, and is now well below average. I noted that something similar has happened with respect to health care costs, life expectancy, infant mortality, education, drug addiction and infrastructure. Maybe a realistic goal would be to make America average again.
  • A lot of people would probably agree that the United States government is becoming increasingly dysfunctional, but I don’t think many would question the long-term stability of our form of government itself. Maybe we should start to do that. The Consumer Financial Protection Bureau has been doing a decent job of protecting consumers and reducing the risk of another financial crisis. The person in charge of it now was put there specifically to ruin it. Something similar may be about to happen at the Census Bureau. A U.S. Constitutional Convention is actually a possibility, and might threaten the stability of the nation.
  • Daniel Ellsberg says we are very, very lucky to have avoided nuclear war so far. There are some tepid ideas for trimming the U.S. nuclear arsenal, and yet it is being upgraded and expanded as we speak. The North Korea situation is not getting better. Trump may be playing to religious fundamentalists who actually are looking forward to the Apocalypse.

Most hopeful stories:

  • Exercise may be even better for your brain than it is for your body, and exercising your body may be even better for your brain than exercising your brain itself.
  • Macroeconomic modeling is improving. So, just to pick a random example, it might be possible to predict the effects on a change in tax policy on the economy. Now all we need is politicians who are responsive to logic and evidence, and we could accomplish something. At least a few economists think the imperfect tax plan the U.S. Congress just passed might actually stimulate business capital investment enough to move the dial on productivity. The deliberate defunding of health care included in the bill is going to hurt people, but maybe not all that dramatically.
  • Moody’s introduced a new methodology for assessing climate risk in municipal bonds.

Most interesting stories, that were not particularly frightening or hopeful, or perhaps were a mixture of both:

  • There are life forms surviving in space right now, most likely of Earth origin. I wondered if maybe we should purposely contaminate other planets with them.
  • Microsoft is trying to one-up Google Scholar, which is good for researchers. More computing firepower is being focused on making sense of all the scientific papers out there.
  • Futuristic technologies keep coming along. Something vaguely like the “liquid metal” from Terminator 2 is being used for experimental aircraft parts. Vital signs might be monitored soon using a simple RFID device. A tiny electric shock of just the right size to just the right part of your brain might cure you of bad habits. And Magic Leap may finally release…something or other…in 2018.

Treasury Secretary warns against banking deregulation

According to Project Syndicate, the U.S. Treasury Secretary made a recent statement warning against any rollback of regulations that were put in place following the 2007 financial crisis.

He argued that the United States’ political system “may be taking us in a direction that is very dangerous.” Referring to moves to roll back elements of the new regulatory order established in response to the debacles of 2008-9, he lamented that “everybody wants to go back to the status quo before the great financial crisis.” And he declared that “one cannot understand why grown intelligent people reach the conclusion that you should get rid of all the things you have put in place in the last ten years.”

The article goes on to argue that deregulation is actually not likely because academics and the press are against it. But the statement is not about academics and the press, it is about “the political system”. And who has control over the political system? The finance industry. And of course they want deregulation to boost short-term profits, even though it is not in their long term interests to destroy the world economy they depend on to operate.

 

single payer

What is there really left to say about single payer? It works well, almost everywhere except the United States, where it is deemed too expensive and politically impossible.

On the quality of our system, here are some stats from the Commonwealth Fund:

Adults in the U.S. are more likely than those in the 10 other countries to go without needed health care because of costs. One-third (33%) of U.S. adults went without recommended care, did not see a doctor when sick, or failed to fill a prescription because of costs. This percentage is down from the 2013 survey (37%). As few as 7 percent of respondents in the U.K. and Germany and 8 percent in the Netherlands and Sweden experienced these affordability problems.

Fourteen percent of chronically ill U.S. adults said they did not get the support they needed from health care providers to manage their conditions. This was twice the rate in Australia, Germany, the Netherlands, New Zealand, and Switzerland.

Although the U.S. has made significant progress in expanding insurance coverage under the Affordable Care Act, it remains an outlier among high-income countries in ensuring access to health care. The authors point out that all of the other countries surveyed provide universal insurance coverage, and many provide better cost protection and a more extensive safety net.

So the self-proclaimed “greatest country in the world” appears to be somewhat sick and poor compared to its peers at similar levels of wealth and development.

Our health care system is expensive because the finance and health care industries pay politicians to write the rules in ways that stifle competition, use cynical propaganda campaigns  and scare tactics to convince the public they are engaged in competition, keep information away from consumers that would allow them to make reasonable cost-effectiveness choices, and generally maximize their short term profits at the long term expense of public health and the economy. Hillary Clinton had a very succinct way of summarizing this:

In the past, the health insurance industry has deployed sophisticated propaganda efforts to divide single payer proponents and weaken any political support for the idea. Former Democratic presidential nominee Hillary Clinton once considered such a system, but wondered, “Is there any force on the face of the earth that would counter the money the insurance industry would spend to defeat it?”

Like I said, our health care system, including all the public and private elements, is off the global charts insanely expensive both in terms of total spending relative to our economy, and in terms of the value we get in return for that spending. Shifting any portion of this expensive system from private to public funding would mean that the government would be paying more of the price tag, and government revenues would have to go up to pay for that. In other words, yes, we would be paying higher taxes in place of the high insurance premiums, co-pays and out-of-pocket payments we are making directly to the finance and health care industries now. Cynical politicians, who remember are bought and paid for by these industries, purposely confuse voters by equating the portion of the bill paid by the government with the total cost of health care, as in this Washington Post article:

But the government’s price tag would be astonishing. When Sen. Bernie Sanders (I-Vt.) proposed a “Medicare for all” health plan in his presidential campaign, the nonpartisan Urban Institute figured that it would raise government spending by $32 trillion over 10 years, requiring a tax increase so huge that even the democratic socialist Mr. Sanders did not propose anything close to it.

Single-payer advocates counter that government-run health systems in other developed countries spend much less than the United States does on its complex public-private arrangement. They say that if the United States adopted a European model, it could expand coverage to everyone by realizing a mountain of savings with no measureable decline in health outcomes, in part because excessive administrative costs and profit would be wrung from the system.

In fact, the savings would be less dramatic; the Urban Institute’s projections are closer to reality. The public piece of the American health-care system has not proven itself to be particularly cost-efficient. On a per capita basis, U.S. government health programs alone spend more than Canada, Australia, France and Britain each do on their entire health systems. That means the U.S. government spends more per American to cover a slice of the population than other governments spend per citizen to cover all of theirs.

But they go on to point out that the reason these costs are so high is that “A big reason [the government] does not clamp down now on health-care spending is that it is hard to do so politically.”

It’s almost impossible to even try to tackle these problems unless and until we have constitutional reform making it clear that big business ownership of politicians is not the same thing as free speech by individual members of the public. And our elected officials who are owned by big business are not going to give us this constitutional reform. It’s a conundrum that seems almost impossible to solve – if the 2007 financial crisis did not whip up enough public anger to counteract and overcome industry propaganda, it is hard to imagine a crisis that would.

So we would have to get that constitutional amendment (somewhat blandly called “campaign finance reform”, which understandably does not spark the public imagination) done. If we did that, we could look at some incremental reforms to move us toward either single payer or a more efficient public-private system. One idea seems particularly attractive to me. The state exchanges under the Affordable Care Act are an attractive idea because they encourage insurance companies to compete against one another for consumer health care dollars. The ACA also established a pretty uniform set of minimum coverage requirements that make it clear what we are paying for. Understanding what you are buying, and then having some choice of providers of that service, is the basic foundation of a functioning market system. The market should be able to set reasonable prices under these conditions, in theory. The insurance companies have the bargaining power and incentive to take on the health care industry over price and drive prices down.

So this all sounds pretty good. Where it is clearly failing, it is because some insurers are choosing to pull out of the exchanges, leaving buyers without any choice and destroying that link between supply and demand. What would make sense to me is to figure out what the premium would be for people to buy into Medicare and/or Medicaid directly, and then require these Medicare and Medicaid options to be available on the exchanges in a given state if at any time the number of private insurers competing on the exchange drops to less than 3 (or maybe 2, but 3 seems better). That way the insurance industry has complete control over whether they choose to shoot themselves in the foot or not. This won’t happen without the constitutional amendment first.

A shorter-term incremental measure that could help without the constitutional amendment would be to create some kind of common platform for all insurance companies to share price and outcome with consumers. Some insurers already have their own systems for doing this, and we have the system of common procedure codes, but it is all way too confusing. The government could force the insurance and health care industries to get together, come up with a crystal clear communications strategy, and put it all on a common platform. They would be required to provide you with this crystal clear information at the beginning of every doctor, hospital, and pharmacy visit. All without the government paying a dime more of people’s health care cost or providing any more price controls than they do now.

April 2017 in Review

Most frightening stories:

Most hopeful stories:

Most interesting stories, that were not particularly frightening or hopeful, or perhaps were a mixture of both:

  • I first heard of David Fleming, who wrote a “dictionary” that provides “deft and original analysis of how our present market-based economy is destroying the very foundations―ecological, economic, and cultural― on which it depends, and his core focus: a compelling, grounded vision for a cohesive society that might weather the consequences.”
  • Judges are relying on algorithms to inform probation, parole, and sentencing decisions.
  • I finished reading Rainbow’s End, a fantastic Vernor Vinge novel about augmented reality in the near future, among other things.

the Black-Scholes equation

This 2012 article from the Guardian goes into some detail on the Black-Scholes equation for pricing options, which bears some responsibility for the 2007-2008 financial crisis. It was cooked up by geniuses to spread risk, but misapplied by idiots to actually create risk. What are the geniuses cooking up now for the idiots to misapply next?

February 2017 in Review

3 most frightening stories

3 most hopeful stories

3 most interesting stories

  • The idea of growing human organs inside a pig, or even a viable human-pig hybrid, is getting very closeTiny brains can also be grown on a microchip. Bringing back extinct animals is also getting very close.
  • Russian hackers are cheating slot machines by figuring out the pattern on pseudo-random numbers they generate.
  • From a new book called Homo Deus: “For the first time ever, more people die from eating too much than from eating too little; more people die from old age than from infectious diseases; and more people commit suicide than are killed by soldiers, terrorists and criminals put together. The average American is a thousand times more likely to die from binging at McDonalds than from being blown up by Al Qaeda.”

January 2017 in Review

I just realized I forgot to do a month in review post in January. Well, I had a lot going on in my personal life in January, most notably the arrival of a tiny new human being. Blog posts are not the only thing I forgot – I forgot to pay some important bills and to do some important paperwork at my job too.

3 most frightening stories

  • Cheetahs are in serious trouble.
  • The U.S. government may be “planning to roll back or dilute many of the provisions of Dodd-Frank, particularly those that protect consumers from toxic financial products and those that impose restrictions on banks”.
  • “Between 1946 and 2000, the US and the Soviet Union/Russia have intervened in about one of every nine competitive national-level executive elections.” The “Great Game” is back in Afghanistan.

3 most hopeful stories

3 most interesting stories

banking deregulation is back

Remember that financial crisis thing in 2008 where U.S. financial firms almost destroyed the world economy? No, neither does anyone in Congress, because they are dead set on destroying the regulations put in place after the crisis to try to keep it from happening again. Here is a long article from the Center for Public Integrity.