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Nederlog

August 24, 2015
Crisis: Global Markets, China, "Employers", Pope & Planet, Maher on Greed

 "They who can give up essential 
   liberty to obtain a little temporary
   safety, deserve neither liberty
   nor safety."
 
   -- Benjamin Franklin
   "All governments lie and nothing
   they say should be believed.
"
   -- I.F. Stone
   "Power tends to corrupt, and   
   absolute power corrupts
   absolutely. Great men are        
   almost always bad men."
   -- Lord Acton















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Sections
Introduction

1.
What the Heck is Going on in the Global Markets?
2. Market turmoil is yet another lesson in need for
     international policy cooperation

3. The Upsurge in Uncertain Work
4. The Pope and the Planet
5. Bill Maher, New York Times Op Ed on the “Post Greed is
     Good Economy”



This is a Nederlog of Monday August 24, 2015.

This is a crisis blog. I am writing this in the morning of Monday, August 24,
and in fact this is mostly about China, though only item 1 and item 2 are directly concerned with it. There will no doubt be more about China - and the economies of the rest of the world - in the coming days. Meanwhile...

There are 5 items with 5 dotted links: Item 1 is about a considerable collapse in China's economy, that is now being followed by considerable troubles in the rest
of the (financial) world; item 2 is about a decent explanation of the collapse and the troubles in The Guardian; item 3 is about an article by Robert Reich on having to work all the time, and loosing all one's workers' benefits since one now has been reclassified as an employer who rents out himself; item 4 is about the latest encyclical letter of the pope, which indeed is special (though I am quite doubtful
it will succeed); and item 5 is about an item by Bill Maher on greed, "sharing" and the economy: Now that most everyone who is working in the USA is an employer who shares in all the costs, it should be pointed out that the one thing the 90% does not and will not
get a share in: the profits of the firms who employ these "employers".

1. What the Heck is Going on in the Global Markets? 
The first article of today is by Wolf Richter on Wolf Street:
This starts as follows:

This wasn’t supposed to happen. The week was already on a crummy downhill path globally, and emerging-market currencies were blowing up, when on Friday in China the Caixin’s Purchasing Manager’s Index hit the worst level since March 2009;  manufacturing is sinking deeper into the mire.

So the Shanghai stock index plunged 4.3% for the day, and 11.5% for the week, to 3,508, closing at the same level as the bottom of its July rout.

The entire machinery that the Chinese government and the People’s Bank of China had set in motion to bail out the markets during the July rout, which had worked for a couple of weeks, has now proven to be useless. And the markets, thought to be controllable by fiat or manipulation, suddenly regained a will of their own.

Other Asian stock markets plunged too: Hong Kong’s Hang Seng dropped 1.5% on Friday and 6.6% for the week; it’s 5.1% in the hole for the year. The Nikkei fell 3% on Friday and 5.3% for the week.

Europe was next. The German Dax, the British FTSE 100, French CAC 40, the Spanish IBEX 35, the Italian FTSE MIB, they all plunged about 3% for the day and lost between 5% and 6.5% for the week, except for the German Dax which lost nearly 8% for the week. It has now plummeted 18% since its dizzying peak in early April. Easy come, easy go.

I say. There is considerably more in the article, including several graphics, but the above summarizes the central tendencies. Note that all major stock exchanges lost around 1/20th (5%) of their total value - or more.

Here is one summary point of view:

“A Global Meltdown…”

That’s what Doug Short called it in his World Markets Weekend Update. All its eight indexes finished in the red for the week.
I don't know yet, but then again, it is Monday morning (and fairly early).

Here is some more, from another source:
2. Market turmoil is yet another lesson in need for international policy cooperation

The next article is by Larry Elliott on The Guardian:

This starts with a subtitle that I like because it seems quite true to me:

World hasn’t changed much since financial crisis, which showed an economic model based on widening inequality and uncontrolled capital flows is unviable

Note that - implicitly, is also true - this is a strong criticism of Obama, who indeed did nothing other than give the big banks even more power after they fucked up in a very major way in 2008. ("Change, change! Yes, we can!")

This is the start of the article:

And so it begins. Shares are falling, currency markets are in turmoil. The price of oil is going through the floor, burning the fingers of speculators who have made the wrong bets on borrowed money. Welcome to the crash of August 2015.

Financial markets being what they are, there is every chance there will be a bounce on Monday. Investors will be sniffing out bargains and be hoping that the scale of last week’s falls will prompt a response from central banks. Even in the most severe bear markets, prices never go down in a straight line. But don’t be fooled. This could get ugly.

Recessions are years, sometimes decades, in the making. But they always have a trigger. In 1973, it was the quadrupling of the oil price by Opec in response to the Yom Kippur war. In 2007, it was the announcement that Banque Paribas was having problems with three of its funds that specialised in US sub-prime debt. If this really is the start of something, it will be easy for historians to name the catalyst: the decision by Beijing to devalue its currency on 11 August.

Here is some more:

Fear rippled through financial markets. Two questions were asked. Did the slowdown in China mean that demand for global oil and metals would fall? And was China about to export deflation to the rest of the world through a weaker currency? To which the answers were yes and yes. Capital came flooding out of the emerging market countries seen as particularly vulnerable, and their currencies fell.

Shares in Germany fell because of the economy’s exposure to China. Shares in London fell because the FTSE 100 is stuffed full of mining and commodity companies. Shares on Wall Street fell because they were falling everywhere else and because of concerns that the Federal Reserve is gearing up to raise interest rates next month.

And there is this, that outlines the background, I think quite correctly:

The economic story of the US since the Great Recession ended has been of QE fuelling a six-year bull market in shares at a time when economic growth has been weak and productivity growth even weaker. There has been no trickle-down effect, and no attempt to redress the main structural problem of the past three decades: the severing of the link between productivity and wages. The top 10% of US households took 116% of the income gains when the US economy was recovering between 2009 and 2012. The other 90% of US citizens saw their living standards fall. Inequality has widened.

And finally there is this on the subject of the crisis (which - I repeat once more - did not end in 2009, and it didn't because the 90% saw their living standards fall):

The crisis of 2007-09 was a lesson to policymakers that international policy cooperation was needed to increase global demand. It was a lesson that there needed to be higher investment in infrastructure and skills to raise productivity. It was a lesson that an economic model based on widening inequality was unviable. It was a lesson about the risks of uncontrolled capital flows.

Clearly the lesson wasn’t big enough.

Yes, indeed. Also, as long as effective power resides in the big banks and the big oil companies, both of which are directly involved in the U.S. government, there will not be "higher investment in infrastructure and skills to raise productivity", at least not in the U.S.: most of their manufacturing is not done in the U.S. any more, but in China and other low wage countries. Therefore also there is little demand in the U.S.

There also will be more inequality. And the reason is in the end deregulation: there will continue to be "uncontrolled capital flows" because the rich have been deregulating - breaking down, destroying - the laws that kept them somewhat well-behaved from 1946 till 1980.

It may now be falling down, once again, in a major way. But I don't know yet, because it is Monday morning as I write this.

3. The Upsurge in Uncertain Work

The next article is by Robert Reich on his site:

This starts as follows:

As Labor Day looms, more Americans than ever don’t know how much they’ll be earning next week or even tomorrow.

This varied group includes independent contractors, temporary workers, the self-employed, part-timers, freelancers, and free agents. Most file 1099s rather than W2s, for tax purposes.

On demand and on call – in the “share” economy, the “gig” economy, or, more prosaically, the “irregular” economy – the result is the same: no predictable earnings or hours. 

It’s the biggest change in the American workforce in over a century, and it’s happening at lightening speed. It’s estimated that in five years over 40 percent of the American labor force will have uncertain work; in a decade, most of us.
Note this also happened in the years of crisis and since 2009, that is: crisis for the 90%, though not for the 1%: these profited enormously. (See yesterday's graphics.)

Incidentally, the issue is less the pay than the certainty:

The problem is workers don’t know when they’ll earn it. A downturn in demand, or sudden change in consumer needs, or a personal injury or sickness, can make it impossible to pay the bills. 

So they have to take whatever they can get, now: ride-shares in mornings and evenings, temp jobs on weekdays, freelance projects on weekends, Mechanical Turk or TaskRabbit tasks in between.

Which partly explains why Americans are putting in such long work hours – longer than in any other advanced economy.

Incidentally, this also means that now (1) the workers are only paid for the work they did, which is profitable for their employes, and also (2) shifts most of the employers' risks involved in employing a work force, to the many individuals that now make up the work force.

And then there is also this quite major set of consequences:

It also renders irrelevant many labor protections such as the minimum wage, worker safety, family and medical leave, and overtime – because there’s no clear “employer.”

And for the same reason eliminates employer-financed insurance – Social Security, workers compensation, unemployment benefits, and employer-provided health insurance under the Affordable Care Act.

So they are effectively swindled out of that as well:

Since now "everyone is an employer" (working from $10 an hour till $250.000 an hour) the many poor have no rights anymore to labor protections, because now they are re-classified as employers (of themselves, selling themselves for - say - $15 dollars to another employer, who makes $100,000 an hour, and has millions available).

There is more in Robert Reich's article, though I don't think his proposals for changing the situation have much of a chance of being adopted.

4. The Pope and the Planet

The next item is by Bill McKibben on The New York Review of Books:

Actually, this is a book review of the pope's encyclical letter "Laudato Si’: On Care for Our Common Home" and it is quite laudatory.

It so happens that I am an atheist who comes from a long line of atheists (my mother's family turned atheist in the 1850ies after being swindled out of their farm by Catholic monks) and for that and other reasons I am not a big reader encyclical letters.

Also, I don't know where Bill McKibben stands, religiously speaking. But it seems the pope's encyclical letter is rather special. First, there is this:

Since Francis first announced plans for an encyclical on climate change, many have eagerly awaited his words. And on those narrow grounds, Laudato Si’ does not disappoint. It does indeed accomplish all the things that the extensive news coverage highlighted: insist that climate change is the fault of man; call for rapid conversion of our economies from coal, oil, and gas to renewable energy; and remind us that the first victims of the environmental crisis are the poor.

But then there is considerably more in the encyclical letter:
The power of celebrity is the power to set the agenda, and his timing has been impeccable. On those grounds alone, Laudato Si’ stands as one of the most influential documents of recent times.

It is, therefore, remarkable to actually read the whole document and realize that it is far more important even than that. In fact, it is entirely different from what the media reports might lead one to believe. Instead of a narrow and focused contribution to the climate debate, it turns out to be nothing less than a sweeping, radical, and highly persuasive critique of how we inhabit this planet—an ecological critique, yes, but also a moral, social, economic, and spiritual commentary.

I say - though I should add that this does fall within Catholic tradition, although not a very recent one. Compare - for example - distributism (<- Wikipedia), which in fact starts as follows:

Distributism (also known as distributionism or distributivism) is an economic ideology that developed in Europe in the late 19th and early 20th century based upon the principles of Catholic social teaching, especially the teachings of Pope Leo XIII in his encyclical Rerum novarum and Pope Pius XI in Quadragesimo anno.

In the early 21st century, some observers have speculated about Pope Francis's exact position on distributism because of his denouncement of unfettered capitalism as tyranny in his 84-page apostolic exhortation Evangelii gaudium:

Just as the commandment 'Thou shalt not kill' sets a clear limit in order to safeguard the value of human life, today we also have to say 'thou shalt not' to an economy of exclusion and inequality. Such an economy kills... A new tyranny is thus born, invisible and often virtual, which unilaterally and relentlessly imposes its own laws and rules. To all this we can add widespread corruption and self-serving tax evasion, which has taken on worldwide dimensions. The thirst for power and possessions knows no limits.

Indeed, that is radical and is by the present pope (and I agree with the words cited).

Here is some more from the article:

The deterioration of the environment, he says, is just one sign of this “reductionism which affects every aspect of human and social life.” And though “the idea of promoting a different cultural paradigm… is nowadays inconceivable,” the pope is determined to try exactly that, going beyond “urgent and partial responses to the immediate problems of pollution” to imagine a world where technology has been liberated to serve the poor, the rest of creation, and indeed the rest of us who pay our own price even amid our temporary prosperity. The present ecological crisis is “one small sign of the ethical, cultural and spiritual crisis of modernity,” he says, dangerous to the dignity of us all.
Yes indeed - and from my point of view, three major signs of intellectual crisis (I avoid "spiritual", but mostly agree) are:

(1) the disrespect that there is truth (from the 1970ies till the middle 1990ies the Dutch were taught in their universities that "everybody knows that truth does not exist" - which was a major and sickening lie, but also was very widely accepted as gospel, because then no one could be wrong or mistaken in any way) and
(2) the pushing of the profit principle as the only criterion by which to value
anything - a man, a corporation, a society: "Does it produce a - short-term - monetary profit": if it does it is good; if it doesn't it is bad (and out go science, culture, the arts, morality, moral norms and solidarity with - e.g. - the poor), and
(3) the pushing of individual greed and egoism as if these were positive moral values, whereas in fact they are major signs of moral sickness, that also only help the rich.

Back to the article, which has this:

The pope is at his most rigorous when he insists that we must prefer the common good to individual advancement, for of course the world we currently inhabit really began with Ronald Reagan’s and Margaret Thatcher’s insistence on the opposite. (It was Thatcher who said, memorably, that “there’s no such thing as society. There are individual men and women and there are families,” and that’s that.) In particular, the pope insists that “intergenerational solidarity is not optional, but rather a basic question of justice, since the world we have received also belongs to those who will follow us.”

Yes, I agree, as I also agree this fondness for "individual advancement" was started, at least in politics, by Thatcher and Reagan, and was a major lie from the very start:

Clearly they knew (or ought to have known)  that "individual advancement" (1) is at the cost of individual backwardness of - possibly very many - others; (2) can only be an advance for a small proportion of society (for historically most children fall socio-economically in the same group as their parents, wiith relatively few exceptions, and quite independently from whatever is claimed by politicians); and (3) is based on greed and egoism, which tend to be satisfied only for those who are already rich, at the cost of those who are already poor.

But they lied, and tricked the many with lies that served only the few. Here is the last bit I will quote:

Those who speak, in the pope’s words, the language of “nonchalant resignation or blind confidence in technical solutions” no longer have a tenable case. What he calls the “magical conception of the market” has not, ultimately, done what Reagan promised; instead it has raised, for the first time, the very real specter of wholesale planetary destruction, of change that will be measured in geological time.

It’s quite possible—probable, even—that the pope will lose this fight. He’s united science and spirit, but that league still must do battle with money. The week the encyclical was released, Congress approved, in bipartisan fashion, fast-track trade legislation, a huge victory for the forces of homogenization, technocracy, finance, and what the encyclical calls “rapidification.”

Yes, I agree, indeed also with the estimate that the pope will lose this fight,
and that in part because he is already an old man, who probably will not be a pope much longer, and who also will probably be replaced by a much more conservative pope.

Even so, he did write a decent and mostly correct encyclical letter, by my own
atheistic and scientific criterions.

5. Bill Maher, New York Times Op Ed on the “Post Greed is Good Economy”

The final item for today is by Yves Smith on Naked Capitalism:

This starts with a bit by Bill Maher (whom I like, without agreeing with everythibg he says):

And indeed this is a nice segment, especially towards the end. And Bill Maher
is right the Americans owe it largely to themselves. As Yves Smith says:
It’s striking to observe both how deeply the staff internalize the demands made of them. Again and again in businesses settings, to greater and lesser degree, employers are able to exploit deep-seated impulses to do one’s best for one’s tribe, for one’s family on behalf of mere enterprises. Intellectually, these workers know this relationship is transient, yet they invest emotionally anyhow.
That is: They are being deceived by propaganda about "sharing", which in fact precisely does not work for "mere enterprises", again for a reason Bill Maher
gave: While everything - well: all costs - are being shared by the staff, the
one thing the staff does not and will not share is the profits the firm makes.

They share in the pains, but do not share in the profits.

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