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Ada Palmer’s Too Like the Lightning is finally out (Powells, Amazon), so that you can read it too (I’ve been impatiently waiting to share it with everyone I know). As Jo Walton says here, it’s wonderful. It does something that I think is genuinely new (or at least, if other people have pulled it off, I haven’t read them). Palmer is a historian (here’s an interview I did with her on her book about Lucretius’ reception in the Renaissance) and approaches science fiction in a novel way. Her 25th century draws on the ideas of Enlightenment humanism, but in the same ways that, say, America draws on the writers of the Declaration of Independence and the Federalist Papers. Which is to say that it takes the bits that seem useful, reinterprets them or misinterprets them as new circumstances dictate, and grafts them onto what is already there, throwing away the rest. Palmer does this quite thoroughly and comprehensively – her imagined society is both thrown together in the way that real societies are, and clinker-built (in the sense that she has evidently really thought through how this would be related to that and what it might mean). [click to continue…]

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Why is global finance so profitable ?

by John Quiggin on May 9, 2016

In a recent post, I asserted that

activities like tax avoidance/evasion and regulatory arbitrage aren’t peripheral flaws in a financial system primarily concerned with the efficient global allocation of capital. They are the core business, without which the profits of the global financial sector would be a tiny fraction of the $1 trillion or so now reaped annually
As I’m working on income distribution issues my long-running book project, this seems like a good time to see if this claim can be backed up by hard numbers.

First up, here’s my source for the $1 trillion number (actually $920 billion). As a plausibility check, I’ve tried to estimate the total size of the global financial sector. Various sources, including Wikipedia estimate that the banking and insurance sector accounts for 7-8 per cent of US gross product. Extrapolating to world gross product of about $80 trillion that would give around $6 trillion for the total size of the sector. The US is almost certainly more financialised than the world as a whole. Still, the profit number looks about right. A trickier question is whether the rents accruing to managers and top professional in the sector should be counted as part of profits. I’d guess that these rents account for at least another $1 trillion, but I have no real idea how to test this – suggestions welcome.

Is tax avoidance/evasion and regulatory arbitrage a big enough activity to account for a substantial share of a trillion dollars a year? Gabriel Zucman estimates that there’s $7.5 trillion stashed in tax havens, of which around $6 trillion is untaxed. He estimates the tax avoided at $200 billion . I’ll estimate that half of that ($100 billion) is creamed off in financial sector, mostly as profits or rents. That implies a profit margin of a bit under 2 per cent, which seems reasonable.

Tax evasion by wealthy individuals is only a small part of the story. Legal tax avoidance is almost certainly more important. Most of that involves companies, but it’s important to distinguish between “close” corporations, which hide the activities of an individual or family and large global corporations. I don’t have any idea how to measure the cost of avoidance through close corporations. As regards global corporations, Zucman estimates that “a third of U.S. corporate profits, or $650 billion, are purportedly earned outside the country, with a cost to the US of $130 billion a year . Extrapolating to the world as a whole, that would be at least $500 billion. Again, assuming the financial sector creams off half of the sum, we get $250 billion (the fact that the finance sector itself accounts for around 40 per cent of all corporate profits means there’s a problem of recursion that I haven’t worked through)

Then there’s manipulation of exchange rate and bond markets. I have no idea how to measure this, but given that the notional volume of trade in some of the markets concerned is measured in the hundreds of trillions, it seems plausible that the profits and rents from market-rigging must be at least in the tens of billions.

These are probably the biggest scams, but there’s also regulatory arbitrage, privatization (a huge source of rent over recent decades), domestic tax avoidance and more.

Adding them up, I’d suggest that $500 billion a year is a low-end estimate for the profits and rents associated with various forms of anti-social financial sector activity.

There’s lots of potential error around these numbers, but the order of magnitude seems reasonable to me. As against the claim that the explosion in financial sector activity and profits over the past 40 years has been driven by the benefits of a more efficient allocation of capital by rational markets, the claim that it’s all about tax-dodging and socially unproductive arbitrage seems pretty plausible.

Obviously, the social cost of a financial system devoted to undermining tax and regulatory systems far exceeds the profits earned from the activity. That’s true of any kind of socially destructive, but privately profitable, activity. But the problem is greater in the case of financial sector activity because of the disastrous effects of financial crises.

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Aristotle: On Trolling

by Henry on May 7, 2016

Via Cosma, this, by Rachel Barney at the University of Toronto, is the best thing I’ve read on the Internets in quite a while. UPDATE: since it has been Creative Commonsed, as I should have spotted immediately, am publishing the whole below the fold, free to all finders, birds, beasts, Elves or Men, and all kindly creatures.

That trolling is a shameful thing, and that no one of sense would accept to be called ‘troll’, all are agreed; but what trolling is, and how many its species are, and whether there is an excellence of the troll, is unclear. And indeed trolling is said in many ways; for some call ‘troll’ anyone who is abusive on the internet, but this is only the disagreeable person, or in newspaper comments the angry old man. And the one who disagrees loudly on the blog on each occasion is a lover of controversy, or an attention-seeker. And none of these is the troll, or perhaps some are of a mixed type; for there is no art in what they do. (Whether it is possible to troll one’s own blog is unclear; for the one who poses divisive questions seems only to seek controversy, and to do so openly; and this is not trolling but rather a kind of clickbait.)

Well then, the troll in the proper sense is one who speaks to a community and as being part of the community; only he is not part of it, but opposed. And the community has some good in common, and this the troll must know, and what things promote and destroy it: for he seeks to destroy. Hence no one would troll the remotest Mysian, or even know how, but rather a Republican trolls a Democratic blog and a Democrat Republicans. And he destroys the thread by disputing what is known to be true, or abusing what is recognised as admirable; or he creates fear about a small problem, as if it were large, or treats a necessary matter as small; or he speaks abuse while claiming to be a friend. And in general the troll says what is false but sounds like the truth—or rather he does not quite say it, but rather something very close to it which is true, or partly true, or best of all merely asks a simple question about the evidence for climate change. Hence the modes of trolling are many: the concern-troll, the one who ‘sees the other side’, the polite inquirer into the obvious. For the perfected troll has no need of rudeness or abuse, or even of fallacy (this belongs rather to sophistic or eristic, and requires making an argument): he only makes a suggestion or indication [sêmainein]. [click to continue…]

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Rubin gets it right

by John Quiggin on May 7, 2016

Crises upend all kinds of assumptions, and the crisis in the Republican Party is no exception. Who would have thought, for example, that the National Review crowd might end up voting for the Libertarian candidate while lots of self-described libertarians are backing Trump.

At least as surprising to me is that, among all the attempts from establishment Repubs to understand the disaster that has befallen them, the most insightful and accurate (that is, the closest to my own analysis) has come from Jennifer Rubin at the Washington Post, someone I’ve never before taken seriously. Unlike nearly all the NeverTrumpers she accepts the obvious implication of the fact that around half the Republican electorate has gone for Trump’s tribalism

The GOP discovered (in part, through Sen. Ted Cruz’s collapse despite perfect mechanical execution) that there is no majority supporting the Reagan agenda. Certainly, Cruz was a politician of limited talent and imagination, but if he could not sell the “three-legged stool” to the masses, perhaps there are no masses receptive to that sort of stuff. Even in a GOP primary, there is no majority looking to roll back gay rights or give huge tax breaks to upper-income Americans.
Second, she nails the role of climate change denialism in the intellectual collapse of the political right
Along with all of this, conservatives have to end their intellectual isolation and self-delusions. They need to stop pretending that climate change is not occurring (the extent and the proposed solutions can be rationally discussed) or imagining that there is a market for pre-New-Deal-size government. Conservatives must end their infatuation with phony news, crank conspiracy theories, demonization of well-meaning leaders and mean rhetoric
Contrast that with, say, Will and Krauthammer, who denounce Trump in extreme terms, but peddle lunatic conspiracy theories themselves.

In this context, I was struck by this piece headlined The outlandish conspiracy theories many of Donald Trump’s supporters believe. Despite the headline and the spin in the text, the data reported in the article shows that Trump supporters are only marginally more likely than Cruz and Kasich voters to accept the standard set of Republican conspiracy theories. To give a fairly typical example,

Fifty-two percent of his supporters said [the claim that vaccines cause autism] was possibly or definitely true, compared to 49 percent of those who supported Cruz and 45 percent of those who supported Kasich
These differences are barely outside the likely margin of error in a poll of this kind. The differences between groups of Repub voters on any given issue are far smaller than the differences arising from more or less extreme conspiracy theories (for example, only about 20 per cent of each group think that the Sandy Hook shootings were faked).

If there is one prediction that can safely be made it is that the Republican party of 2017 will be very different from that of 2015, before the Trump eruption. Whether it moves in the direction of sanity remains to be seen.

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The Party Divides?

by John Holbo on May 7, 2016

In the tail end of comments to this post I linked to a New York Magazine excerpt/adaptation from a forthcoming book with the intriguing title Ratf***ed: The True Story Behind the Secret Plan to Steal America’s Democracy, by David Daley. The book is about the triumph of gerrymandering that is the Repubican headlock on the House for the foreseeable future – even in the event of a total Trump implosion. (But be aware that Republican advantages in this regard may be somewhat overdetermined.)

All very interesting and terrible. But I’m thinking about this bit from the tail end of the article: [click to continue…]

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UK elections open thread

by Maria on May 6, 2016

After last year’s horror I can barely turn on the computer, let alone the radio or TV. Oh, we don’t have a telly. Anyway. Some titbits of info are still filtering through.

Scotland. Seriously? You lot are dead to me. OK, I can see that you are now just voting pro or anti Union, but it’s a rum day to see the Conservatives in second place. And yes, Blair and post-Blair Labour gave you the middle finger way back when, but let’s pin it on the guy who got the job last summer.

Wales. You do know UKIP is for English people? They don’t like you, either.

Norn. Irn. I don’t blame you. Not one bit. If I had to choose between SF and the DUP, I’d emigrate.

London. I get that Sadiq – the man the Conservatives changed from a dull, machine politician into a racy radical – is winning. But who-TAF are all those people voting for Goldsmith? Do they live on my street? Did I smile at them in the polling station? Or is it just the combined forces of Kensington, Wandsworth and Richmond who think it’s a good idea to vote for the shouting-like-a-mofo-at-your-dog-Linton-in-a-public-place-and-then-kicking-the-bejaysus-out-of-him-when-he-comes guy?

Dudley. I don’t know what to say to you.

The rest of England. Whatever. Carry on.

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I’ve been saying for months that Donald Trump is the George McGovern of the GOP, the fractious leader who so alienated the elders of his party that they deserted him in droves, handing the election to his opponent. We’re already seeing the signs. [click to continue…]

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Spurs threw it away, totally lost their heads tonight, so Leicester win the Premier League with two games to spare. It is hard to think of a sporting achievement that compares to Leicester City’s. 5000/1 at the start of the season, widely tipped for relegation, and now this.

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Pirates! (Militarism whack-a-mole #73)

by John Quiggin on May 2, 2016

Making the case against militarism is very reminiscent of climate denial whack-a-mole. Demolish one spurious argument, and you’re immediately presented with another. For example, my post showing that the economic benefits of “keeping sea lanes open” could not justify more than a trivial proportion of current naval expenditure, got hardly any substantive responses (apart from tiger-repelling rocks), but a great many saying “what about the pirates?”.

I’ve done the numbers on this one, and they look pretty clear-cut. There are a bunch of estimates on the web of the annual cost of piracy ranging from $1 billion to $16 billion a year.

This seems implausibly high. The amount actually stolen by pirates or paid as ransoms is far smaller, less than a billion a year at its peak, AFAICT. Looking in detail, there’s a fair bit of double counting here (both actual losses and the insurance premiums which offset them are counted, for example), and the high-end numbers typically include some estimate of the cost of naval deployments on anti-piracy patrols. In particular. Still, in the spirit of fair play, I’ll go with $10 billion.

Turning to the US Navy* budget, it’s currently over $150 billion a year. That supports a fleet of 272 “deployable battle force” ships, implying an annual cost of over $0.5 billion per ship. So, the annual cost of piracy is the same as the cost of about 20 ships. To put it another way, reducing the fleet by one ship, and scaling down anti-piracy operations accordingly would have to increase global piracy by 5 per cent to yield a loss to the global shipping industry greater than the savings to the US (I leave aside the question of why the global shipping industry is such an important recipient of US foreign aid).

Having played military whack-a-mole many times before I can anticipate the responses in my sleep. So, I’ll open the comments threads, resist the temptation to take part, and whack the inevitable moles in a later post.

  • The US spends more than other developed countries, but I don’t think the others get any more ship for their shilling, capability-adjusted.

** I’ve corrected some errors in the data I used in the original version. But the discussion made it pretty clear that the objections aren’t to the numbers but to the whole idea of weighing benefits and costs in anything to do with military expenditure.

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Readers may have noticed that the British Labour Party has gone kind of mad this week, and decided to make the question of whether Adolf Hitler was a Zionist a key issue in the local election campaign. I’ve written in the past on Crooked Timber about why I think it is that the general question of Israel and Palestine is so unfailingly nasty and full of toxic bullshit. But I think it’s also worth looking at why this is specifically a problem for left wing politics in the UK. Below the fold, a loooong attempt at a structural explanation of a persistent phenomenon.

[click to continue…]

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Chairs by St Augustine's Reach

Neoliberalism: A Quick Follow-up

by Corey Robin on April 29, 2016

My post on neoliberalism is getting a fair amount of attention on social media. Jonathan Chait, whose original tweet prompted the post, responded to it with a series of four tweets:

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The four tweets are even odder than the original tweet. [click to continue…]

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A data point on minimum wages

by John Quiggin on April 28, 2016

I’m currently working on a section of my Economics in Two Lessons book dealing with minimum wages in the context of predistribution policies, so I thought I would compare Australia with the US, where the idea of a $15/hour minimum wage is currently a hot topic. In Australia there are two kinds of minimum wage. The PPP exchange rate is estimated at $A$1.30 = $US, which is fairly close to the market exchange rate at present, so I’ll give both $A and estimated $US equivalents

The standard minimum wage for workers aged 21 or over is $A17.29 hour ($US13.30) applying to employees under standard award conditions. These include four weeks annual leave, sick leave, employer contributions to pension plans and so on.

More comparable to the situation of US minimum wage workers are “casual” workers, employed on an hourly basis. Casual workers get a loading of at least 25 per cent, bringing the wage up to at least $A21.60 an hour ($US16.60), to compensate for the absence of leave entitlements. In addition, they have entitlements including:

  • “Penalty” rates for weekend and night work (usually a 50 per cent loading, 100 per cent on Sundays)
  • For workers employed on a regular basis, protection against unfair dismissal.

The policy question is: what impact have these high minimum wages had on employment and unemployment. That’s too big a question to answer comprehensively, but we can look at the obvious data points: the official unemployment rates (5.7 for Oz, 5.5 per cent US) and the 15-64 employment population ratios (72 per cent for Oz, 67 per cent US). So, it certainly doesn’t look as if the Australian labor market has been crippled by minimum wages.

Note: I’ll respond in advance to the widespread misconception that Australia is a special case due to mineral resources. Mining accounts for about 2 per cent of employment in Australia, and (because most mines are owned by multinationals) its contribution to Australian national income is also so, probably around 5 per cent.

  • Workers aged 18 get about 70 per cent of the adult minimum, equivalent to around $US11.50 for casuals. But the great majority of US minimum wage workers (about 80 per cent) are 20+.

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Nakul Krishna on Malory Towers

by Harry on April 28, 2016

I was a late reader (late enough to cause considerable worry, I now understand). But when I did read, it was all I wanted to do. I read every comic I could get my hands on (I stayed with the Beano till I was 13 or so—my dad let me get a weekly delivery of Thunder [1] (which quickly merged with Lion, which quickly merged with Valiant, which…) on condition that I also get Look and Learn (which I devoured as enthusiastically as I did Thunder, so it was a smart move). Jennings and William were the cordon bleu of children’s writing, obviously, and later on I got to Geoffrey Trease, Henry Treece, John Rowe Townsend, Penelope Lively, Jill Paton Walsh, Peter Dickinson; and all of those were, rightly, approved of by all adults. But I read everything Enid Blyton wrote. Including the Malory Towers books which, I vaguely realized, must have been aimed at girls (being books about girls in a girls boarding school), but just didn’t care. They were so embedded in my head that when, in my teens (early, not late, I’m glad to say), I graduated from the Beano to Marvel comics, I wondered (and still do) whether Peter Parker’s girlfriend was named after the awful (but pitiable) Gwendolyn Lacey. What was so appealing about them? Nakul Krishna has a wonderful, contemplative and adoring, but sharp analysis, at Aeon, which explains it all. Read it there, but feel free to discuss it here (I am really curious how many of our readers read the Malory Towers books in childhood).

[1] Link is to a site with almost every single Adam Eterno strip. Mergers of comics were frequent, but Lion and Thunder was a rare case in which the junior, second billed, comic, provided most of the stories to the new title—several survived into Valiant and Lion, even after Lion’s name was off the masthead. Most notably, the brilliant Adam Eterno.

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Over the fold, an extract from my book-in-very slow-progress, Economics in Two Lessons. I’m getting closer to a complete draft, and I plan, Real Soon Now, to post the material so far in a more accessible form. But for the moment, I’ll toss up an extract which is, I hope, largely self-sufficient. Encouragement is welcome, constructive criticism even more so.

[click to continue…]

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