27 October 2014 | By ken in Society | 2 Comments

Trading and Hunting

Contrary to our subjective beliefs, we make most of our decisions automatically, unconsciously. Professor Michael S. A. Graziano at Princeton recently reminded us of this.

He asked: “How does the brain go beyond processing information to become subjectively aware of information? The answer is: It doesn’t.”

It just thinks it does. Using the example of seeing the color white, he notes that we see what doesn’t actually exist, as the color white is an amalgam of the entire spectrum of colors.

It follows, then, we usually don’t need to be conscious of what we want. We already “know” what it is, and once we have started to be aware of having a choice we have already made it. In effect, we are largely sleep-walking through out lives.

This was a great advantage to our ancestors struggling for survival, as they did not have to think of what to do when seeing an animal they could eat or a danger they needed to escape.

Similarly, it is a great advantage to traders scanning the markets for commodities or currencies or derivatives. Opportunities for profit appear in a flash, and traders must pounce.

Under these circumstances, Professor Graziano notes, awareness is actually “a cartoonish reconstruction of attention that is as physically inaccurate as the brain’s internal model of color. In this theory, awareness is not an illusion. It’s a caricature.”

But that’s not sufficient for making complex and difficult decisions. Our ancestors needed to become conscious to hunt down very large beasts or to organize and manage their communities. So we, too, need to think about managing our wealth, when to buy and sell, how to plan, when to be suspicious, when to hedge.

More importantly, we have to think together so we can act together. Cartoonish reconstructions may work when the choices we face are simple and need to be acted upon quickly. But faced with making communal choices we need to weigh alternatives, to debate and reflect, exploring the long-range consequences, and think about the impact on our communities.

That means, in short, we have to inhibit our impulses for immediate action. That’s tricky. We need to be able to think fast as well to think slow, as Daniel Kahneman put it in his useful book on the mind, but when do we know which is best?

In politics, it’s easy to have knee jerk reactions. Apart from being driven by ideologies and interests, we are often overwhelmed by the complexity and importance of the social issues we face. A quick and dirty response is sometimes the best we can manage, especially when our choice is only one among thousands or millions of votes being cast. And then we have to contend with the thought: “Does it matter?” And, if it doesn’t, is that a reason not to act?

Neuro-science has made huge contributions to our understanding of how the mind works, but it does not have much to say, yet, about us as social animals or group members. Research will no doubt illuminate the pathways in the brain that lead us to follow the crowd, but we also need to understand better how to cooperate, to listen, to reflect and to contribute.

We can’t really do much just by ourselves.

A Slip of the Chip

17 October 2014 | By ken in Society | No Comments Yet

Dark Money and 501(c)(4) Associations

An accident on the internet last month exposed a hidden form of political corruption known as “dark money.” It allows corporations to donate funds to “social welfare groups” set up specifically to support their political interests while circumventing legal limits.

The New York Times, in a highly unusual step, editorialized about the practice: “There’s absolutely no legal justification for any political party to have a social welfare group, which exists solely as a vehicle for nervous donors who want to stay in the shadows. But whether the money is secret or disclosed, both parties are routinely selling access to the nation’s governors and their staffs to those with the most resources.”

Apart from The Times’s Editorial Board, few seemed surprised by the practice – or by the larger point about the buying and selling of political influence by corporations. The specific practice of “dark money” may be new, but contributing to political campaigns, hiring lobbyists, attending industry meetings, and setting up special occasions to get corporate executives together with legislators, their staff members, lobbyists, regulators – all of this has become common. It reinforces the belief in the eyes of the public that the system is rigged.

It doesn’t seem that the “accident” was the work of a self-appointed whistle-blower, and it may be as simple as a secretary pressing the wrong button. But it may also be an unconscious slip, which like many such slips could have been motivated in ways we can only imagine, such as guilt about participating in unethical schemes, belief the practice should be illegal, or anger about the system for being so weighted against the middle class. Then, of course, the slip may have been born of carelessness, rooted in the conviction that any restraints on wealth are pointless, bound to be circumvented sooner or later. I feel a tendency in myself to come around to that conviction.

The Times’s editorial concluded sardonically: “Those without a checkbook can stay in the back of the line.” But what is the power of such ridicule?

Clearly there are important discriminations to be made here, regulations and laws that need to be established as we struggle to maintain our belief in democracy and keep the political playing field reasonably level. Few of these influence peddling practices pass the smell test, stirring up visceral responses that, inevitably, provoke unconscious reactions. If so, “accidents” like this are bound to happen with increasing frequency.

That may be the only sign of hope as politicians, legislators, commentators, pundits and, even, the courts give up any pretense of opposition to this trend. The smell is getting just too bad, a stench that provokes disgust, revulsion, fear – and small acts of sabotage.

The underlying problem, though, is that such unconscious reactions tend to remain out of awareness. We smile at them, we may even laugh out loud, as we “understand” what is going on without being able to articulate it clearly or formulate a response.

Laughter and ridicule may be the best we can do.


10 October 2014 | By ken in Society | No Comments Yet

The Freedom to Trade

“Since the 1970s, economic orthodoxy has argued for low tariffs, free capital flows, elimination of industrial subsidies, deregulation of labor markets, balanced budgets and low inflation.” That has been the conventional wisdom of mainstream economists, according to Jeff Madrick writing in The New York Times.

The idea is that barriers to trade distort free markets and, in the long run, are counter-productive to economic growth. Not surprisingly, though, as American workers have watched their jobs migrate overseas, they have clamored for protection. Their reaction has been viewed as short sighted by those economists enthralled by free market ideology. Eventually, they have argued, markets will balance out and the “invisible hand” will make sure we all profit.

To be sure, protecting obsolete practices and inefficient industries will slow the “creative destruction” that is the key to a thriving economy under capitalism. It benefits the few at the expense of the many.

But it turns out that, once again, the “laws” of economics don’t always work as expected. Madrick noted: “Even free-trade advocates now admit that American wages have been reduced as a result of outsourcing, the erosion of manufacturing and an ever-increasing reliance on imports.”

Worse, the following day in a comprehensive account of what it called the “great wage slowdown of the 21st century,” The Times noted that the “typical American family makes less than the typical family did 15 years ago.” That kind of decline has not “previously been true since the Great Depression”

Oh! This has little to do with free trade and globalization. The news about the decline in the official unemployment rate last week was accompanied by a sobering report on stagnant wages. So, yes, there may be more jobs than before but they are paying less. The underlying news is that workers are being squeezed, if not one way, then in another.

Madrick went on to note that free trade “has created tremendous prosperity — but mostly for those at the top . . . . Little wonder, then, that Americans, in another Pew survey, last winter, ranked protecting jobs as the second-most-important goal for foreign policy, barely below protecting us from terrorism.”

So it may well be that, on the whole, free trade is a good thing, just as free markets generally are, but that is not the same thing as a law, an inflexible truth that reality compels us to obey.

Not surprisingly, this issue is tied to our rising income inequality. Those who have money have flexibility. Investors can switch out of one kind of asset into another. Money also allows them to switch out of investments altogether for a time if the economic climate is unfavorable to growth. Those who work for a wage have no such freedom. Economists will argue that then they can switch to other jobs. But even if their skills match the jobs available, recent history brings home the fact that there are fewer and fewer jobs to chose from.

So free markets, like free trade, largely benefit the free, those with sufficient resources to chose how to invest and where to work. This uncomfortable truth is masked by the statistics that smooth over the differences and make it seem that we are all equal participants in the global economy.


03 October 2014 | By ken in Society | 1 Comment

What is it About? What Does it Do For Us?

The proliferation of celebrities in our culture is relatively recent. In the past, writers and actors sometimes became celebrated, well-known, even famous, but it was seldom something they aspired to. A by-product of exceptional achievement, usually, fame was often awkward for the person thrust into the limelight.

But the media’s voracious appetite for content is, no doubt, the major driver of celebrity culture today. Moreover, celebrity now can be monetized though endorsements and testimonials. It feeds on itself through openings, parties to launch new fragrances and other products, red carpet appearances, fashion shows, TV interviews, etc. And it doesn’t take any particular skill, just a good publicist, determination, and the knack of being in front of the cameras. It’s a career.

So what do they do for us, apart from giving us momentary distractions from the bad news of accidents and disasters, and the lingering problems of unemployment, political gridlock, corruption, war, and terrorism? Well, yes, they do that, providing diversion from constant drumbeat of bad news. Apart from an occasional “wardrobe malfunction,” few really terrible things happen on the red carpet.

But there is more: the endless parade of celebrities in the media gives us a prettified and palatable version of social inequality. The super rich are invisible in their gated communities and penthouses, private planes, limos, exclusive resorts. We know they are there, even if we don’t see them. Celebrities, on the other hand, are over exposed, appearing and reappearing on talk shows, late night TV, society pages, magazines, etc. They have a lock on our attention.

“Americans have no idea just how unequal our society has become,” Paul Krugman wrote recently. “For example, according to Forbes, Robert Downey Jr. is the highest-paid actor in America, making $75 million last year. According to the same publication, in 2013 the top 25 hedge fund managers took home, on average, almost a billion dollars each.” The fact that celebrities absorb so much attention and provoke so much envy, allows our more sedate and private billionaires to escape attention.

And though we may envy the privilege and fame of celebrities, we seldom admire or respect them. On the contrary, we enjoy their foibles and antics. Their affairs and divorces make us feel superior. Their pranks amuse us while often inspiring contempt. And we know, as well, that the shelf life of celebrity is short lived. New celebrities constantly displace the old.

But they do live in a rarefied realm. They are swept to the head of lines in theatres and restaurants, the police protect them, keeping the rest of us at a safe distance. Often, they are involved in politics, donating their services for fund raising, and they give money themselves – but not the tens of millions of dollars the super rich give to Super Pacs. They have publicists but don’t hire lobbyists or meet privately with candidates to influence legislation.

They provide a kind of camouflage for the .01 percent, distracting us from the yawning income divide that continues to widen at our feet.


25 September 2014 | By ken in Society | No Comments Yet

Is It Fading at Last?

Hedge funds have been cloaked in mystery from the start, starting with the name. “To hedge” means to protect or limit, but in fact the funds have been among the more risky and obscure investment vehicles Wall Street has to offer.

“Hedging” investments was designed originally to protect against loss by counter-investing in alternatives that would rise in value if the original investment declined. Originally, the funds attracted smart and sophisticated managers, as it required considerable savvy to match up such investment pairings. But those managers soon decided that hedging investments was a drag on profits. So the funds discarded their original efforts to hedge their bets, keeping the privacy, exclusivity and mystique of being exceptionally clever.

Capitalizing on their success, they charged a lot: 2% annually of assets, typically, and 20% of profits. Regulators – aware of the increased risk — discouraged ordinary investors from participating, but that seems only to have increased the allure of hedge funds in the eyes of the public and some portfolio managers eager to get into what was, for a time, a very profitable game.

But hedge funds are under no requirement to disclose their trades. Moreover, they often made it hard to cash out. All of that was fine, so long as values went up, but recently they have fallen on hard times, failing to match their past performances. Managers of pension funds have gotten wary, and recently Calpers, the California retirement fund for public employees, decided to divest all hedge fund investments.

That seems like a sensible move, especially as pension funds need to rely on steady income to pay out benefits for retirees. They can’t just wait around for hedge funds to rebound.

Moreover the secrecy clouding hedge funds were increasingly problematic for trustees accountable for investment decisions. One trustee for the Kentucky state pension fund noted recently: “The auditor wasn’t allowed to see the contracts, and the contract review committee for the Legislature was not allowed to look at them, either.” Another retirement system in Tennessee was invested in more than 120 hedge funds, “whose identities, securities holdings, trading costs and custodians are unknown.” Substantial duplication of underlying managers was also found. How did they know what kind of “hedging” – in the original sense of the term — went into the fund at all? Indeed, how did they know that investments in hedge funds were not amplifying risk?

Calpers’ decision to divest came as a shock to the system. No doubt other pension funds will follow suit – and a few investors. But the reaction of Wall Street commentators has been fascinating.

The Times followed up its account by noting that Calpers’ investments in hedge funds was miniscule, and other investors were not likely to follow its example. But in an unusual tone of mockery it commented: “So hedge fund titans, California may just not be that into you, but there are plenty of other starry-eyed, deep-pocketed investors to woo.” Businessweek noted that “the industry’s best period is likely behind it.” But then it gave this parting kick: “No matter how many $100 million Picasso paintings they purchase, hedge fund moguls are not magicians.” And The Wall Street Journal dryly provided evidence that across the board, hedge funds are underperforming the market.

Who knew the extent of the hatred and contempt lurking just below the surface? But whether is springs from resentment over the success of the funds, envy for their performance, or retaliation for their arrogance, the schadenfreude is palpable.