What most people in Silicon Valley forget

From Elizabeth Warren’s 2012 Senate campaign, quoted by John Cassidy in his review of her autobiography.

There is nobody in this country who got rich on his own. Nobody. You built a factory out there? Good for you. But I want to be clear: You moved the goods to market on roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory…. Now look, you built the factory and it turned into something terrific, or great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid that comes along.

That clip from her campaign is on YouTube.

The NSA’s overseas franchise

Just spotted this from Glenn Greenwald.

Britain’s electronic surveillance agency, Government Communications Headquarters, has long presented its collaboration with the National Security Agency’s massive electronic spying efforts as proportionate, carefully monitored, and well within the bounds of privacy laws. But according to a top-secret document in the archive of material provided to The Intercept by NSA whistleblower Edward Snowden, GCHQ secretly coveted the NSA’s vast troves of private communications and sought “unsupervised access” to its data as recently as last year – essentially begging to feast at the NSA’s table while insisting that it only nibbles on the occasional crumb.

The document, dated April 2013, reveals that GCHQ requested broad new authority to tap into data collected under a law that authorizes a variety of controversial NSA surveillance initiatives, including the PRISM program.

PRISM is a system used by the NSA and the FBI to obtain the content of personal emails, chats, photos, videos, and other data processed by nine of the world’s largest internet companies, including Google, Yahoo!, Microsoft, Apple, Facebook, and Skype. The arrangement GCHQ proposed would also have provided the British agency with greater access to millions of international phone calls and emails that the NSA siphons directly from phone networks and the internet.

The Snowden files do not indicate whether NSA granted GCHQ’s request, but they do show that the NSA was “supportive” of the idea, and that GCHQ was permitted extensive access to PRISM during the London Olympics in 2012. The request for the broad access was communicated at “leadership” level, according to the documents. Neither agency would comment on the proposed arrangement or whether it was approved.

This is hard to square with the report by the UK’s communications interception commissioner which found that GCHQ’s arrangements with the NSA to have been within the law and said that the agency was not engaged in “indiscriminate random mass intrusion.”

Greenwald thinks that the newly revealed documents raise questions about the full extent of the clandestine cooperation and about whether information about it has been withheld from lawmakers.

He interviewed Julian Huppert, the Lib-Dem MP for Cambridge who served on a committee that reviewed – and recommended against – the Communications Data Bill that the spooks have been pushing.

At no point during that process, Huppert says, did GCHQ disclose the extent of its access to PRISM and other then-secret NSA programs. Nor did it indicate that it was seeking wider access to NSA data – even during closed sessions held to allow security officials to discuss sensitive information. Huppert says these facts were relevant to the review and could have had a bearing on its outcome.

“It is now obvious that they were trying to deliberately mislead the committee,” Huppert told The Intercept. “They very clearly did not give us all the information that we needed.”

Surprise, surprise.

Cold War 2.0?

Interesting essay by Robert Skidelsky bringing an element of historical knowledge to bear on the current crisis in Ukraine.

Before we drift into Cold War II, we would do well to recall why we had the first one. The end of Communism removed one important reason: the Soviet Union’s expansionist thrust and the Western democracies’ determination to resist it. But other reasons remain.

American diplomat George F. Kennan identified them as neurotic insecurity and Oriental secretiveness on the Russian side, and legalism and moralism on the Western side. The middle ground of cool calculation of interests, possibilities, and risks remains elusive to this day.

Kennan is reckoned to have laid the Cold War’s intellectual foundation – at least in the West – with his “long telegram” from Moscow in February 1946, which he followed with his famous Foreign Affairs article, signed “X,” in July 1947. Kennan argued that long-term peace between the capitalist West and communist Russia was impossible, owing to the mixture of traditional Russian insecurity, Stalin’s need for an external enemy, and communist messianism.

Russia, Kennan argued, would seek to bring about the collapse of capitalism not by an armed attack, but by a mixture of bullying and subversion. The correct response, said Kennan, should be “containment” of Soviet aggression through the “adroit and vigilant application of counterforce.”

During President Harry Truman’s administration, United States officials interpreted Kennan’s view as requiring a military build-up against a potential Communist invasion of Western Europe. This gave rise to the Truman Doctrine, from which sprang the logic of military confrontation, NATO, and the arms race.

These developments dismayed Kennan, who claimed that containment was meant to be economic and political, not military. He was one of the main architects of the post-WWII Marshall Plan. He opposed the formation of NATO.

Skidelsky thinks that the West is playing this wrongly and ineptly. We’re doing what Kennan warned against — foreign policy that is “utopian in its expectation, legalistic in its concept…moralistic…and self-righteous,” The goal of Western policy today, he thinks, “should be to find the means to work with Russia to stop Ukraine from being torn apart”. This means

talking and listening to the Russians. The Russians have presented their ideas for resolving the crisis. Broadly, they propose a “neutral” Ukraine on the model of Finland and a federal state on the model of Switzerland. The first would exclude NATO membership, but not admission to the European Union. The second would aim to secure semi-autonomous regions.
CommentsView/Create comment on this paragraphSuch proposals may be cynical; they may also be unworkable. But the West should be urgently testing, exploring, and seeking to refine them instead of recoiling in moralistic horror at Russia’s actions.

Makes sense to me.

The next Fukuyama?

Thomas Piketty’s remarkable book continues to create a storm of controversy and publicity. It has been Amazon.com’s #1 Bestseller (though, given Amazon’s pathological secrecy, who knows that what means?) and it’s at the top of the New York Times bestseller non-fiction list. It’s already sold over 100,000 copies in the US. And it’s got the American Right rattled and/or annoyed.

So there is definitely a Piketty Phenomenon. In conversation the other day, a sceptical colleague jokingly observed that Capital in the Twenty-First Century “looks like being the next Harry Potter”. But then we had a more sober conversation in which both of us racked our brains to identify the last time a serious book had garnered such astonishing attention. And the answer we came up with was Francis Fukuyama’s famous book, The End of History and the Last Man, which was published in 1992 and appeared to catch the Zeitgeist. Certainly it transformed its author into one of the world’s most prominent public intellectuals. My expectation is that Piketty’s book will do the same for him.

Interestingly, Fukuyama recently published an interesting article in Foreign Affairs lamenting the dearth of good left-wing ideas. Perhaps he didn’t know that Piketty’s tome was coming down the tracks?

The American Dream is now just that: a dream

Interesting piece by Michael Cohen. Extract:

The US swaggers along on the world stage with a certainty and sense of moral purpose that no other country can match. Blessed with practically limitless national resources, a dynamic and diverse population, a relatively stable political system and innovative technological capabilities that other nations can only dream of, how can so many Americans be falling behind – and how can the nation’s leaders allow it to happen?

The answer is disconcertingly simple: we chose this path.

Granted, no one actively set out to attack the middle class in America. There wasn’t some evil plan hatched behind closed doors to wreak socio-economic havoc. But the decline of the American middle class, the ostentatious wealth of the so-called 1% and the crushing economic anxiety of the growing number of poor Americans have happened in plain sight.

It is the direct result of a political system that has for more than four decades abdicated its responsibilities – and tilted the economic scales toward the most affluent and well-connected in American society. The idea that government has an obligation to create jobs, grow the economy, construct a social safety net or even put the interests of the most vulnerable in society above the most successful has gone the way of transistor radios, fax machines and VCRs. Today, America is paying the price for that indifference to this slow-motion economic collapse.

All true. The question is: what will happen when — and if — this penny drops? Will anything happen?

The unowned public corporation

Good column by Will Hutton on why the notion of “shareholder control” is a myth. Sample:

Banks have grown this large, complex and profitable because, like all plcs in our times, they are not owned by a mass of responsible, long-term shareholders who care for their purpose, sustainability of business model or wider economic obligations. Their overriding concern is high returns on equity. Long-term investors such as Standard Life, which voted against Barclays bonus hikes, are now a tiny minority. The majority of shareholders are hedge funds or multitrillion global asset management groups. They don’t own companies: they either trade them like casino chips or use them as temporary ports of call for their money. A bank CEO such as Antony Jenkins at Barclays has to tread a path between appeasing these non-owners and creating a bank that builds long-term value: if he falls, be sure Barclays will be under enormous pressure to replace him with another Bob Diamond, who will go all out for short-term profits and sky-high bonuses come what may.

The emergence of the ownerless corporation seeking to maximise short-term profits is now the key feature of modern capitalism. But “unowned” banks, unlike other PLCs, engage in the unique business of creating money and credit, knowing that governments must ultimately stand behind them if anything goes wrong. This guarantee always meant there would be a bias to increase credit as a share of GDP: between 1950 and 2000, it doubled in the major industrialised countries.

But between 2000 and 2010, as short-term profit maximising banks became the norm, credit doubled again in scale. By the time of the banking crisis, returns on equity had more than doubled as all this lending had been supported with ever less capital – bankers trading on the implicit government guarantee but delivering the returns their shareholders wanted. Moreover, much of this credit has been directed to lend to property in every country, rather than risky new investment.

Modern banking, as Adair Turner pointed out in an important lecture at the Cass Business School last month, has become an engine for credit, leverage and property price inflation. Britain, with its companies uniquely “unowned”, uniquely focused on the share price and its economy uniquely organised to favour finance over industry, was inevitably going to be the most acute example of the trend.

Q: Is Nigel Farage (a) a phoney or (b) a hypocrite?

Answer: both — as Nick Cohen argues in a terrific column about the Ukip leader.

When considering Ukip, we should remember the advice of Lord Renwick, a Foreign Office mandarin and Labour peer. He told young diplomats from good families that their background made them suckers for “the Wykehamist fallacy”. When they went abroad, they were in danger of believing that foreign potentates merely struck blood-curdling poses for effect. For all the bombast, they would think that, underneath, these must be civilised men with an ironic sensibility who might have been educated at Winchester. “They haven’t,” said Renwick. “Actually, they’re a bunch of thugs.”

The same should be said of Ukip.

Yep. I’ve seen Farage in action in the flesh. Nick calls him “England’s greatest living hypocrite”, and that seems about right (though there is fierce competition for that title).

He courts popularity by warning that tens of millions from the dole queues of Europe are coming to take British jobs, while employing his German wife as his secretary. He denounces “the political class” for living like princes at the taxpayers’ expense while pocketing every taxpayer-funded allowance he can claim for himself, his wife and his colleagues.

He says he represents “ordinary people”. But he is a public school-educated former banker, whose policies will help him and his kind. He claims he is the voice of “common sense”, while allying with every variety of gay-hater, conspiracy crackpot, racist, chauvinist and pillock. The only sense he and his followers have in common is a fear of anyone who is not like them.

So the question is: why have Britain’s famously aggressive mass media not torn this phoney to shreds? Could it be that he voices many of their proprietors’ (and editors’) own views?

Inflection points and advanced robotics

This morning’s Observer column.

Not often do you hear a Newsnight presenter using an arcane mathematical term, but last week was an exception. The culprit was David Grossman, who made an excellent film for Newsnight about the threat to employment from advanced robotics. In the course of this, he made the standard pilgrimage to MIT to interview Erik Brynjolfsson and Andrew McAfee, who have made much of the running in this area with a number of books, of which the most recent is The Second Machine Age. Their argument, said Grossman, was that our society has reached an “inflection point”, a concept beloved of those who studied differential calculus in their youth, but probably unfamiliar to the average viewer.

Still, that’s what Wikipedia is for. A point of inflection, it explains, is a point on a curve at which the curvature or concavity changes sign from plus to minus (or vice versa). Since this sounds like a smaller deal than the wholesale upheaval prophesied by Brynjolfsson and McAfee, Grossman might have got more mileage out of “tipping point”, which, though different to inflection, seems to me to get closer to the nub of the question.

Read on

Guess what? US ‘democracy’ won’t cure rising inequality

Well, well. Hot on the heels of the English translation of Thomas Piketty’s magnum opus comes this report of a new study by Martin Gilens and Benjamin Page from Princeton. Excerpt:

Money buys power.

That’s the bottom line of a new study from Princeton University political scientist Martin Gilens, who looked at 1,779 U.S. government policy decisions between 1981 and 2002. Gilens found that the preferences of the median earner had no impact on whether policies are adopted — but that politicians march in lockstep with what the top earners wanted.

You may think you’ve heard that conclusion before, but Gilens’s approach is unique, and that makes his findings all the more important. Gilens didn’t take one theory of who has political influence and test it with data, as does almost all of the research on this topic. He tested the power of the rich, middle class, and interest groups simultaneously, allowing for any theory to win or lose. That is new.

And here’s the real danger of what Gilens finds: It means that the U.S. political system is set to transform the dramatic rise of income inequality into entrenched differences in political power — and there’s very little the middle class can do to stop it from happening.

There is, in other words, an inequality feedback loop built into the U.S. political system — and America may be spiraling into it. A policy that enriches what Gilens calls the “economic elite” will command its support. Their support, Gilens shows, means that the political system is likely to make it happen. And the ever wealthier become the ever-more powerful. Policies that undermine the elite become ever more difficult to pass as economic inequality buys political obedience.