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