Tuesday, October 30, 2012

Information asymmetry explained



Information asymmetry has a fairly self-explanatory name. It is term used to describe a situation in which two counterparts have differing quantities or qualities of information. When one counterpart to a transaction has far more information about the trade or has a superior quality of information, they are at a price advantage. Understanding information asymmetry is important in understanding market manipulation.


Further explanation

Information asymmetry usually works in favour of the seller, because the seller normally has more knowledge about the product than the buyer. However it can also work in favour of the buyer. An example of buyer advantage could be a situation in which a buyer agent deliberately distorts a market on a temporary basis in order to purchase assets at a lower price, which then rises after the market manipulation exercise is terminated, creating profits for the buyer.

Information asymmetry usually works in favour of the seller, because in many circumstances the buyer can be seen as a complete novice, buying products on a Unique Single Transaction (UST) basis. UST sales account for much of the consumer market.

The purchase of a car would be a UST, because one does not often need an identical make and model of car in the short term, and the model is likely to have been superseded in the long-term, whilst buying a favoured brand of orange juice would be a Regular Transaction, where the product quality is known to be of a specific standard. An example of an Unique Single Transaction in the financial market could be the creation of a pension fund with a fund manager, (another could be the taking out of a mortgage, we'll come back to mortgages later). Once the transaction has been agreed, the average consumer rarely changes their pension provider (or their mortgage provider) and the buyer then has little incentive to do more research such as enquiring into the specific investments being made by the fund manager. The evidence shows that the majority of buyers have little inclination to ever switch their pension (or mortgage) provider. In cases where people are successfully encouraged to switch financial products, it is normally achieved with simple price enticement such as the provision of more favourable interest rates. The vast majority of pension savers (or mortgage holders) switch for price, very few people undertake a comprehensive risk analysis of their financial services provider, they simply put their in trust "the market" and the regulatory authorities.



Signaling and screening

Joseph Stiglitz and Michael Spence did pioneering work in asymmetric theory for which they were awarded the 2001 Nobel Prize in economics. They described it in terms of signalling an screening. In perfect market conditions one would expect the seller to give accurate price signals and the buyer to carry out diligent screening (risk assessment) in the investments they make. In a perfectly operating market one would also expect the seller to screen the wider market before setting a price and the seller on some occasions to signal an intention to buy so that price negotiation can happen fairly.

The problem is of course that reality has not, does not, and will never experience perfect market conditions. One cannot expect each and every seller to signal the price honestly or for each buyer to complete a comprehensive risk review before every transaction, therefore it is necessary to have regulation of the market and risk mitigation practices in order to prevent agents from corruptly taking advantage of information asymmetry.

In functional markets it is necessary to have regulatory powers to prevent agents from defrauding the market by propagating false information or by concealing valuable information. Risk mitigation practices such as regular auditing of company finances (via the big four financial audit oligopoly) , internal compliance policies (self-regulation) or investment specifications that the investment group (your pension fund, your mortgage holder) must only invest in products that have been rated "low risk" (by the Credit Ratings Agency oligopoly).

Signalling is also "outsourced" to agents, the most obvious example being the multi-trillion Dollar advertising sector, which is essentially a vast information signalling market. Other examples of outsourced information signalling include Public Relations, stories planted in the mainstream media, and political patronage.


Bounded rationality
Bounded rationality is the idea that in decision making, the rationality of the agent is limited by the quantity and quality of information that they have, their own cognitive limitations and the amount of time they have to make the decision. Information asymmetry is unavoidable in a market comprised of individuals of varying intelligence, with varying amounts and qualities of information and varying time limitations on their decisions.

Market manipulation

The idea of artificial price manipulation is as old as economics itself. Traditional false signalling methods include the creation of artificial scarcity, artificial gluts and price-fixing operations, which are all used in order to manipulate prices or to stimulate desired market activities. Some market manipulation is considered entirely acceptable, such as the advertising industry or government subsidisation of research, however there is also a great deal of corrupt market manipulation. The more complex a market becomes, and the more opportunities for market manipulation are presented and the more opportunities for asymmetric corruption are created too.


Misinformation

Market manipulation is often reliant upon the propagation of false information in order to create information asymmetry. Misinformation based asymmetry can create favourable conditions for market manipulators to generate profits by either creating false market confidence or false market pessimism.

False and misleading advertising
False advertising is probably the most familiar example of asymmetrical market manipulation, in which advertisers create a false incentive to buy via the process of spreading false claims about the value of the product. Back in the 1930s and '40s tobacco companies actually spread claims that smoking was good for the health, even though there was a growing body of scientific evidence (including the work of the Argentine scientist Ángel Roffo) that smoking causes cancer. Other more modern examples of false advertising include the trend for cosmetics and "health food" adverts to dress up additives to their products in bogus pseudo-scientific names ("Pro-retensifier smoothease" in face cream or "L. Casei Healthitas" in a yoghurt) or to conduct sham surveys in which 91% of women agreed that our product is "great" (based on a survey of just 11 women, who all received free samples of the expensive product). These kinds of misleading claim create information asymmetry, in that the buyer is led to believe that the product has better properties than the seller knows that it has in reality.

False claims
Although false advertising depends heavily upon the making of false claims, there is another component in falsely incentivising the buyer to purchase a product through the making of false claims, which is deliberate misselling. A familiar example to most British people is the Payment Protection Insurance (PPI) misselling fraud, where high street banks told customers that they could only take out loans if they also took out PPI policies on the loan. This was nothing short of fraudulent inducement to buy unwanted and unneeded products. The banks have been made to pay back customers who had been taken in by the PPI scam, however UK financial sector regulators refuse to treat the PPI scandal as the large scale fraud that it clearly was. The misselling of financial products like PPI policies relies on information asymmetry because the consumer is led to believe that they must buy the product, whilst the seller knows that the consumer doesn't actually need the product in order to take out a loan, and furthermore that it is actually illegal to make claims that they do need it.

False statements
Another way to profit from information asymmetry is through the practice of direct market manipulation through the dissemination of false information. There are many examples of how false information can be presented in order to boost short-term profits, from a multi-national oil company wilfully overestimating their oil reserves to boost their share price, to a corporation using creative accounting to hide the scale of their debts (Enron). If false financial statements are made, then information asymmetry is created because agents in the "general market" are duped into a false sense of confidence.

Rumours
Rumours are often a key component in market manipulation. False rumours can be spread by potential buyers in order to drive down an asset price, in order that the shares can be purchased at an artificially lowered price, or by a seller in order to sell at an artificially high price. The dissemination of true rumours that are not known to the wider market is known as insider trading.

Insider trading
The trading of insider-information is one of the most recognisable forms of manipulating markets with asymmetrical information. Insider trading relies upon the ability of one agent to provide specific information that exists outside the "general market", so that the recipient can make strategic investments on high probability outcomes that the "general market" are unaware of. Insider trading is heavily reliant on the circulation of rumours. Knowing and trusting the rumour source is vital, since it can be just as easy, and just as profitable to circulate false rumours as it is to share true ones.

High Frequency Trading
Since the 1980s an ever increasing proportion of stock market trades have been carried out by computer programmes rather than by human stockbrokers. Recent research has shown that 84% of stock trades by volume in the United States are done by computers rather than humans.

It is easy to imagine how High Frequency Trading can be used to create false price signals to distort the market. One example is Wash Trading where huge volumes of simultaneous buy and sell orders are created at below market value in order to drive the market price lower so that stocks can be bought at an artificially lowered price, which then generates profit for the buyer when the wash trades are terminated and the stock values return to their higher level.

Another example of how High Frequency Trading can be used to generate asymmetrical profits can be seen on the New York Stock Exchange, where from 2008 "preferred investors" were allowed to buy access to the NYSE proprietary feed of stock market information, a process that is called "frontrunning" the market. This access to restricted data gave the preferred investors up to several seconds information advantage over the general market, which is plenty of time for computer algorithms to take advantage of  information asymmetry to create trades in anticipation of movements that are likely to happen once the information reached the general market. The SEC fined the NYSE just £5 million for allowing this institutionalised information asymmetry abuse.


Information asymmetry and free-market theory

Free market theories are built upon the foundation of agents who's behaviour is determined by rational self-interest. There are many problems with this foundational assumption, not least the fact that not all humans are selfish egoists. If "the invisible hand" of the free market relies upon a society composed of rational self-serving individuals, groups like socialists, environmental protesters, charities and religious organisations must essentially be eradicated, since their behaviour defies the idea that self-interest is the only true virtue and that all other so-called virtues (social concern, environmental concern, charity, patriotism, empathy, religious beliefs...) are heresy.

The idea that mankind's essentially co-operative nature must be eliminated in order to create an Utopian free-market, guided by the "invisible hand" sounds completely crazy, but this is essentially the central philosophy of free-market economics.

That there are more gaping flaws in such a barmy ideology is hardly surprising. One of the most obvious (and relevant) ones is the problem of bounded rationality. If the individual is limited by the bounds of their own rationality it is impossible for them to achieve information symmetry, therefore it is impossible for the individual to behave in their own rational self-interest, only in their subjective self-interest, which may actually be against their rational self-interest.

This problem of bounded rationality leads to the situation where signalling and screening operations are outsourced to intermediaries such as advertisers, PR firms, accountancy firms and credit rating agencies. When signalling and screening are done on an industrial scale, greater information symmetry is achieved within the market. Agents tend to rely upon things like advertised benefits of buying a particular product, the health of company accounts and the ratings given by the credit ratings agencies in order to make their investment decisions.

It is obvious that the activities of these market intermediaries should be carefully regulated. The scope for corrupt market manipulation would be enormous if advertisers were allowed to lie, accountancy firms were allowed to present false audits and credit ratings agencies were allowed to give the highest possible ratings to complete junk.

The problem is of course that since the rise of neoliberalism in the 1970s,  neoliberal free-market economists have demanded ever more deregulation, which has allowed ever greater possibilities for corruption.

The simplistic "deregulation is always good" mantra, relies on neglecting the impact of anti-competitive practices such as the creation of monopolies and oligopolies as well as ignoring the negative impact of increased information asymmetry in the market.

Another aspect of human behaviour that the free-market fundamentalists deliberately neglect when calling for ever more deregulation is the very self-interest that underpins their economic ideology. If barriers to corruption are removed, regulatory authorities are castrated so badly that corrupt agents never face punishment for their market corrupting activities, and financial sector institutions are allowed to become too big to fail, creating moral hazard; it obviously becomes the rational self-interest of financial sector agents to act corruptly in order to maximise their profits.


Information asymmetry and the economic crisis

If we take a closer look at the causes of the neoliberal economic crisis it becomes obvious that information asymmetry played a huge part in creating the economic meltdown. Information asymmetry can be seen at every step of the "securitisation food chain" that caused the sub-prime crisis, the Wall Street meltdown and the "credit crunch".

At the first level, self-certification mortgages allowed people to make up lies about their income (an unemployed person with no assets claiming to earn $140,000 a year as an IT consultant for example) in order to obtain a mortgage. This deliberate failure to determine risk levels at mortgage brokers like Countrywide, Washington Mutual and New Century led to the creation of information asymmetry.

Once mortgages had been sold on to the investment banks to be packaged up into Collateralized Debt Obligations, they paid the Credit Rating Agencies oligopoly to stamp these products with the highest grade AAA ratings. When traders within a financial sector organisation are selling AAA rated financial products that they describe in internal emails as "sacks of shit" or "shitbreathers" and then the very organisations that created them take out Credit Default Swap insurance on the products they have just sold in order to cash in when the financial product fails, these are absolutely clear examples of profiting from information asymmetry.

Another layer of information asymmetry can be seen in the bankruptcy and bailout of the insurance giant AIG. Had they known that the financial products they were insuring were described as "sacks of shit" by the traders that were selling them, it is highly unlikely that they would have created a multi-billion dollar market in insuring these products.

From the self-certification mortgage applicants right up to the credit ratings oligopoly, the entire securitisation system was riddled with false price signals. It was clearly information asymmetry in the form of false price signals that caused the global economic meltdown and the credit crunch.


Trust and risk 

It is absolutely clear that lack of scrutiny and excessively risky behaviour caused the neoliberal economic crisis. Investors put far too much trust in outsourced intermediaries such as the credit ratings agencies oligopoly and the big four audit firms. Had institutions conducted their own risk assessments instead of relying on the AAA ratings, they could have easily discovered that the financial products they were buying were nothing more than the highest risk mortgages packaged up into complex financial instruments.

Once it became clear that the financial sector had been flooded with toxic sub-prime junk dressed up as low risk financial products, and that many financial sector institutions had recklessly over-exposed themselves to buy up such products, there was a complete failure of trust within the market. Financial sector institutions stopped lending to each other in order to invest in safer, lower yield assets such as government bonds.

It is quite clear that allowing financial sector organisations to create information asymmetry by marketing extremely high-risk products as the safest grade of investment is what caused the economic crisis, and that the failure to punish them for this market manipulation has created an extremely risky financial sector environment, since there is little or no disincentive to stop them from doing it again.

If the regulatory authorities rufuse to punish institutions that engaged in asymmetric market manipulation, the continuation of self-interested asymmetric market manipulation practices is certain, and aversion towards investment in the financial sector obvious consequence.


Information asymmetry and technology

As I was researching this article I came across this laughable assertion about information asymmetry from Investopedia, which claims that:
"With increased advancements in technology, asymmetric information has been on the decline as a result of more and more people being able to easily access all types of information."
That such a ridiculous assertion can be found on a website like Investopedia is actually quite worrying. The statement conflates two fundamentally distinct phenomena (information quality and information volume) and neglects the obvious fact that the more information there is, the more work is needed to get a complete understanding of the product and the quality of the market conditions (the limitations of bounded rationality). These are both big flaws but the biggest gaping flaw in the assertion is that it actually makes an unsubstantiated claim that information asymmetry "has been on the decline" when I believe that I have made a strong case that the opposite is true and that information asymmetry is now more prevalent than ever and that it can be seen as the root cause of the global economic meltdown.

The rise of technology hasn't just improved the capacity of the individual to access valid information, it has also massively increased the capacity for agents to produce deliberately asymmetrical information (using high-frequency trading or other market manipulation techniques). It is this rise in asymmetrical information, created by the neoliberal deregulation mania, high frequency trading and the vested interests of market agents, that drove the global financial sector off a cliff in 2007-08.


Conclusion

Once the neoliberal economic meltdown is perceived in terms of information asymmetry, the austerity vs stimulus debate is rendered meaningless. If nothing is done to reduce information asymmetry in the market, it doesn't matter what the fiscal growth strategy may be, the market will continue to be undermined by factors that cause market instability (market manipulation, insider trading, price fixing).

Another factor is that once the majority of agents in the market understand that the lax regulation regime and the timidity of the legal authorities has created market conditions where false price signals are abundant, if not the norm, it becomes the agents' rational self-interest to either participate in the fraud or to carefully shun speculative investments. Speculative investments are the engine of technological advancement and of economic growth, if investors are incentivised to favour investment in products that are perceived to be safe (government bonds, precious metals...) due to risk aversion, economic growth is stymied.


Recklessly under-regulated markets where information asymmetry was abundant, created the economic crisis. And the failure to react with prosecutions and re-regulation has created the risk averse "credit crunch" scenario which is maintaining the economic stagnation that looks set to continue almost  indefinitely unless serious market reforms are undertaken to deal with the problem of information asymmetry.
 


SEE ALSO
 

Friday, October 26, 2012

The Tory contempt for the disabled

Here's another example of the Tory determination to attack labour rights. This time from the Tory MP for Shipley Philip Davies, who came out with the suggestion that employers should be allowed to pay less than the National Minimum Wage to people with disabilities. Here's what he said:
"My view is that for some people the national minimum wage may be more of a hindrance than a help."

"People with a learning disability clearly, by definition, cannot be as productive in their work as somebody who has not got a disability of that nature."


"If those people who consider it is being a hindrance to them, and in my view that's some of the most vulnerable people in society, if they feel that for a short period of time, taking a lower rate of pay to help them get on their first rung of the jobs ladder, if they judge that that is a good thing, I don't see why we should be standing in their way."
One of the most offensive things about this proposal was the way that Davies dresses up this attack on the employment rights of people with disabilities as a way of  "helping them".
The first criticism is that the National Minimum Wage is a pittance, especially for people under the age of 21. There is a large disparity between the minimum wage and what is considered to be a living wage. Allowing companies to pay disabled adults less than £6.07 an hour seems like an absurd suggestion, but allowing them to pay less than £3.68 to disabled under 18s (that have finished compulsory education) would be grotesque exploitation.

Huge numbers of people in minimum wage occupations already have their incomes "topped up" by Tax Credits and Housing Benefits, which are essentially forms of government subsidy to employers that pay poverty wages to their workforces. If the government allow employers to opt out of the Minimum Wage, the taxpayer would end up making up the difference in increased Tax Credit and Housing Benefit payments. Davies' scheme can be seen as yet another example of Tory MPs attempting to make the taxpayer subsidise corporate interests.

Another obvious consequence of this "opt out" scheme is that employers would put pressure on the disabled to accept lower wages. One can imagine the situation. "We have had plenty of able-bodied people apply for this position Mr Bloggs, however in light of your disability we would consider offering you the position if you were prepared to accept a lower wage in order to compensate us for your disability".

Yet another criticism is the fact that allowing one minority additional rights, namely the right to undercut the labour market by legally working for less than the minimum wage, is a form of positive discrimination. Tories normally tend to go frothy at the mouth about any form of positive discrimination. Imagine their reaction if someone like Harriet Harman had suggested bringing in discriminatory legislation to favour the interests of the disabled, ethnic minorities or single parents. People like Philip Davies would have been screaming blue murder. However, when it comes to attempts to undermine labour rights, their objection to positive discrimination suddenly evaporates.

Yet another objection is Davies' statement that disabled people are "clearly, by definition" less productive than people without disabilities. Does anyone think that Stephen Hawking is "by definition" less capable of brilliant scientific achievements than some random scientist that doesn't happen to have motor neurone disease? Does anyone believe that Richard Branson is "clearly" less able to run a gigantic corporation than some random person that isn't dyslexic? Does anyone really believe that whether a person is disabled or not is the primary contributing factor to their productivity? Does anyone believe that the Northern Ireland peace process would have been significantly better had someone "more productive in their work" than the cancer sufferer Mo Mowlam been in charge?
After a storm of criticism Philip Davies reacted by claiming that it was just "left-wing hysteria". An absurd and misleading assertion since criticism came from across the political spectrum. In fact one of the MPs to criticise the proposals to his face during the Parliamentary debate was fellow Tory MP Edward Leigh, who asked him: "Why actually should a disabled person work for less than £5.93 an hour? It is not a lot of money, is it?" Senior Tories were quick to distance themselves from the proposals and a Tory spokesperson tried to calm the storm by stating that "these comments do not reflect the views of the Conservative party and do not reflect government policy".

It was good to see that the Tories distanced themselves from these proposals, however one suspects that this distancing operation had more to do with the storm of political criticism, than it had to do with any moral objection. That the Tories hold the disabled in contempt is absolutely obvious from the fact that not a single Tory MP supported John McDonnell's early day motion to end the Atos disability denial system. The Tory contempt for labour rights is even more obvious, with people like Iain Duncan Smith forcing the unemployed to work for corporations for no wages under the Workfare scheme

Philip Davies' suggestion that employers should be allowed to pay less than the minimum wage to the disabled just goes to show the kind of people that become Tory MPs. He clearly didn't think his idea through or consult with any mental health charities before proposing it in Parliament. The motivation behind the idea is quite obviously contempt for disabled people, (who he considers to be "clearly" inferior, "by definition") and the natural Tory contempt for the whole concept of labour rights. Not only that, but his pathetic defence that criticism of his proposal is just "left-wing hysteria" clearly demonstrates the Tory paranoia, that all criticism of their lunacy must be some kind of left-wing conspiracy.


See Also
 
 
 
 

Thursday, October 25, 2012

Lord Bichard's plans to force pensioners to work

Lord Bichard is not a Tory, in fact he is a crossbencher and close friend of the Neo-Labour stalwart David Blunkett, but he certainly has been getting into the spirit of Tory malice.

Michael Bichard (to give him his proper name), who is a former head of the Benefits Agency (1990-95) and later the head of the Employment Agency (1995-2001), sparked outrage from across the mediascape with his comments that the retired should be forced to work for their state pensions and stop being a "burden on the state". Here's what he said:

"Are we using all of the incentives at our disposal to encourage older people not just to be a negative burden on the state but actually be a positive part of society?"
"We are now prepared to say to people who are not looking for work, if you don't look for work you don't get benefits, so if you are old and you are not contributing in some way or another maybe there is some penalty attached to that."
As anyone under the age of 60 should be aware, the state pension age is already being raised, meaning that millions of people will have to work much longer before receiving their pensions, now Lord Bichard is proposing that once they retire, the state forces them to work for their meagre state pension allowances.

British pensioners are already amongst the poorest in Europe, with the state paying just 17% of average earnings, whilst the value of state pensions across the rest of Western Europe are above 40%, yet Lord Bichard would have them work for this pittance that they receive from the state. 

Michael Bichard's proposals are unfair from so many perspectives, here are just a few:
The main objection is that pensioners have already paid for their pension entitlements via National Insurance. Any attempt to dock or remove people's pensions for an unwillingness or inability to continue working into their 70s would be an act of theft.
Another obvious objection would be that pensioners would have to be assessed to determine their ability to work, work that would almost certainly be undertaken by parasitic outsourcing corporations. This would create the potential for another Atos style work capacity assessment farce, where the company rakes in £billions for declaring people fit to work, only for the decisions to be overturned en masse in the courts at a massive cost to the taxpayer and causing enormous stress to to the many aged and extremely infirm pensioners that have been declared fit for work and face having their pensions slashed or cut off entirely.
Another objection is that pensioners already do a huge amount of work, they are the single largest demographic in the charitable sector labour force and many millions of pensioners work as carers and child minders. If Bichard's proposals are enacted, one can be sure that this kind of work will not be recognised, just as voluntary work, education and training are not recognised when it comes to the unemployed being forced into unpaid menial labour. Pensioners will be told that caring for their terminally ill spouse, looking after their grandchildren or working at their local charity shop doesn't count as an economic contribution and that they must therefore go and stack shelves for no wages at Poundland or Tesco instead.
Another objection would be that this kind of scheme would disproportionately effect the poor, the people that are most reliant upon the state pension. Anyone with a half decent private pension scheme or assets such as property or shares that could be sold off, could afford to have their state pension docked, whilst the poorest pensioners would have no choice but to work in order to keep their meagre state pensions that represents the bulk of their incomes.
Another objection is that forcing the elderly into mandatory unpaid labour schemes for their pensions would reduce the amount of real jobs in the economy, it makes much more economic sense for work to go to paid employees, who then pay tax on their earnings and stimulate the economy by spending their wages, if the work is given to an elderly pension slave instead, the only beneficiaries would be the corporate interests that get the free labour and the corporate outsourcing company that arranged the placement, meanwhile a working age person would be denied the work, and find themselves unemployed (then they would be forced into a Workfare unpaid labour scheme, denying that work to yet another young and able bodied person, who would find themselves unemployed and forced to work for no wages... ad infinitum).
Yet another objection is the plight of manual labourers, who already get a bum deal when it comes to pensions. People that do physical labour for a living are significantly more likely to die before they even reach pension age. Under the terms of the 2011 pension reform anyone under the age of 44 will now be expected to work until they are 66 and anyone under the age of 34 will be expected to work until they are 68. This means that greater numbers of people in the construction, heavy industry and farming sectors will end up dying before they even get to claim back their National Insurance contributions, whilst Bichard expects those that do survive to pension age to carry on working, despite the fact that they are significantly more likely to be suffering arthritis, rheumatism, nerve damage, respiratory disease or other industrially related diseases.
There is one significant ray of hope though, the elderly are by far the most likely to vote, and even the Tory party have enough sense to know that incurring the wrath of British pensioners by following Michael Bichard's recommendations and forcing pensioners to work at government mandated, outsourcing company administered, mandatory labour schemes would be an act of political suicide. Especially since the elderly are the third most likely demographic to vote Tory (behind only the rich and farmers).  

Perhaps the most revolting fact about Michael Bichard's mandatory labour for pensioners proposal is the fact that Bichard himself retired from the civil service at the age of 54 on an index linked pension estimated to be worth £120,000 a year. Here's a man that collects a taxpayer funded pension of over £2,300 a week, demanding that people on state pensions of little more that £100 a week be compelled to work in order to collect theirs. 


See Also
 
 
 

Wednesday, October 24, 2012

Why dissent is positive

I was recently asked why I bother to complain so much beneath a protest image I'd created for Facebook. This is the comment:
"You're too angry and focused. Why? Has someone or something made you feel this resentment? I'm wondering, don't you have any good stuff, positive thoughts?
My initial response was; why is this guy trying to give me the "headshrinker treatment"? Not every motivation boils down to something that happened to us in the past. I consider much of the Freudian rooted "psychosciences" game to be a sham and a lucrative profit making opportunity above anything else. Of course our upbringing has some formative effect on who we are today, but raking through the past to try to identify incidents we can retrospectively assume are causal factors in our current behavioral tendencies, has always seemed like an abject waste of time to me. Past incidents certainly have an effect on who we have become, however I believe that attempts to establish direct causation simply reinforce the idea that our current behaviours are determined by our past circumstances, rather than our choices and actions in the present. More than that, once a causal narrative has been established, it is then easy for the individual to use such retrospective causation theories as justification techniques to excuse their current behaviour. 

I find it odd that someone would consider me worthy of impromptu "headshrinker analysis" for the fact that I complain, whilst so many others prefer to turn a blind eye to the environment of corruption and injustice they live in, or choose to carefully maintain a state of deliberate ignorance. Surely the psychosis of the masses is a more interesting (and important) subject than the motivation that drives some random blogger?

My second response was a reaction to the absurd snap judgement that I may have no life outside my protest activities. I do have a life outside of Another Angry Voice. I write other, explicitly positive things, I enjoy spending time with my family, I find pleasure in countless other activities too, such as photography, reading, teaching, film, good music, swimming, darts... But the most important thing, is that I thoroughly enjoy what I do here too. 

Critical analysis and dissent against tyranny may seem like burdensome occupations to many, but to me, there are fewer more positive feelings than having applied one's own critical judgement to form a conclusion that is entirely one's own, rather than having simply adopted something learned, derivative or crudely synthesised. 

To learn something new is a pleasure in itself, but to develop one's own idea is a greater pleasure still. It is a joy to think for ourselves, rather than accept at face value what we are told by the media or by "experts" but it is also a positive thing to take action. Boycotting a company that is engaged in unethical behavior, writing a blog post, attending a protest or creating a "Facebook meme" are positive things too. If we do nothing and simply allow the corruption and injustice to go on around us unchecked, this leads to feelings of resentment and despair. By attempting (in whatever small way we can manage) to change things, these feelings of frustration, despair and resentment are somewhat alleviated.

From a purely personal point of view, critical analysis and dissent (as opposed to intellectual laziness and lethargy) are overwhelmingly positive activities. One of the fundamental factors in depression is a feeling of powerlessness; an inability to change one's circumstances. However before we change our circumstances we must first change ourselves. Instead of allowing ourselves to get stuck in a negative loop, where we blame our past circumstances for our present condition or despair at our powerlessness to change our current circumstances, we must give ourselves the cognitive skills to break out of it.

Instead of allowing ourselves to sink into the pit of despair, fixate on the negative or traumatic experiences of the past or our perceived powerlessness in the present, we must recognise when we are allowing ourselves to slip into unconstructive thought processes or self-destructive coping strategies (alcoholism, over-eating, drug use, self-harm, lethargy ...) and break out of it. This is easier said than done, but it is achievable, myself and many other sufferers of depression have developed techniques to snap out of our depressive thought patterns, cognitive over-ride switches, if you like.


Instead of focusing on the trauma of the past, or the injustice of the present, we must focus on something constructive. Instead of fixating on our problems, we must make a conscious decision to focus upon what we can enjoy in the present and what steps we can take towards changing the circumstances that drive us to despair. This brings us back to protest and dissent. I enjoy critical analysis, to me it is a positive and rewarding pastime, and even though I am unlikely to ever change the world dramatically, by expressing myself in order to criticise corruption and injustice and to explain what I believe to be right, I am making a difference. I am making a difference within myself and I am making a difference to the thousands of people that read and share my work.

I think the problem with "protest" is that so many people see criticism and dissent as inherently negative things. They assume that you must be a negative person to in order to complain so much. But to complain about corruption and injustice is not negative. Protest and dissent are not inherently negative things because to protest against tyranny, corruption and injustice demonstrates an optimism that things should, and could be better.

Another Angry Voice is a not-for-profit page which generates absolutely no revenue from advertising and accepts no money from corporate or political interests. The only source of revenue for Another Angry Voice is the PayPal donations box (which can be found in the right hand column, fairly near the top of the page). If you could afford to make a donation to help keep this site going, it would be massively appreciated.



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Tuesday, October 23, 2012

Why we should boycott Starbucks


The reason Starbucks should be boycotted is simple. Starbucks is an aggressive user of tax-dodging scams to avoid paying tax in the UK. The company has used the technique of siphoning all of their profits into subsidiary companies based in Switzerland and Luxembourg to ensure that they paid 0% corporation on sales of over £1 billion, over the last three years.

In 2012 they paid absolutely no corporation tax on sales of over £368 million and they have paid just £8.6 million in tax over the last 14 years, an effective rate of below 1%.

It is absolutely no wonder that they have managed to drive hundreds of small, independent, tax-paying family owned cafes out of business. They have had the massive, unfair advantage of not paying any UK tax on their profits.

The research into Starbucks tax-dodging activities was conducted by Reuters, you can read their full damning report here.


Starbucks are tax-dodgers, the schemes they have used to avoid paying their fair share of tax are legally allowable, but only because successive Tory and Labour governments alike have created and maintained gaping loopholes in the UK tax code. Any part of an anti-tax-dodging campaign should involve applying pressure on politicians to close the gaping tax-loopholes that companies use to apply a veneer of legal legitimacy to their immoral and anti-competitive practices.

Whatever the legal status of a particular tax-dodging scam, it is immoral to avoid paying tax in a country in which your company generates enormous revenues. Tax-dodging is immoral because it is a clear demonstration that a company is happy to benefit from the taxes other people pay in order to generate their profits, but they refuse to pay taxes themselves. To give a few examples.
Starbucks employees benefited from their education, from access to free healthcare, etc. Without these provisions, Starbucks would have to select their employees from amongst the diseased and illiterate. By avoiding tax, Starbucks are essentially saying that they are happy for others to keep their workers healthy and reasonably educated, but they won't contribute themselves.

The majority of Starbucks customers benefited from taxpayer funded infrastructure to even get there, roads built and maintained at taxpayer expense, the taxpayer subsidised rail network or London underground. By avoiding tax, Starbucks are essentially saying that they are happy for others to fund the infrastructure that contributes to their profit margins, but they won't contribute themselves.

Whenever a crime is committed in a Starbucks, the staff will call a taxpayer funded police force to deal with it. By avoiding tax, Starbucks are essentially saying that they are happy for others to fund the police that protect their property and their employees, but they won't contribute themselves.
Starbucks employees and customers pay tax. By avoiding tax, Starbucks are essentially saying that they are happy for their staff and their customers to pay tax on their part of transactions that occur as part of the Starbucks business, but they won't contribute themselves.
Starbucks should thank UK taxpayers for fact that their employees (often but not always) have basic literacy and numeracy and have been vaccinated against horrific diseases like polio and TB, they should thank the taxpayer that their customers are even able to get to their local Starbucks outlet, they should thank the taxpayer that their stores are protected by the police and fire services and they should thank their own staff and customers for making tax contributions. The best way for Starbucks to recognise the contribution of the taxpayer, is by paying their fair share of tax.

The second key argument against tax dodging a free-market argument. A free and fair market is dependent upon there being a level playing field so that competition can take effect. If one agent utilises anti-competitive practices, the playing field is not fair and the market becomes un-free.

If a state allows loopholes that can be utilised only by large multi-national corporations with a team of specialist tax lawyers and accountants and the ability to set up foreign based shell-companies, they are allowing corporate outlets a vast competitive advantage over small independent businesses. Small businesses that have no choice but to pay the standard rates of taxation. Once a state allows aggressive tax-dodgers this kind of cost advantage, it isn't long before the independents are eradicated from the market by the tax-dodgers. This is bad for the consumer, because they are left with less choice, it is bad for the government because they are left with fewer tax revenues from the sector and it is bad for the sector itself because the agents that have established monopoly or oligopoly positions have lower incentives to increase efficiency because their competition has been eradicated.

I believe I have established both the moral and the economic case to protest against tax-dodgers, but the most important measure of a protest isn't actually whether it is valid, but whether it can be effective.

It has been clearly shown that social media campaigns and boycotts can work, just consider the remarkable effectiveness of the Olympic tax dodge protest.

Since the Reuters investigation was published, their brand reputation has been significantly harmed. YouGov’s BrandIndex (which records brand identity strengths) has shown that Starbucks reputation has fallen from +4.6 to -3.99 in just a week and that their "buzz score", based on how many positive and negative comments customers have heard, has plunged from +0.7 down to a four year low of -13.9.

Sarah Murphy of BrandIndex said: “To say this story has been a disaster for the Starbucks brand would be a bit of an understatement. It’s still too early to say what the long-term impact of this is going to be, but in the current climate we’ve seen the public take a fairly dim view towards accusations of corporate greed".

This is why we must speak out against Starbucks tax-dodging activities and promote a Starbucks boycott. The only way these vast corporate enterprises will be made to listen, is by ensuring that their brand gets the maximum negative publicity, and that they are made to suffer financially. If 100,000s of their customers begin boycotting their stores, then perhaps they will be incentivised to pay their fair share of tax. 
 


Monday, October 22, 2012

Mixed Economy vs Neoliberalism, updated

This is an updated version of the original Mixed Economy vs Neoliberalism article, created for Facebook. 


For reasons of space I had to leave out the post-1979 explosion of personal and private sector debt, the erosion of civil liberties, the rise in police brutality, the massively expanded prison population, the rise in political and financial sector corruption and the destruction of the UK manufacturing sector.

This is the conclusion from the original article:

Although there were still plenty of political and socio-economic problems during the Mixed Economy period, I'd say that overall this basic comparison makes a convincing case for a return to the mixed economy.

However the ruling Tory led coalition are insistent that the bankrupt
pseudo-economic "greed-is-good" neoliberal show must go on and that ordinary working people are going to have to pay through the nose for the huge economic failures of the establishment's orthodox neoliberal ideology via deliberately stagflationary economic policies that further intensify the upwards wealth redistribution, whilst the financial sector elite laugh all the way to the (taxpayer subsidised) bank.

Sunday, October 21, 2012

Silly Ed and his austerity-lite speech



It seems that Ed Miliband is a hopeless Labour leader. The only thing that is keeping his party ahead in the polls is the Tory led coalition's combination of elitist venom and their abject incompetence (the "omnishambles" in popular parlance or "this dog of a government" as Tory grandee Norman Tebbit describes them).

The sheer scale of Ed's incompetence is perfectly illustrated by his poorly chosen words at the October 20th demonstration against Austerity in Hyde Park, London. There was so much wrong with his speech that
if I offered any kind of comprehensive criticism this blog post would swell to an enormous size so I'll stick to two criticisms, one criticism focuses on the sad rhetoric of austerity-lite, for which he was roundly booed, the other focuses on the cheap political points scoring, for which he was actually cheered by the partisan crowd.

I'll buzz through the partisan political point scoring comments first before getting to the more important austerity-lite comments. Having a dig at George Osborne's fare-dodging might get a cheer from the crowd, but as a stand alone argument is is actually quite weak. He should have said something along the lines of "Osborne's team can't even buy a train ticket properly, this surely reflects badly on their ability to run the economy of the entire country". 


Miliband got a few cheers for his lame digs at the general conduct of the Tory party but the political story of the day was surely the sight of a Labour leader getting roundly booed by a bunch of Trade Unionists, public sector workers, left-wing activists and Tory critics (people that should be an important part of the Labour demographic). Here's a transcript of what he said to provoke the boos and heckling.
"There will still be hard choices and with borrowing rising, not falling, I do not promise easy times. You know it's right that we level with people; that there would still be hard choices. I have said that whoever was in government now, there would be some cuts, but this government has shown that they're cutting too far and too fast. Self-defeating austerity is not the answer. It is not the answer to Britain's problems. We would make different, but fairer choices..."
One problem with this kind of approach is that millions of people don't want to hear austerity-lite from the Labour party, they want to hear a viable alternative to the ideological agenda of "cut, cut, cut". A much more obvious problem is that you will never be able to sell your austerity-lite agenda to a partisan crowd of anti-cuts protesters, no matter how much you dress it up as "levelling with them". It should have been absolutely obvious to Ed and his PR team that getting booed for using phrases like hard choices and some cuts would be a PR disaster. The Tories and the right-wing press were always going to attack him for even having attended the event, whilst anyone looking for a viable left-wing alternative would be given a clear moment of political drama to concrete the idea that Labour certainly isn't any kind of alternative to orthodox neoliberal pseudo-economics. What Ed managed to do by making an austerity-lite speech at an anti-austerity demonstration was to leave himself open to criticism from both sides of the political spectrum.

I'm not saying that Ed's idea of "levelling with people" and admitting that some areas of spending may have to be cut is a completely terrible one, in fact the poll results (that modern politicians put so much faith in) probably show that he may even get significant traction using it with a centre ground audience. However to a partisan anti-austerity crowd he needed to focus more upon the ideological nature of the Tory austerity agenda and present some of the concrete economic evidence that Osborne's austerity has driven the UK back into recession.


Firstly he should have presented the new evidence from the IMF that in the current economic climate, government spending is vastly more beneficial to the economy than it normally is. Secondly he should have presented the evidence from George Osborne's own brainchild, the OBR, that if the returns on government investment are as high as the IMF are claiming, then their research shows that the double-dip recession was actually caused by Osborne's austerity.

If you are unfamiliar with this new evidence (hardly surprising given the mainstream media have avoided it like the plague) here are a couple of articles to get you clued up on it.



What is... Fiscal Multiplication?

An entirely avoidable "Obsbornomic" recession

Next he needed to make the case that the continuation of austerity when the economic evidence (even from right-wing organisations like the IMF and the OBR) shows that it is damaging the UK economy would be an absolutely clear demonstration that these measures are not even intended to deal with the deficit, but actually form part of an ideological agenda to smash the welfare state and sell off the pieces. If the economic evidence says that these cuts have harmed, and are harming the economy, the continuation of these policies must therefore be ideological.

The problem is that Miliband's team seem to have completely missed the importance of the new economic evidence coming from the IMF and the OBR, and instead of nailing David Cameron to the wall with these damning reports during Prime Minister's Questions, a few days before this speech, he actually feebly allowed Cameron to repeat some time worn economic fallacies and even get some sly digs in at Labour's economic policy

Perceived economic competence is now the only area in which the Tories retain even a slight advantage over Labour and the way for Labour to remove this advantage is for them to change the assumption that indiscriminate austerity is necessary. This is the fundamental point Labour need to hammer home, and that Miliband should have made in his speech: 
The economic evidence (from the IMF and the OBR) demonstrates that austerity is far more destructive than the Tories had assumed, and in light of this new evidence, any attempt to continue with indiscriminate austerity must be considered an ideological, not an economic decision.
After presenting the evidence that Osborne's austerity is harming the economy, Miliband should have moved on to present what Labour should do instead; which should be to devise an evidence based policy on government spending. He should have told the crowd that Labour would actually increase spending on areas that can be shown to promote economic growth, (and provide positive social and environmental outcomes) whilst cutting spending and implementing reforms in areas that have demonstrably poor economic, social and environmental outcomes.

Thus the final conclusion should have been that the Tories are ignoring the evidence to push on with their socially and economically destructive ideological austerity agenda, whilst Labour are committed to instituting evidence based spending reviews to ensure that government spending provides the best possible value for money to the taxpayer.

That is the kind of message even a partisan crowd would lap up, but in reality it is almost exactly the same message as "hard choices" and "some cuts", only the choices wouldn't be "hard", because they would be evidence based and any cuts would be balanced out by increased spending in areas where the taxpayer gains significant returns on their investment.




See also


Don't let the orthodox neoliberal bullies win

Here's what to do when you come across someone trying to bully their way through a debate with their "expertise" on neoliberal pseudo-economic dogma.

After a lengthy debate in which an Hayek fixated, austerity loving, Tory apologist who likes to smear anyone that disagrees with orthodox neoliberalism as a communist (see the Mensch fallacy), in which he repeatedly tried to lecture me about the neoliberal pseudo-economic orthodoxy to which he subscribes, whilst completely ignoring all of the specific points I had been making, he came out with this little gem:
"As I suspected you don't understand economics, the market or basic human drives." - John Greenshaw
Here's my reply:
"John, your confirmation bias is the only thing supporting your assertion that I don't understand economics, markets or human drives. It seems I actually understand them a lot better than you.
Of course human drives are essential to economics and "the market", but trying to parse human drives down to rational self-interest to create trendy economic Darwinianism models has failed spectacularly, because human drives are (obviously) not as simple as pure rational self-interest.
Even if it were that simple, rational self interest is completely nullified by anti-competitive practices (cartels, monopolies, oligopolies, price fixing, subsidisation of failure, corruption) and rational self-interest can be truly catastrophic when information asymmetry comes into play.
If you don't regulate to prevent anti-competitive practices, human motivations can just go and screw.
The lessons we should learn from the catastrophic meltdown of neoliberalism are that:
1. When your models don't fit, change the models to fit the world, don't try to change the whole world to fit the models.
2. Mindless deregulation causes economic chaos, not the glorious free-market utopia the neoliberal pseudo-economists have convinced so many fools into believing.
3.When your neoliberal deregulation experiment comes crashing down, bringing the entire global economy down with it, governments (yes, the "evil state sector") are there to bail you out with £trillions in taxpayers' cash to keep your whole reckless, corruption riddled casino open for business.
Finally, don't accuse me of not understanding markets and then demonstrate your own seemingly very limited understanding, you're just embarrassing yourself."
The lesson from this is that you mustn't let orthodox neoliberals bully you in debate with their so-called economic "expertise". Remember that the neoliberal economic experts who demanded the financial sector be deregulated were the ones that enabled the financial sector recklessness that resulted in the neoliberal economic meltdown. What is worse, is that their beloved, rational self-interest based economic models abjectly failed to predict either the rise in financial sector greed and corruption due to self-interest, lack of deterrent  and moral hazard (exactly the kind of "human drives" that John finds so important) or the spectacular financial sector meltdown. 

When the experts these neoliberal apologists are citing are the very people that caused the largest financial sector meltdown in human history, you must take their pretense at "expertise" with a lorryload of salt.

It is important to remember that after the neoliberal economic meltdown, only the taxpayer, via the "evil" state sector remained standing to pump in enough cash to prevent systemic collapse. Anyone left still holding onto the "private good, state bad" idiom after that must either be wilfully blind or selfishly insincere. 

Neoliberal economics should have been utterly discredited by the financial sector meltdown, however there are so damn many orthodox neoliberals, with so much wealth riding on the neoliberalised system, that they will carry on promoting their neoliberal theories, even though they were completely and utterly invalidated when the state sector had to rescue them from the consequences of the reckless, over-leveraged, corruption riddled gambling spree that had enabled with their mantra of deregulation and absurd self-regulating market fallacies.

The orthodox neoliberals caused the economic crisis, yet the only solution they offer is more of the same, this time dressed up as austerity. They are a dangerous ideologically driven bunch and their destructive theories and assumptions must be countered. Hopefully this article has provided you with some ammunition to do it. 


See also