Income Inequality and Financial Crises

An article from the New York Times: "Income Inequality and Financial Crises".

New technologies, the rise of speculative capital, the polarization of wealth ("income inequality" sounds a bit gentler) are all correlative, and arise together in the hothouse of capitalism. And speculative capital can have a small stabilizing effect, or a major destabilizing one if the sloshing of speculation gets so intense as to spill over into a systemic collapse.

The NYT article referenced above is interesting in that it observes the correlation in the first place, and goes the liberal next step: Poverty isn't just bad for poor people, having lots of poor people around is bad for rich people at a big, system-wide level.

The article is a bit skimpy on how such a causal relationship works.

(The article refers to the mortgage / housing crisis, and here is how the polarization of wealth contributes to financial crises: companies take on more risk, to maintain profitability, by reaching into increasingly impoverished markets, helped along by new technologies that support spreading risk via electronic trading markets. The underlying poverty is unable to sustain the structure, and then it comes tumbling down.)

jd

Computers. Again.

Here are two almost completely unrelated stories (they do both involve computers though):

The First Church of Robotics: A column by Jaron Lanier (remember "virtual reality" anyone?), about the fetishization (or religification) of computers and robots, criticizing the devaluation of thought that takes place when people talk about "artificial intelligence," and reminding us that we "must instead take responsibility for every task undertaken by a machine and double check every conclusion offered by an algorithm, just as we always look both ways when crossing an intersection, even though the light has turned green."

And a much different piece, Market Data Firm Spots the Tracks of Bizarre Robot Traders: The rise to dominance of speculative capital has only been possible with the electronic infrastructure. This article peeks at one strange corner of the world of trading that takes place entirely within interconnected computer systems. Looking at the trading patterns of the bizarre bots graphed out, I wonder if the bot designers are really just using the bots as pencils, to see what kinds of clever patterns they can sketch on their market canvas?


jd

57,000 monkeys

Here is a link to a Pretty Neat New York Times article:

In a Video Game, Tackling the Complexities of Protein Folding

Basically, someone turned a software application that looked for ways to fold proteins into a video game, so humans could take a crack at folding strategies. Understanding how long amino acid chains fold into proteins is important to understanding the functions different proteins play. (Or something I like that.)

Two things stand out for me: One, humans saw shortcuts and efficiencies that the automated algorithms missed, and brought creativity to the strategies. Two, the Internet provided the infrastructure to allow 57,000 people to do that, together, meaning 57,000 different minds could bring their perspectives and problem-solving skills to bear on the puzzle-like folding action.

jd

College Inc.

The PBS series Frontline aired a deep investigation of for-profit higher education last May, called College Inc. The tagline from the website gives an accurate hint of the show: "Investigating how Wall Street and a new breed of for-profit universities are transforming the way we think about college in America..."

An important element of capitalism always has been the hunt for new sources of profit. The confluence of many factors (economically necessary, technologically feasible) has driven capitalism-in-the-age-of-electronics to gnaw at the public sector, to pull previously public activities into the Value relationship. That is, to turn it into a Commodity in the Marxist sense, of something exchanged in the market on the basis of the socially necessary labor it took to produce it, and therefore a new source of profit. In the process of becoming a commodity, the Law of Value kicks in, which precipitates the necessity of driving down production costs or extending the market or ... to maximize profitability. That's something of how a Marxist analysis would go, and, well, the shoe seems to fit very well in this case. (For definitions, etc. see this exploration on Value)

The sketchy steps:

1. The massive transitions in production, in the economy, obsolesce old skills and old activities. Workers are driven to develop new skills to continue to participate in the economy (i.e., to survive).
2. Workers must work on one job while trying to train for something better; or feel compelled to re-tool on their own dime to keep the job they have. This means going to school after work or on weekends.
3. Starve the public sector. The existing non-profit, state-supported institutions, particularly community colleges, cannot meet the needs of everyone who wants an education.
4. New technologies arise that make distance learning and online learning a practical possibility.
5. Wall Street (or investors or finance capital) is always on the lookout for new sources of profit.
6. Entrepreneurs sort out the details: snatch up accreditations from struggling non-profit schools to provide a veneer of respectability, install sophisticated data centers and hire cheap adjunct faculty to deliver instruction, aggressively market their services to a desperate market, charge almost six times the tuition of a community college, and get federal government to subsidize student loans.

Students become debt-slaves in yet another way, and the loans become another large pool of debt ripe for securitization. It feeds speculative capital. Total outstanding federal loans are over $500 billion, with an additional estimated $125 billion in loans from the private sector, and the private sector role is growing much much faster (see CNBC, America's Biggest Types of Personal Debt).

The Frontline show covers all this, not exactly in the same way, but in a much more entertaining way.

jd