Global Current Issues and Trends: June 2018
Total US nonfarm payroll employment in May rose by 223,000 and after revisions, gains in March and April were 15,000 more than previously reported. After these revisions, the average job gains were 179,000 over the past 3 months. The national unemployment rate fell to 3.8%. In 2016, job gains totaled 2.2 million, compared with 2017 job gains totaling 2.1 million, indicating the strong ending and a stronger start to 2018. Unemployed persons edged down to 6.1 million or 772,000 persons. This steady performance might be jeopardized as Trump’s tariff increases on steel and aluminum and further threats trigger reprisals or if cuts occur to legal immigration or if productive young DACA residents are ever deported from the USA. Trump’s decision to backslide on the Paris Climate agreement, see “Climate Risking the Trump Brand” had little effect on the COP23 Climate Summit in Germany. However, since the G20 Hamburg Summit, July 7-8, 2017 Germany’s Angela Merkel and France’s Emmanuel Macron are now viewed as leaders of the free world and President Xi of China is recognized without term limits as a leader of the world’s second most powerful country. Trump’s unorthodox behavior vis-à-vis Russia can now be seen in light of recent revelations and his debts to Deutsche Bank and that he was also negotiating to build a Trump Tower in Moscow since 2015. Further global uncertainty involves uncertainties around the upcoming meeting between President Trump and North Korean leader Kim Jong Un. South Korea’s rapprochement with North Korea after the successful diplomacy during the Olympic games and brought this opening of direct talks between the USA and North Korea. However such talks are a win for China whose views will predominate. The announced “decertification” of the Iran nuclear accords by Trump seems largely due to his National Security Adviser John Bolton. This will have an unknown effect on Trump’s meeting with Kim Jong Un, as well as a destabilizing effect on the other 5 nations who are staying in the agreement and may tempt Iran to resume its nuclear program.
The US labor force participation in February shrank to 62.7 indicating a still diminished labor force. While the official unemployment rate is 3.8%, it fell to 5.9% for African Americans, and Asians to 2.1% while adult women fell to 3.3% . GDP growth in Q1 of 2018 was 2.2%. In the fourth quarter of 2017 GDP rose by 2.9%. Labor market statistics are notoriously subject to revision. The number of unemployed was at 6.1 million people but with 378,000 discouraged workers while the employment-population ratio fell rose to 60.4%. We expect the Fed to continue to raise US interest rates slightly and gradually. Wall Street is continuing to absorb the Fed’s long-awaited gradual rate increases from zero in 2015, watching Jerome Powell, new Fed chairman.
The markets rally after Trump’s electoral college victory continued, with tax cuts priced in but uncertainties over the new tariffs causing a spike in volatility. Expectations are on hold on his infrastructure plan which we critiqued in “Greening Trump’s Infrastructure Plan”. The tax cuts are minimal for most voters while benefiting donors and corporations. Widening investigations of Russian hacking have become the focus in Washington together expectations of better relations with North Korea and news of continuing Russian spying on US electoral processes. The Electoral College instituted by US founders to keep small states, some slave-owning, in the Union met December 19th 2016 to confirm Donald Trump’s electoral win over Hillary Clinton’s almost 3 million popular vote advantage. The Republican Party is facing its own internal disputes with many congressmembers not seeking re-election and after recent White House changes and departures. Republican donors worry about trade wars but continue funding including from gun-loving hedge fund billionaire Robert Mercer and others. Many in the US, Europe and in worldwide polls are concerned over Russia’s hacking and Trump’s style. (“Concern Over Trump’s Tweets Grow”). The cultural change over revelations of unfair treatment of women in their workplaces and the “Me Too” movement may yet bring real reforms.
Continued growth forecasts and market optimism persist despite debt levels and global weakness which could be expected in 2018, due to Europe’s refugee crisis, Brexit, US political uncertainty, still-turbulent oil markets in spite of OPEC’s pledge to cut production. Yet markets see a brighter outlook in spite of complacency over sky-high valuation. Wall Street still hopes for infrastructure spending and a boost from the tax cuts seen as “QE4” but ponders Trump’s trade and climate policy. Many misunderstand China’s stock market. These global markets still often resemble casinos as investor Joel Solomon discusses in the “The Clean Money Revolution” (2018). They are dominated by index funds, ETFs and models focusing on narrow groups of “fashionable” stocks, all of which drives up excessive valuations while ignoring the broader market. These markets are not reflective of the real economies in the USA. They are now faced with new regulations under the EU, see “Who’s Afraid Of MiFID 2: Fixing Wall Street’s Broken Plumbing”. As well as the General Data Protection Regulation (GDPR) affecting social media giants. Payrolls changed little: average hourly earnings were $26.92 while the average for non-supervisory private sector was $22.59. Market players now focus more on wage growth, while up 2.7% since 2017 and rising, it is still on its inadequate historic trend of 2.5% annually with the average work week unchanged at 34.5 hours.. Many across all political ideologies, are now recognizing that this wage growth is key to maintaining aggregate demand.
Financial markets are still avoiding real world risks of water shortages and climate change as I reported in Risks! What Risks?. Central banks’ tools are exhausted as I discussed in Ben Bernanke and Milton Friedman Were Right: Helicopter Money or Qualitative Easing? and many calls for governments to step up with fiscal spending, particularly on infrastructure were echoed by the OECD. Financiers and media reporting daily roller-coaster volatility are still ignoring the destabilizing role of computers, algorithms and high-frequency trading’s many “flash crashes” and the need for Reforming Electronic Markets and Trading, now an official UN document. This UN Inquiry covered the disruptions to traditional finance by fintech and IT startups in which Ethical Markets participated (see my “FINTECH; The Good and Bad News for Sustainable Finance”). New threats on social media giants Facebook, Google and Twitter of Russian fake news and propaganda, as well as terrorist sites were examined by both Houses of the US Congress in 2017 and continue as the scandals of data breaches and misuse of Facebook users’ personal information by Cambridge Analytica come to light. Cambridge Analytica, funded by hedge fund mogul Robert Mercer, with Steve Bannon on its board, declared bankruptcy on May 2, while its US-based holding company replicated its activities with launching five similar new companies for such psychographic targeting of citizens.
The USA economy is still unevenly shared as I note in “Facing Up to Inequality”. The economy is still the top worry of voters as well as the growing inequality gap between Wall Street and Main Street, with these anxieties still drive much of the debate. For example, they are concerned as to what extent corporations are fair as found in the survey by JUST Capital founded by hedge fund executive Paul Tudor Jones, who announced recently that his firm will lower its fees. Just Capital’s 100 Leading Companies, 2018. Job losses from automation and global outsourcing are dwarfed by economic concentration as big companies merge, driving small businesses into bankruptcy. Such concentration has cost the average worker $14,000 in pay over the past 30 years. Amazon alone is responsible for the loss of 150,000 jobs since 2006. Rising sea levels in South Florida concerned the The Palm Beach Post, showing picture of water-logged roads around Trump’s Mar-a-Lago and other properties on this “billionaire’s row”. Bloomberg reported that pessimistic owners are selling to optimists. This augers losses of jobs and population in Florida. The new scientific report on climate change mandated by Congress affirms human activities driving the still rising levels of CO² in the Earth’s atmosphere. See: 2017 EPA Government Climate Change Indicators.
It has been difficult to find information on government jobs, but they are now included in the main BLS summary. Changes in government jobs are key to understanding the state of the economy. Total government jobs in May 2018 were estimated at 22,326,000. As FEMA and other local government’s tackle the devastation of hurricanes Harvey and Irma and Maria in Puerto Rico and the Virgin Islands these jobs may increase as the 2018 hurricane season commences this June. We report on these government jobs to correct misstatements by some politicians that “government doesn’t create jobs – only the private sector creates jobs”. Political uncertainty in Congress and the unprecedented political shifts among voters will likely continue through 2018. The Economist report on May 26, 2018 cast doubt on the use of Household Surveys since response rates are plummeting. Trade issues are in focus for voters and both parties acknowledge the plight of those dis-employed by corporations offshoring jobs, as well as US trade deficits. The goods and services deficit in March was at $49 billion, down by over $8 billion; exports were $208.5 billion up by $4 billion, and imports were $257.5 billion, down by $4.6 billion. Beyond off-shoring, jobs losses via automation are a growing concern, discussed in our TV program Robot’s Taking Over: What Will Humans Do?
The politicization of the Supreme Court after the death of Justice Anton Scalia with the Senate seating Neil Gorsuch by changing its rules, remains unprecedented. The deeper issues remain as discussed in Time To Re-Balance The Corporate-Friendly Supreme Court and Aligning the Supreme Court with the US Constitution. Further adverse consequences beyond gridlock are continuing unrest across the USA over the degraded public election debate influenced by Russian hacking now confirmed by 17 U.S. intelligence agencies, fake news, police brutality and shootings of unarmed African American citizens, unresponsive legal systems as well as Trump’s contested travel bans – all damaging the USA’s reputation worldwide. Trump’s erratic policy proposals, executive orders, tweets and phone call are widely reported internationally. The USA lag in internet access and broadband ranks the USA at 28th worldwide behind many emerging economies. (See also my “New Trends in Globalization”)
Public debates turn to job outsourcing which Trump vowed to end by withdrawing from the Climate agreement while his tariffs may hurt farmers and some workers. Trump has taken credit for many companies’ previously announced job creation and for bonuses after the tax cut—ignoring that most companies will use their tax windfall to buy back share and raise dividends. Such anecdotal stories of companies cannot substitute for overall economic policy. Meanwhile wages for middle class families still need to close the gap between most workers and the 1% winners. California became the first state to raise the minimum wage to $15 an hour. The some ten percent of Americans who gained from the stock markets rise were doing well with financial activities and professional, technical and business services adding 23,000 in May and 206,000 jobs over the past 12 months. The rest who rely on lower-wage jobs in the real economy for their income had their spending constrained. Job growth has shifted to healthcare which added 29,000 jobs in May after 24,000 jobs in April, following 22,000 in March. Healthcare added 305,000 jobs in the past year after adding 379,000 jobs in 2016. Job cuts if Obamacare is ever fully repealed are estimated at some 900,000, with many rural hospitals closing. Now the individual mandate is gone, undermining the program, more proposals for single-payer and “Medicare for All” are emerging in The American Prospect, Jan. 2018. Demand for restoring purchasing power to minimum wages was widely supported even in the “red” states for the White House increase to $10.10 an hour. A survey of the US public in October by JUST Capital found majorities supporting better pay and conditions for US workers. Seattle became the first city to offer $15 an hour in June. So far Los Angeles and New York City have followed suit.
Mining sector jobs increased by 6,000 jobs in May, growing by 91,000 since October 2016 mostly in support services. While this reflects global commodity prices, some mining activities such as coal are phasing out as with the bankruptcy of coal companies including giant Peabody. As we at Ethical Markets point out with our EthicMark® GEMS standard, global gem mining is now obsolete and unnecessary since science now creates cultured diamonds and other gems in laboratories in many countries, as also reported in The Economist, July 1, 2016 and NPR, December 1, 2016. De Beers reported a 32% decline in its diamond sales in 2015 and announced in May that it too will begin selling cultured diamonds. The human and environmental hazards of mining gems are recognized in several UN resolutions on “blood diamonds,” while Russia recently dumped a large quantity of mined diamonds – tanking the global market, as documented in “Beyond Bloodstained Gems: New Science and Standards”.
Consequences of budget cutting and “austerity” are seen in the job losses we have witnessed in Europe. The US tax cut lowering corporate rates to 21% is now followed by Republican calls to cut safety nets and so-called, “entitlements”. These tax rate cuts have already kicked off a new “race to the bottom” as other countries cut their rates to compete “Trump Just Kicked Off a Global Tax War”, AlterNet, Dec. 2017. The migrant crisis is forcing EU decision-makers to choices about the costs of absorbing these refugees fairly in member countries or a loss of solidarity in the EU itself. Many British voters still express remorse on Brexit as well as much consternation in the EU. Concern grows in Europe over Russian hacking and political interference in the Brexit vote as well as in the election of Emmanuel Macron in France and re-election of Angela Merkel in Germany and in recent Italian elections. In Austria and France, as well as the Netherlands, voters rejected right-wing candidates while they gained ground in Germany. The populist turmoil in Italy rattled the euro and bond markets. Enthusiasm for the EU was rekindled by France’s election of Macron and his alliance with Angela Merkel of Germany, reflected the rise of the euro v. the US dollar, see “Can Finance Save the World?” France passed laws in 2018 requiring Facebook, Twitter, Google and other social media sites to monitor fake news and hate speech or be fined, similar to the EU-wide GDPR rules now in force. Unilever announced that it would have to pull its ads from social media unless reforms were made. The US Congress hearings in 2017 auger similar laws in the US and possibly “Restoring Net Neutrality” on Internet providers, as both Houses voted in May to overturn the FCC ruling and restore net neutrality.
The wage gap in the US continues, fueling the national debate on inequality and that among professional economists over Thomas Piketty’s Capitalism in the 21st Century, which concludes that this inequality is endemic and requires global taxes on wealth (Pikettymania, cover of Businessweek, June 2, 2014). TIME’s former business editor, now with the Financial Times, Rana Foroohar’s Makers and Takers (2016) overviews details on how Wall Street is now preying on businesses on Main Street rather than serving them. Donald Trump’s promise to “drain the swamp” of special interests in Washington, has become the butt of jokes as “the Trump Swamp”. The Trump administration and its cabinet members largely insiders with many Wall Street billionaires are accused of multiple conflicts of interest, corruption and violation of the Emoluments Clause of the US Constitution.. Advisorsi'[/\ with “America First” views on trade Peter Navarro and immigration advisor hawks Stephen Miller and Chief of Staff John Kelly remain.
Even IMF chief Christine Lagarde focused on inequality back in her September 2014 speech at Georgetown University and in July repeated her urging of EU countries to re-structure Greece’s un-repayable debt and now that of Italy. More realistic approaches include those by business leader/economist Peter Barnes in With Liberty and Dividends for All which calls for user fees on exploitation of all commonly owned resources: e.g., air, water, the electronic spectrum and rebated to all citizens-owners as dividends.
Unemployment stands at 6.1 million people still with 4.9 million part-time workers looking for fulltime jobs and 378,000 discouraged workers no longer counted in the unemployment rate of 3.8%. New debate concerns whether the “sharing economy” (Task Rabbit, Mechanical Turk, Uber, Lyft, et al) can provide decent jobs or whether it will lower wages, since its “freelancers” accept these part-time jobs along with uncertain hours, no benefits or security. Such companies are less about sharing and cooperation and more about extending and re-organizing labor markets in what is now called the “gig economy”. Recent books make such critiques: Throwing Rocks at the Google Bus (Rushkoff, 2016) and Raw Deal (Hill, 2015) which I reviewed in www.SeekingAlpha.com. Self-employment remains a growing trend, with many unemployed people preferring to remain independent, often home-based consultants or joining such social, office-sharing sites as WeWork. Meanwhile, many of these Silicon Valley startups and the lofty valuations of the “unicorns” are now slipping and with many which went public trading well below their IPO prices. The bitcoin bubble and its speculators and miners now use 23 terawatts of fossil electricity annually—adding to CO2 levels; see “Hey COP23: Bitcoin Miners Exploding CO2 Emissions!”. There are now over 1,500 cryptocurrencies listed in Coinbase, some like Ripple issued by Goldman Sachs competing with bitcoin discussed in Marc Strauch’s Report for us on the “Future of Money and Technology” conference, San Francisco December 2017.
Policy wonks and statisticians set of revisions announced back in July 31, 2013, and back cast to 1929 have begun accounting for the evolution of the US economy from manufacturing to services. The US Bureau of Economic Analysis (BEA) finally entered the 21st century. GDP now includes much of the intangible production and services which make up over 70% of mature 21st century economies: software, R&D, entertainment, trademarks, copyrights, design and other creative innovation. The BLS now breaks out employment in Information Technology, such as computer services. Back to the July 31, 2013 report from the BEA, US GDP then rose 1.7% (with the revised accounting method adding 0.41% of the total). Italy and Britain now inflate their GDP growth by including prostitution in Services! So far, the shifts of these intangibles from “costs” to “investments” is slight. At last, The Economist weighed in on the deficiencies of GDP, offering its own somewhat improved GDP-Plus. Better late than never! Still not included is the most important investment all societies make in their future: education, still categorized as an “expense”! With student debt now at over $1.2 trillion and too few jobs available, many are now opting for online courses now exploding as MOOCs offer free access. Ethical Markets now provides its free MOOC at www.ethicalmarketsexploratorium.com for global citizen activists and lifelong learners.
The Senate Republicans in Congress succeeded in disrupting ObamaCare in their tax legislation and cut reimbursements to Planned Parenthood for its general health services already rendered to patients in poverty. Budget cuts favored by Republicans fall across the board from the State Department to vital public health services as well as our most vulnerable, politically less-influential citizens. We will need to balance the Trump-Bannon agenda backed by hedge fund mogul Robert Mercer to cut “the deep administrative state” and balance further government job cuts with hopefully more gains in the private sector. Ethical Markets 2018 update of the Green Transition Scoreboard® focuses on “Capturing CO2 While Improving Human Nutrition & Health” while finding a total of $9.3 trillion now invested in green sectors worldwide since 2007. Our report in 2017 Green Transition Scoreboard® “Deepening Green Finance”. Earlier reports cover Energy Storage & Batteries and in the 2016 report on “Ending Externalities: Full-Spectrum Accounting Clarifies Transition Management”. Other reports have focused on the growing market for green bonds, as reported in the Institutional Investor, September 2014. The February 2015 report focused on the UN’s Sustainable Development Goals (SDGs) now ratified by its 195 member countries. Current cumulative total of private investments in green sectors tracked worldwide since 2007 now is $9.3 trillion, indicating that the global green transition is now unstoppable. As more cuts in government jobs are deemed necessary by Republicans, the need to continue growing new jobs in renewable energy, smarter infrastructure and cities as well as in R&D and education will be critical. The official unemployment rate of 3.8% shows the number of unemployed persons at 6.1 million is still too high. Climbing out of the 2008 financial crisis where GDP dropped by 9% has proved to be the long climb back most analysts expected. As President Obama left office he provided Trump with a sound economy and healthy job growth. Few can acknowledge a key problem: the US domestic money supply, which is created by banks’ lending and securitization, has shrunk. Since our money is created by private banks when they make loans, “Money Is Not Wealth: Cryptos v. Fiats!” after 2008, lending dried up and securitization of loans which had ballooned during the housing bubble collapsed. Today, hedge funds are buying up foreclosed homes and renting them at high rates and beginning a new round of securitization of these rental incomes into backing more bonds. Congress began in 2016 investigating the huge spike in drug prices and the role of hedge funds and lack of competition. As hedge funds entered Puerto Rico to take advantage of its financial crisis, they were renamed “hedge-hogs”. Clearly, since the devastation of hurricane Maria, and the May estimate of deaths at over 4,000. President Trump opined in his controversial visit to Puerto Rico in early October 2017 that the former debt would need to be “wiped off the books” — causing bond-holders to panic. Many private efforts are installing distributed solar panels in many rural areas including Barrio Solar founded by our Advisory Board member, physicist, Fritjof Capra, Co-author of the “Systems View of Life”.
The 2009 $789 billion stimulus (mostly individual tax cuts, infrastructure and help to states) did create and save over 1 million jobs along with 1.1 million saved in the auto company bailouts as reported in The New New Deal. The money supply shortfall remained which former Fed Chair Ben Bernanke recognized in his QE1, QE2 and other unusual measures of taking toxic assets onto the Fed’s balance sheet. At last, mainstream critiques offering alternatives appeared in Foreign Affairs, September/October 2014, urging direct QE with stimulus cash to citizens rather than banks. Now many central banks talk of “helicopter cash” as Milton Friedman recommended as the fastest, most effective stimulus as I describe in “Bernanke and Friedman Were Right: Helicopter Money or Qualitative Easing?”. New efforts in many countries to bolster purchasing power and aggregate demand with basic incomes emerged, after the success of Brazil’s “Bolsa Familia” in bringing 40 million out of poverty (Brazil’s Antipoverty Breakthrough, Foreign Affairs, Jan/Feb 2016) . The current crises in Brazil over endemic corruption and losses in GDP-measured economic growth obscure the country’s natural capital riches and creative human energies. Recognizing such opportunities Britain’s top financial minister announced along with Brazilian bankers, the issue of green bonds to expand solar and renewable resource: Initiative Climate Bond. Like most Republicans, Bernanke’s reliance on the textbook “trickle down” model gave almost free money to the big banks at the Fed’s discount window which never trickled down to Main Street. Instead, the old theory failed to account for the globalization of finance and that the banks sent most of the QE’s new money into asset bubbles offshore, some creating jobs in China and Brazil, while much ended up in speculation on European bonds, derivatives, commodity ETFs, rising food prices and unwanted asset bubbles in BRIC countries. Lawyer Ellen Brown analyzes all this in her Even the Council on Foreign Relations Is Saying It: Time to Rain Money on Main Street. The head of Britain’s Labour Party, Jeremy Corbyn now advocates a similar “Peoples QE.” Positive Money published “A Green Bank of England” in May 2018. Providing purchasing power to stimulate aggregated demand has now produced a new global movement for universal basic incomes (FORBES).
A computer model links speculation to food price spikes, (“The Economics of Curbing Speculation in Food”). Former Fed Chair Janet Yellen brought a slightly broader view beyond the domestic economy, looking at the global effects of the strong dollar on emerging economies. Meanwhile, domestic savers in the USA still suffer from low to zero or negative real interest rates as now in several EU countries. This view outside the economics box is now provided by IMF head Christina Lagarde and in my analysis of “Abenomics” in Japan at the Crossroads. Unorthodox policies continue in the US administration, for example Trump’s Mar-A-Lago Club, where members’ dues were raised to $200,000 annually is still the favored venue for many official visits and no records are public on these or on those to the White House. The upcoming meeting between the US and North Korea leaders, will be supported at last, by the new US Ambassador in South Korea. The large number of State Department professionals departures have left our diplomatic forces depleted, as described by Ronan Farrow in “War Against Peace” (2018). The progress at the UN COP 21 Climate Conference in Paris now ratified and in effect after COP23 in Bonn, Germany in December 2017 was ratified by the G20 in Hamburg, July 2017, ignoring the US withdrawal. This augers the end of the fossil fuel era, but cannot prevent more mega-storms like Harvey, Sandy, Bohpa and Haiyan, both of which hit the Philippines or the increase in droughts and wildfires. Whatever the price of oil, mostly used in transport, demand continues flat due to the spread of electric vehicles “Assessing Risk of Fossil Reserves”. The UN Summit on Climate Change in New York City in 2017 and all subsequent summits continued to see citizens marching peacefully for progress on climate change, similar to the larger, women-led demonstrations in cities worldwide, on January 21st, 2017. The global cryptocurrencies craze is adding to CO2 emissions, as I reported in “Hey COP23: Bitcoin Miners Exploding CO2 Emissions!”
The SDGs ratified in the UN General Assembly, New York, in September 2015, at which Pope Francis spoke, usher in the new paradigm of sustainable development beyond money-denominated GDP growth, reinforced by the UN Inquiry’s report The Financial System We Need. During COP21 in Paris, December 2015, Ethical Markets co-hosted events with HELIO International on their new indicators, HIFI which fits well with our 2015 Green Transition Scoreboard® Report. The World Economic Forum 2018 Report on Global Risks goes beyond financial risk models to look at the real risks our human family faces, such as water shortages. We welcomed President Macron’s “One Planet Summit” in Paris, December, 2017, where leaders in all sectors pledged to accelerate shifting from fossilized sectors. Billions of green bonds for renewable energy and more efficient sustainable futures are now issued worldwide. The new: Transition Risk-O-Meter and Drawdown offer concrete plans for 2018 and beyond, following French President Macron’s, “One Planet Summit” with further pledges by institutional investors and heads of state attending.
The Fed’s planned ending of bond purchases and gradual interest rate hikes reveal economic confidence in the USA despite continued domestic and global uncertainty, currency volatility and unresolved issues, particularly over China, the world’s second largest economy and Europe. Financial markets are now dominated by algorithmic high-frequency trading on electronic platforms and dark pools beyond the eyes of regulators. The EU’s MiFID2 reforms began on January 3. 2018. Ethical Markets expert seminar on “Reforming Electronic Markets and Trading” debated these issues in New York, Nov. 3, 2014, and its report launched in Washington, DC, January 2016, now an official document in the UN Inquiry’s report. The Inquiry was taken up at the G20 meeting in Beijing, with China in the lead, endorsing green finance. Additional Inquiry studies, particularly of fintech and its disintermediation of traditional finance will continue for 2018. www.unepinquiry.org
The ECB is keeping its interest rate low and its own brand of quantitative easing – to the delight of global markets and likely to continue due to uncertainties over Italy’s future. Many EU bonds and banks now join in offering only negative interest rates. Ellen Brown looks at the implications in “Hang Onto Your Wallets: Negative Interest, the War on Cash, and the $10 Trillion Bail-in”. Italy’s populist parties vow to increase employment and tackle the stagnation of austerity. Cyprus’ problems in 2013 produced the most radical bail-out plan, focused on haircuts to bank depositors as well as their equity-holders (“It Can Happen Here: the Confiscation Scheme Planned for US and UK Depositors”). This has resulted in a 2-tier euro – as well as the flight to volatile bitcoins and many other cryptocurrencies and other digital forms of payment, as described in The Age of Cryptocurrency (2015) and many alternative investments, including farmland and forests in developing countries, and the growth of crowdfunding. My overview of these trends at the Family Office Forum in Zurich, as well as in Singapore in December 2017 is available in these videos Family Office Forum- Zurich, Family Office Forum-Singapore.
Britain’s central bank President Mark Carney announced that climate change is a key world issue and that many reserves of fossil fuels will not be burned and need to be written down. This has shifted asset allocation models and augers the mainstream shift to low-carbon economies. As we explained in “Assessing Risk of Fossil Reserves” we advocate re-classifying fossil reserves a “feedstocks” for future use in plastics, construction and materials, so that they remain valuable and in the ground unburned. Meanwhile, the IMF estimates global subsidies to fossil fuels now tops earlier estimates at $5.3 trillion. Lord Adair Turner, Britain’s former preeminent financial regulator, in Between Debt and the Devil called for an end to allowing private banks to create the nation’s money supply at interest and recommended this vital function should be returned to Britain’s public treasury (video). This debate reached the British House of Commons in November 2013 and a civic coalition called for “Transforming Finance” January 2015. In the USA stock markets rise and incomes stagnate and companies continue to hoard cash. Tax avoidance by “reversions” of US companies relocating in other countries remains a hot issue, and new rules by the US Treasury may be a curb on these practices. Will central bankers rethink theory-induced blindness in their “trickle down” policies and focus on the real economies? Deeper reforms of finance are needed as exposed recently by Michael Lewis in Flash Boys (2014), as earlier in Broken Markets, Dark Pools and Bailout. These were discussed at the conference “Fixing the Banking System for Good” at the Philadelphia Federal Reserve, April 2013, and at the annual conference of the Public Banking Institute, June 2013. Ethical Markets expert seminar in New York City on “Reforming Electronic Markets and Trading” was reported on CSRWire.
Former US FDIC chair Sheila Bair, author of Bull by the Horns, joined former UN Secretary General Ban Ki-moon in announcing support for a financial transactions tax of well below 1%, to help curb high-frequency trading, also advocated by Independent Bernie Sanders to fund higher education. This echoes growing calls in eleven EU countries, including Germany, France and pension funds in France and Holland. A bill in the US Congress called for a financial tax for all US transactions as well. In January 2013, the European Union approved a 0.1% financial transaction tax for member countries. The focus as a “cancellation fee” targets high frequency traders who place thousands of orders each millisecond then cancel most of them immediately. These taxes can curb this speculation and help raise some $400 billion annually for public needs. Pushback by banks and the mainstream financial press continues. Meanwhile, market-based approaches to reforming HFT such as the IEX platform continue to gain volume and new investors, while its application to the SEC as a national exchange was initially opposed by incumbents NYSE, NASDAQ and other big players. Ethical Markets and our allies supported IEX before the SEC, in its authorization approval in 2016. (See our comment). A new standard for electronic trading was launched by KOR Group, LLC, in September, the Best Execution Accreditation (BestEx), whereby broker-dealers eschewing the “maker-taker” kickbacks for placing their clients’ order flow can claim their higher ground practices (www.ethicalmarkets.com). KOR Group founded the non-profit, Healthy Markets (www.healthymarkets.com ) and Ethical Markets have linked their sites.
The G20’s 2016 meeting in China boosted interest in the transition to green finance continued in 2017 as more investors accepted the new model of sustainable development beyond the mismeasurement of “growth” perpetuated by GDP. This still causes mis-pricing of sovereign bonds, energy, food and most goods due to externalizing of social and environmental costs and business models still based on “profits” based on passing on such unrecorded costs to taxpayers and future generations as “externalities”. My Mapping the Global Transition to the Solar Age: from Economism to Earth Systems Science critiques economics from wider scientific research and calls for cranking into financial models all our new knowledge from Earth-observing satellites. In company accounting, better models are provided by SASB and IRRC. The UNEP global inquiry on designing financial markets for long-term sustainability steered by a high-level advisory group of global financiers, government and business leaders will now continue its excellent research and global networking of best practices. The Chartered Institute of Management Accountants (CIMA) focuses on values and the six forms of capital: financial, built, intellectual, social, human and natural. They will measure the performance of companies by the extent to which they enhance or degrade all six forms of capital. www.cimaglobal.com
Measuring societies’ “progress” beyond GDP became a hot topic at Rio+20, and Ethical Markets’ 2013 “Beyond GDP” survey by Globescan in eleven countries, co-sponsored by the Institute for Chartered Accountants of Britain and Wales (ICAEW) and Tomorrow’s Company (www.tomorrowscompany.com), followed the 2007 and 2010 results in continued finding of wide majorities favoring addition of indicators of health, education and environment (www.ethicalmarkets.com) released May 2013. The Inclusive Wealth Index (IWI) devised by the UN University, the International Human Development Program and UNEP, while advancing considerably beyond GDP, suffers from too much baggage from obsolete economics: relying on prices and willingness-to-pay, while acknowledging their inaccuracies due to “externalities.” The Social Index from Harvard’s Michael Porter ignores infrastructure, employment, income and wealth, national security and recreation, which are all covered in our Ethical Markets Quality of Life Indicators originally launched in cooperation with the Calvert Group in 2000. Most economists fail to examine the deeper problems with price systems, inflation, money-printing and the politics of money-creation and credit allocation – arguably deeper sources of un-sustainability in global financial systems (see the Transforming Finance statement).
A useful overview of the issues relating to GDP and comparisons with other indicators is the BrainPool Project, funded by the European Commission, concluding that a “quality of life” approach is likely to find acceptance, confirming the three surveys by Globescan for Ethical Markets (2007, 2010, 2013) mentioned earlier. Other approaches such as “happiness”, “wellbeing”, and “welfare” were less accepted. “Beyond GDP: Measuring and Achieving Global Genuine Progress” Ecological Economics vol. 93, 57-68, covers similar issues.
Another early effort is London-based new economics foundation’s Happy Planet Index (HPI), which has garnered much publicity and helped focus on the need to correct GDP. Launched in 2006, The UK Office for National Statistics covers broader changes in living standards, Dec 2017 and the Gross National Happiness measured in Bhutan has captured the imagination of millions and received widespread publicity, including at the UN and Rio+20. However, “happiness” is open to widely different definitions, is subjective and culturally-biased, while being appropriate for a small Buddhist nation. The approach chosen by the Canadian Index of Wellbeing (CIW) (I serve on its Advisory Board) measures outcomes, an approach we take, as well as avoiding aggregation of the many “apples” and “oranges” aspects of well-being into a single index. The Ecological Footprint, a well-researched, science-based approach used by the WWF in its Living Planet Index, is now the pre-eminent measure of ecological systems and is employed in the HPI along with official life-expectancy statistics. Our Ethical Markets Quality of Life Indicators, pioneered by Calvert and Hazel Henderson, cover 12 unbundled indicators “dashboard” mounted on the web platform launched in 2000. This “dashboard” model is now the preferred approach of the OECD’s Better Life Index and in measuring progress toward the UN Millennium Development Goals (MDGs), pioneered by statistician Jochen Jesinghaus.
The debacles of 2008 reinforced the need for higher capital reserves and deeper reforms at the TBTF banks as I and D. Wayne Silby, founder of the Calvert Group, remark in our “End TBTF: Some Skin Please!” Bi-partisan passage of the Jumpstart Our Business Startups (JOBS Act) in 2012, after delays at the SEC, is continuing to democratize access to capital as we report on crowdfunding with many websites used by small investors. The new support for the US Postal Service and debate may relieve it from onerous financial burdens to pre-fund health insurance imposed by Congress in 2006. Without these burdens, the US Postal Service shows a profit and is up-dating its services. Many groups share my view and that of Ralph Nader which support allowing the Post Office to expand its services to include savings accounts as in many OECD countries. The US Postal Service Inspector General’s whitepaper on “Providing Non-Bank Financial Service for the Underserved” (Jan. 27, 2014) is a pragmatic look at how US post offices can expand to serve millions of Americans without bank accounts, as in Japan and many European countries.
Ethical Markets focuses on the new green sectors growing unnoticed by Wall Street and mainstream media’s fossilized asset allocation models. The idea of returning to plain vanilla “public utility” style banking is promoted by the Public Banking Institute, and the model of state-owned banks like the Bank of North Dakota is catching hold in 14 states. The oil-shale boom has turned to bust in North Dakota still requiring huge public spending on schools, services and infrastructure. The state’s earlier sound performance was due to its public bank (“North Dakota Economic Miracle: It’s Not Oil“).
Since my Creating Alternative Futures: The End of Economics (1978) now republished on the University of Florida’s Digital Library and on our MOOC, I have long explored the entire range of distortions that make GDP a perverse measure of US progress. TIME’s article agrees, pointing to our Ethical Markets Quality of Life Indicators and others including the United Nations Human Development Index (HDI). In CSRWire “GDP: Still A Grossly Distorted Picture” (June 5, 2013), I show how GDP can mis-price sovereign bonds of Greece, Ireland and Portugal by omitting their real wealth: educated workforces, efficient infrastructure and productive ecosystems all count for zero in GDP. As mentioned, better measures of human progress are gaining mainstream media attention: the excellent Canadian Index of Wellbeing (CIW) at www.ciw.ca and the report in Spirit Level (2010) by British researchers Richard Wilkinson and Kate Pickett linking equality with quality of life within and across countries. They find that countries with the most equal income distribution (by GINI) have the largest socially and politically prosperous middle class while unequal countries do worse on most quality of life indicators (www.equalitytrust.org.uk).
UK economist Mariana Mazzucato points out that most of the patents underpinning Google, Facebook, Microsoft, Amazon were funded by US taxpayers through the Small Business Administration, National Science Foundation and other agencies, The Entrepreneurial State (US edition 2015). The “hollowing out” of US manufacturing has continued for two decades at the behest of global corporations and their investment bankers. President George H. W. Bush famously held that it did not matter whether the US manufactured computer chips or potato chips, while President Bush II’s chair of the Council of Economic Advisors, Gregory Mankiw, maintained that outsourcing was good for American workers who could take their severance pay and 401Ks and become day traders on the stock markets. In spite of the growing protests in America’s streets, and the rise of populism most politicians, corporate leaders and their academic advisers don’t get it. People see movies like The Big Short and watch money being printed on TV and their signs from left to right say “Where’s My Bailout?”
Conventional measures of output per capita masked this technological unemployment as beneficial “increases in productivity” for decades, as we have pointed out. Two books now illuminate this issue further: Who Owns the Future by Jaron Lanier, and Race Against the Machine by Erik Brynjolfsson and Andrew McAfee. Happily, the movie “Inside Job,” documenting economists’ conflicts of interest, won an Oscar and the University of Massachusetts now exposes these ethical lapses.
A revealing look at these issues is A Demon of Our Own Design (2007) by former hedge fund manager Richard Bookstaber and Fools Gold by Gillian Tett of the Financial Times showing how financial engineering of ever-more exotic swaps, derivatives, options, etc., are themselves adding to market instabilities worldwide. Another market institution, the Depository Trust and Clearing Corporation (DTCC) has a backlog in handling the huge volume of derivatives trading. Much of the volatility on Wall Street is due to high-frequency trading as we reported, and the failure of these exotic “quant” models and the need for hedge fund managers to sell assets to cover margin calls from their bankers. Yet other challenges to Wall Street’s conventional wisdom are the best-seller The Black Swan, by veteran options trader and mathematician Nassim Nicholas Taleb, and Lecturing Birds on Flying by Paulo Triana, who critique risk assessment models used by investors and banks. I made similar critiques of such models as Value At Risk (VAR) used so widely that unanticipated events could lead to system-wide crises in The UN: Policy & Financing Alternatives which I co-edited (Elsevier Scientific, UK, 1995, 1996).
Meanwhile, behind all the headline numbers, average wages for non-supervisory workers have remained stagnant for decades and many deeper structural problems in the USA go unaddressed. The growing green economy worldwide is overlooked by Wall Street’s obsolete asset-allocation models dominated by the fossil fueled sectors (see my The Sustainability Sector at www.seekingalpha.com). The growing gap between rich and less affluent citizens is still worrying Democrats and Republicans – but their concerns offered the familiar remedy: more GNP-based economic growth.
For more on the current trends in US and global finance and economics, visit ethicalmarkets.com and browse the categories on Beyond GDP, Reforming Global Finance, Green Prosperity and Trendspotting. For discussion of solutions, visit ethicalmarkets.tv and browse the Ethical Markets series Transforming Finance, distributed globally to colleges at www.films.com.