26/10/18: De-democratization of our values?

Do you, my friends love that smell of napalm in the mornings? Does it fill you with confidence about the future - your own and that of the rest of the world? For if you do answer 'Yes' to both of these questions, congratulations: you've made it into the American values (on average).

Here is the data from Pew Research on public trust in institutions:

Source: http://www.pewresearch.org/fact-tank/2016/10/18/most-americans-trust-the-military-and-scientists-to-act-in-the-publics-interest/ft_16-10-18_trustinstitutions_overview/.

Democratic cornerstones of political leadership and the media are trusted by less than 50 percent of the Americans, 27 percent to 41 percent. Command & control institution of the military is trusted by 79 percent. Scepticism over coercive power and centralized counter-democratic system based on rank-command trumps all the softy stuff. even educators are more trusted in the settings involving more deterministic decision-making (e.g. medical sciences and sciences) than in more polemical setting (e.g. general education).

But if you thought European are all softy-dofty democratically minded, think again. In fact, there is not much of difference between the American population and the European ones on the same topic:

Source: http://www.pewresearch.org/fact-tank/2018/09/04/trust-in-the-military-exceeds-trust-in-other-institutions-in-western-europe-and-u-s/.

Yes, yes, I hear you, the choir of Patriots: but in a democratic society, military is subject to democratic checks and balances, so why is this degree of confidence in military a matter for concern?

Let me explain why:

• Firstly, irrespective of the democratic or other checks and balances, military is not a pluralist institution that encourages debates, inquiries, and discoveries through dissent. In other words, while military may be framed into the broader democratic constraints, it cannot by itself be a genuinely democratic institution. There is no democracy in command systems. 
• Secondly, to anyone pontificating on democratic checks and balances, may I suggest revisiting the entire modern history of the U.S. to identify exactly at what point in time did democratic checks and balances imposed onto military do their jobs before the damages were incurred? In Vietnam? Nope. In multiple military engagements in Latin America? Nope, again. In the Balkans? Not really. In Afghanistan or Iraq? Not at all. 

Thus, in real terms, checks and balances do not define a democratic set of values that put strong public preference in favour of the military ahead of much weaker preferences in favour of the immediate democratic and pluralist institutions, such as politics, media, business, education.

What is happening, thus, as revealed by the above data, is the strong drift in public preferences away from democratic and liberal foundations of our modern states and toward more command and control, more coercive power-based institutions, such as military. To paraphrase one semi-failed leader of the past: it's public values de-democratization, stupid.

23/5/18: American Exceptionalism, Liberty and... Amazon

"And the star-spangled banner in triumph shall wave
O'er the land of the free and the home of the brave!"

The premise of the American Exceptionalism rests on the hypothesis of the State based on the principles of liberty.

Enter Amazon, a corporation ever hungry for revenues, and the State, a corporation ever hungry for power and control. Per reports (https://www.aclunc.org/blog/amazon-teams-law-enforcement-deploy-dangerous-new-face-recognition-technology), Amazon "has developed a powerful and dangerous new facial recognition system and is actively helping governments deploy it. Amazon calls the service “Rekognition."

As ACLU notes (emphasis is mine): "Marketing materials and documents obtained by ACLU affiliates in three states reveal a product that can be readily used to violate civil liberties and civil rights. Powered by artificial intelligence, Rekognition can identify, track, and analyze people in real time and recognize up to 100 people in a single image. It can quickly scan information it collects against databases featuring tens of millions of faces, according to Amazon... Among other features, the company’s materials describe “person tracking” as an “easy and accurate” way to investigate and monitor people."

As I noted elsewhere on this blog, the real threat to the American liberal democracy comes not from external challenges, attacks and shocks, but from the internal erosion of the liberal democratic institutions, followed by the decline of public trust in and engagement with these institutions. The enemy of America is within, and companies like Amazon are facilitating the destruction of the American liberty, aiding and abetting the unscrupulous and power-hungry governments, local, state and beyond.

11/1/18: Physical Mobility and Liberal Values: The Causal Loop

One of the key arguments relating the decline in the Millennials' support for liberal democratic values to socio-economic trends, identified in our recent paper on the subject (see Corbet, Shaen and Gurdgiev, Constantin, Millennials’ Support for Liberal Democracy Is Failing: A Deep Uncertainty Perspective (August 7, 2017): https://ssrn.com/abstract=3033949) is the argument that reduced socio-economic mobility for the younger generation Americans (and Europeans) is driving the younger voters away from favouring the liberal economic system of resources allocation.

In this context, here is an interesting piece of supporting evidence, showing how the rates of physical migration across the states of the U.S. have declined in recent years - a trend that pre-dates in its origins the Great Recession: http://www.latimes.com/business/la-fi-declining-domestic-migration-20171227-story.html.

In basic terms, two sets of factors are hypothesised to be behind the declining mobility in the U.S. and these can be related to the broader theses of secular stagnation:

• On the demand side of the secular stagnation thesis, as the article linked above states, "social and demographic factors such as an aging population and declining birth rates; older people tend to stay put more and starting families often motivates people to go out on their own";
• On the supply side of the secular stagnation thesis, "The decline in mobility is due partly to what has become a less-dynamic and fluid American labor market, some economists believe".

Note: I explain the two sides of secular stagnation theses here: http://trueeconomics.blogspot.com/2015/10/41015-secular-stagnation-and-promise-of.html.

On balance, these are troubling trends. Jobs churn has been reduced - by a combination of structural changes in the American economy (e,g. rise of corporatism that reduces rates of new enterprise formation, and lack of new business investment), as well as demographic changes (including preferences shifting in favour of lower mobility).  But there are also long-term cyclical factors at play, including rampant house price inflation in recent years in key urban locations, and the significant growth in debt exposures carried by the younger households (primarily due to student debt growth). There is also a structural demographic factor at work in altering the 'normal' dynamics of career advancement in the workplace: older workers are staying longer in their positions, reducing promotional opportunities available to younger workers. Finally, the rise of low-security, high-volatility types of employment (e.g. the GigEconomy) also contributes to reduced mobility.

In simple terms, lower mobility is a symptom of the disease, not the cause. The real disease has been ossification of the U.S. economy and the continued rise of the status quo promoting rent-seeking corporates. Lack of dynamism on the supply side translates into lack of dynamism on the demand side, and the loop closes with a feedback effect from demand to supply. 

20/7/17: U.S. Institutions: the Less Liberal, the More Trusted

In my recent working paper (see http://trueeconomics.blogspot.com/2017/06/27617-millennials-support-for-liberal.html) I presented some evidence of a glacial demographically-aligned shift in the Western (and U.S.) public views of liberal democratic values. Now, another small brick of evidence to add to the roster:

The latest public opinion poll in the U.S. suggests that out of four 'net positively-viewed' institutions of the society, American's prefer coercive and non-democratic (in terms of internal governance - hierarchical and command-based) institutions most: the U.S. Military and the FBI. as well as the U.S. Federal Reserve. Note: the four are U.S. military, the FBI and the Supreme Court and the Fed are all institutions that are not open to influence from external debates and are driven by command-enforcement systems of decision making and/or implementation. Whilst they serve democratic system of the U.S. institutions, they are  subject to severely restricted extent of liberal checks and balances.

Beyond this, considering net-disfavoured institutions, executive powers (less liberty-based) of the White House are less intensively disliked compared to more liberty-based Congress.

27/6/17: Millennials’ Support for Liberal Democracy is Failing

New paper is now available at SSRN: "Millennials’ Support for Liberal Democracy is Failing. An Investor Perspective" (June 27, 2017): https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2993535.


Recent evidence shows a worrying trend of declining popular support for the traditional liberal democracy across a range of Western societies. This decline is more pronounced for the younger cohorts of voters. The prevalent theories in political science link this phenomena to a rise in volatility of political and electoral outcomes either induced by the challenges from outside (e.g. Russia and China) or as the result of the aftermath of the recent crises. These views miss a major point: the key drivers for the younger generations’ skepticism toward the liberal democratic values are domestic intergenerational political and socio-economic imbalances that engender the environment of deep (Knightian-like) uncertainty. This distinction – between volatility/risk framework and the deep uncertainty is non-trivial for two reasons: (1) policy and institutional responses to volatility/risk are inconsistent with those necessary to address rising deep uncertainty and may even exacerbate the negative fallout from the ongoing pressures on liberal democratic institutions; and (2) investors cannot rely on traditional risk management approaches to mitigate the effects of deep uncertainty. The risk/volatility framework view of the current political trends can result in amplification of the potential systemic shocks to the markets and to investors through both of these factors simultaneously. Despite touching on a much broader set of issues, this note concludes with a focus on investment strategy that can mitigate the rise of deep political uncertainty for investors.