Pluralistic: 31 Aug 2021

Today's links

A chart labeled 'Savings rates across the within-cohort income and age distribution,' from Mian, Straub and Sufi's 'What explains the decline in r∗? Rising income inequality versus demographic shifts.'

Inequality, not gerontocracy (permalink)

The received wisdom among economists is that the US's historical low interests rates are driven by high savings by aging boomers who are getting ready for, or in, retirement.

The idea is boomers have salted away so much cash that banks don't bid for their savings, so interest rates fall.

But at last week's Jackson Hole conference, a trio of economists presented a very different explanation for low interest, one that better fits the facts.

In their NBER paper "What explains the decline in r∗? Rising income inequality versus demographic shifts," Atif Mian (Princeton), Ludwig Straub (Harvard), and Amir Sufi (Chicago) show how inequality, not demographics, is to blame for low rates.

The problem with the "boomers have so much in retirement savings that interest rates are low" theory is that boomers are incredibly unprepared for retirement. There's a small cohort – ~10% – of very well-off boomers sailing into their sunset years. The rest? Fucked.

It's true that boomers put in most of their working days before wage stagnation kicked in, that they paid hilariously low university tuition, and enjoyed low housing costs and substantial down-payment assistance from their New Deal-subsidized parents.

But! They also were the earliest cohort of workers that were forced to rely on gambling in the stock market for their pension, and their savings were eroded by multiple crashes that revealed them for the suckers at the poker table.

Their homes have hugely inflated values, but they're being liquidated to pay for eldercare, medical debt, and their kids' and grandkids' usurious student loans and otherwise unattainable down-payments.

So we can't really say that low interest rates are being caused by an aging population with high retirement savings, because while the US population is aging, it does not have high savings. Quite the contrary.

And, as Robert Armstrong points out in his analysis of the paper for the Financial Times, even in places like Japan, with large cohorts of retirees and near-retirees who do have adequate savings, rates are scraping bottom.

So why are rates so low? Well, the paper says it is being caused by high levels of savings – just not aging boomers' savings. Rather, it's the savings of the ultra-wealthy, the 1%, who are sitting on mountains of unproductive capital, chasing returns.

Making the rich richer is terrible economic policy. Wealthy people simply can't spend all their money – I mean, once Jeff Bezos has bought a superyacht for his superyacht and flown to space, he's still got hundreds of billions in the bank.

An Amazon warehouse worker's paycheck immediately enters the economy – it's spent on groceries, and if the grocer is a local smallholder (and not Whole Foods), that dollar is spent again, on school supplies. The local stationer spends it at the local mechanic, and so on.

Once a dollar disappears into Bezos's bank account, it is frozen in amber. No matter how many Subzero fridges Bezos fills with vintage Veuve, he'll barely dent his fortune.

Those dollars that pile up in the accounts of the wealthy are like oily rags piling up in the economy's garage. They can't be used for consumption, so they're pumped into assets, causing massive spikes in things like housing, raising the cost of living for everyone else.

But there aren't enough assets around to gamble on – not even after new, idiotic asset-classes like NFTs and freeport shipping-containers full of fine art hit the market – and so the savings pile up, depressing interest rates.

These low interest rates fuel more borrowing by the super-rich, who can take out loans at- or near-prime, making the money effectively free. These borrowed billions are pumped into asset markets, further inflating them.

Once the oily rags start burning, the flames blow out the economy's garage door, and more oxygen (cheap money) floods in and causes the blaze to burn higher and hotter.

Just like a fire can create its own weather system of lightning storms that start more fires, the oily rags the super-rich have filled our collective garage with also set off secondary crises.

That was made clear by Propublica's Secret IRS Files: low rates let the 1% evade nearly all taxation, by allowing them to borrow against assets (tax free) rather than liquidating them (taxed at 20%). So the rich get richer, and the rags pile higher.

Boomers may be richer than Gen X and Millennials on average, but only because the top 10% skew the average. The reality is that we are not in the grips of a battle for generational supremacy – rather, we're fighting a class war.

The rich – old, young and middle-aged – set the world on fire. High savings cause low interest rates, to be sure, but the savings – like all forms of wealth – are in the hands of the rich, not the old.

A giant robot hand holds a monkey wrench, a human is jumping for it.

Monopoly power and political corruption (permalink)

As antitrust awakens from its 40-year, Reagan-induced coma, there's both surging hope that we will tame corporate power, and a backlash that says that antitrust is the wrong framework for reducing the might of giant corporations.

Competition itself won't solve problems like digital surveillance, pollution or labor exploitation. If we fetishize competition for its own sake, we could end up with a competition to see who can violate our human rights most efficiently.

Even if we do care about competition, a lack of antitrust enforcement isn't the sole cause of concentration: patent abuse, DRM lock-in, criminalizing terms of service violation and other anticompetitive tactics suppress rival market entrants, but don't violate antitrust.

But I'm here to say that a lack of antitrust enforcement is the way to understand the source of harms like environmental degradation and labor exploitation, AND anticompetitive tactics like copyright abuse.

To explain why, I've published a new editorial for EFF's Deeplinks, called "Starve the Beast: Monopoly Power and Political Corruption."

Here's my core thesis: monopolized industries have high profits, which they can spend to legalize abusive conduct.


Monopolized industries also have a small number of dominant companies, which makes it easier to agree on a lobbying agenda.

In other words, when an industry is reduced to just a handful of companies, they have more ammo and it's a lot easier for them to agree on their targets – deregulation, expansions of proprietary rights, and regulatory capture.

Which is why monopoly begets monopoly! Remember the Napster era, when tech had almost no lobbying muscle and got its ass routinely handed to it by the much smaller entertainment cartel, who were represented by a handful of wildly profitable companies with lobbying armies?

Tech was disorganized and dynamic, with today's giants becoming tomorrow's also-rans, more concerned with fighting each other than inter-industry rivalries.

Today, with the web reduced to five giant sites filled with screenshots from the other four, it's easy for tech leaders to agree on a common agenda, and they have So. Much. Money. to spend on lobbying to make it reality.

Think of the absolute tsunami of fuckery the telco industry unleashed to kill net neutrality, from sending 1m anti-net neutrality comments that purported to come from Pornhub employees (!) to having those comments counted by the world's most captured regulator, Ajit Pai.

A still from former FCC chair Ajit Pai's notorious anti-Net Neutrality video; Pai is wearing a Santa suit, clutching a super-soaker and a fidget-spinner, and wearing plastic and cardboard 3D glasses.

That was an expensive war, and the way Big ISP was able to afford it was because it uses regional monopolies to screw customers and workers and amass a vast warchest of lobbying dollars – and because the industry is composed of so few companies that they can all agree.

If we want to smash corporate power and free our lawmakers and regulators to do the people's business, without the corrupting influence of a flood of corporate money, we have to starve the beast. Corporations deprived of monopoly profits can't afford to lobby.

What's more, if we demonopolize our industries – smashing the oligopolies of 1-5 companies that dominate ever sector – so that each industry is a squabbling rabble of hundreds of companies, they won't be able to agree on how to fuck us over anymore.

Critics of Big Tech antitrust are right that it's not enough to attack Big Tech. If we demonopolize tech without smashing the rest of its supply chain – ISPs and entertainment – then those monopolists will divide Big Tech's share among themselves.

But that's not a reason to leave Big Tech alone. That's a reason to expand the antitrust agenda to every industry, to treat the fight against tech monopolies as the start, not the goal, as a way to create momentum for smashing monopolies in every sector.

We can't afford another mistake like the one that led to the passage of 2019's EU Copyright Directive, with its Article 17, a rule set to destroy every small EU tech platform and replace them with a Googbook-dominated filternet with our lives at the mercy of copyright bots.

During that fight, advocates for creative workers made the mistake of assuming that by advocating for entertainment monopolies against tech monopolies, they'd improve their own lives.

That's not how it works.

The only way to improve labor's side of the bargain is to make capital weaker. Allowing Big Tech to consolidate its position by exterminating all EU competitors in exchange for sending a few billion to Big Content will not make creative workers any richer.

Rather, it makes both industries' monopolies stronger, and further weakens creative workers' leverage over corporate entertainment behemoths, guaranteeing that virtually all the windfall profits from the Directive will go to shareholders, not workers.

The world deserves better than being allowed to choose which giant, abusive corporations we support in inter-industry battles – none of the giants give a shit about us, except as human shields for their own battles.

For workers, users, learners and others to come out ahead, we don't need to pick the right source of corporate power to ally ourselves with. We need to shrink corporate power – all corporate power – until it fits in a bathtub.

And then drown it.

This day in history (permalink)

#15yrsago Sony BMG settles Canadian rootkit class action

#15yrsago Bag Lady Syndrome: women’s anxiety about being poor

#1yrago Bayer-Monsanto is in deep trouble

#1yrago Hard Wired

Colophon (permalink)

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