Saturday, October 23, 2010

Gambler’s Psychology among Bankers Demands Tight Regulations

Dr Paul Crosthwaite, an academic at Cardiff University, has found that the bankers who brought the global economy to its knees two years ago may have enjoyed the sensation of losing hundreds of billions of pounds and plunging the world into recession. He argues such catastrophic losses can give some people masochistic pleasure.

He thinks financial crises, such as the “Black Monday” crash of 19 October 1987, the bursting of the dotcom bubble in the spring of 2000, and the credit crunch that entered into its most intense phase in the autumn of 2008 with the nationalization of banks in the UK, US, and Europe, demonstrate the innate urge for self destruction that Sigmund Freud called the “death drive”. A full blown crash is a source of euphoria as much as despair. Dr Crosthwaite said:

Economists and financial policymakers must recognize that investor psychology is far more complex than their models have allowed up to now. They need to take much greater account of psychological factors such as emotion and desire, which affect how market actors behave in profound ways.

His research challenges the conventional economic thinking that investors are wholly rational, and always pursue whatever is most likely to increase their own wealth, a rarely questioned assumption that is the basis of the free, minimally regulated market of standard capitalist thinking. In fact, financial markets are disposed to crisis because participants seek excess for thrills as well as their assumed betterment. Bankers and financiers take risks not only for high returns, but to get a gambler’s high.

Dr Crosthwaite says this research strengthens the case for firm regulation of banks and other financial institutions:

To avoid a repeat of the great recession, it is vital that policy makers and regulators limit the capacity of financial professionals to engage in excessive practices by curbing the disproportionate levels of risk that we’ve seen in the financial sector in recent years.

Media Manipulation of the Poor Prevents Wealth Redistribution

Nate Kelly, a professor of political science at the University of Tennessee, Knoxville, and Peter Enns of Cornell University studied of economic inequality and public views of government redistribution programs by analyzing hundreds of thousands of responses to survey questions from 1952 to 2006.

The results are very revealing about the mentality and conditioning of poor Americans, and poor Americans certainly now includes a large chunk of people who like to consider themselves as middle class! One would imaging that people struggling in hard economic circumstances would appreciate government assistance, but they do not in the US. Kelly found:

When inequality in America rises, both the rich and the poor become more conservative in their ideologies. It is counterintuitive, but rather than generating opinion shifts that would make redistributive policies more likely, increased economic inequality produces a conservative response in public sentiment.

As the rich get richer and the poor get poorer, both oppose government welfare programs. At present, in the US, governments cannot act to change inequality. As Obama is finding out, the poor even oppose measures that help them! Poorly off subjects, asked if they thought the government spent too much money on welfare, inevitably replied “yes”, and still do even though inequality over the last few decades has zoomed in the US.

This isn't because are unaware. They know about the huge wealth differences in the US. The reason is, the authors conclude, because the elites, political leaders and media moguls, distract and shape public opinion. In good economic times the media focus on individual achievement, and so the poor resist government programs. But in bad economic times, the media emphasize government welfare programs as handouts, and no one likes a self image of being a beggar or a hobo down on their luck. Kelly observes that:

What is clear from our work is that the self reinforcing nature of economic inequality is real, and that we must look beyond simple defects in the policy responsiveness of American democracy to understand why this is the case.

He means, of course, that leaders like Obama who would like to redistribute the huge inequalities in US wealth have not been utterly lacking in the US, but the US propaganda machine is so successful that too many people just cannot bring themselves to admit they would welcome it. They are conscious enough about their own poor circumstances, but simply do not realize how the US media manipulate them. Obama and anyone equally public minded are bound to lose until poor Yankees realize the rich and their media are pissing on them from a great height!

Wednesday, October 20, 2010

The Poor are Generous: the Powerful are Stingy

Derek D Rucker, David Dubois, and Adam D Galinsky of the Kellogg School at Northwestern University conducted five experiments where they examined how much their subjects spent on purchases for themselves then others. They meanwhile used various methods to condition subjects’ sense of power by assigning them as a boss or employee in a role play, or asking them to remember a time when they possessed or lacked power, or showing them advertisements suggesting power or lack of it.

After doing these conditioning tasks, subjects participated in an auction where they made bids for a t-shirt and a mug. One group had to bid for the item for themselves, while another group had to bid for the item for someone else of their choosing.

When subjects were bidding for an item for themselves, those conditioned to feel powerful bid an average $12.08, whereas those conditioned to feel powerless only bid $6.49. In contrast, when they were bidding for an item for someone else, the subjects conditioned to feel powerless bid an average $10.81, while those conditioned to feel powerful bid $7.10.

Over the whole series of five experiments, these results were consistent. People feeling powerful were generous to themselves but mean buying presents for others. People feeling low in power were generous to others and mean with themselves. Plainly status is accompanied by a psychological attitude towards others, power with selfishness, and weakness with generosity.

In actual societies, the weak are more likely to have to depend upon others, and equally others who are also weak are more likely to have to depend upon them. Poor, weak people are therefore more generous. Wealthy, powerful people have no need to depend upon others, but feel the need to hang on to their wealth and power, though they have enough to spare!

Note that the Christian incarnated God, Christ, said the poor were blessed, meaning they would enter God's Kingdom, like the poor beggar, Lazarus, but the rich, like the wealthy Dives, would end up begging to the poor in heaven from the fires of hell!

Monday, October 18, 2010

It is Time We Removed Inequality

Robert H Frank, an economics professor at the Johnson Graduate School of Management at Cornell University, wrote in the New York Times about the present financial crisis, comparing it with past times and using a new survey.

Incomes in the US rose at about the same rate, almost 3 percent a year, for all income levels in the three decades immediately after World War II. Prosperity extended across the whole population, irrespective of class. The country's infrastructure of highways, railroads, dams and bridges were well maintained, and new industries in communications, electronics and airlines were growing.

In the last three decades the economy has grown only slowly, infrastructure is decaying, and many people have trouble finding adequate work because industry is floundering.

Moreover the change in circumstances has not been evenly distributed. The share of total income going to the top 1 percent of earners, which stood at 8.9 percent in 1976, rose to 23.5 percent by 2007, but during the same period, the average inflation-adjusted hourly wage declined by more than 7 percent. The rich have been getting richer ever more quickly while the poor and the squeezed middle classes have remained static or lost out. The situation is plainly unfair and antisocial by any standard.

Societies must be founded on a sense of fairness and justice even if they are not unquestionably fair. The people of the US have been ready to tolerate a degree of unfairness in income and wealth distribution providing that they felt they had a chance of joining the wealthy by dint of personal effort, and proving that living standards generally improved because a large number of people were working in concert to build a better country. In short, providing that income was not distributed unfairly to a minority of the already rich while everyone else struggled.

Frank notes that the founder of modern capitalist theory, the Scot, Adam Smith, who wrote Wealth of Nations, the capitalist's bible, peppered it with trenchant moral analysis. He was, after all, a professor of moral philosophy at the University of Glasgow.

Yet rising inequality has created enormous losses and few gains, even for its ostensible beneficiaries, the mega rich class, who now have reason to worry that social instability will ruin them, if it is allowed to develop further. In any case, increasing riches alone never improves overall happiness once people have sufficient not to feel insecure. All that happens is that they notice that others are just as well off, and they then want another increase. Everyone wants to keep up with the Joneses, but these people are already loaded!

Frank reveals that he and two co-workers have found that the US state counties where income inequality grew fastest also showed the biggest increases in symptoms of financial distress. Even after controlling for other factors, counties with the biggest increases in inequality had the largest increases in bankruptcy filings, and also reported the largest increases in divorce rates, divorce rates being reliable indicator of financial distress.

Families short on cash will try to make ends meet by moving to where housing is cheaper, usually farther from work. So, long commute times are another footprint of financial distress, and the counties where commute times had grown the most were those with the largest increases in inequality.

Even basic public services are no longer being properly maintained because of the persistent objection the rich have to paying their proportionate share of taxation. Rich and poor alike endure crumbling roads, weak bridges, an unreliable rail system, and insecure cargo containers, and many Americans live in the shadow of poorly maintained dams that could collapse at any moment. The right wing lobbyists and their academic parrots say nothing can be done, and most advocate policies like tax cuts for the wealthy that put the burden on the poorest in society.

There is no compelling evidence that greater inequality bolsters economic growth or enhances anyone’s well being. The rich remain a minority, though they hold a majority of the country's dollars. They can buy bigger mansions and host expensive parties, but it will not keep the majority employed and adequately compensated, and in any case the wealth of the rich is mainly invested abroad in places like China and India where the best rates of return can be had, and the exchange rate offer a hedge against losses. Then again the obscene bonuses wall street bankers and brokers pay themselves attract the most intelligent graduates, leaving vital sectors like industry, science, technology and engineering devoid of creative talent—and bang goes any competitive advantage we might expect to have in the future. Yet, any grifter can learn how to gamble in junk bonds but not how to succeed in science or engineering, or even in proper good stock picking.

No one dares to argue that rising inequality is required in the name of fairness. John Rawls in his theory of justice as fairness (A Theory of Justice) though inequality was only justifiable when the poor were nevertheless getting wealthier, albeit maybe not as quickly as the wealthy. So we should agree inequality is a bad thing, and do something about it.

In the UK, Professor Greg Philo suggested that the top 10% should pay a one off tax of 20% of their wealth. It caused some outcry, but surprisingly, a lot of wealthy people were willing to do it. They were the ones who realized it would be far worse if social unrest got so bad, especially if it were worldwide, as is the financial crisis, that all of their wealth might be threatened by social instability. They knew that the one off payment, though substantial, would repay itself if we got into a new ers of financial stability as a consequence. Their remaining investments would soon grow to pay back the lost 20%. Though the short sighted greedy rich would moan like hell until the benefits came through, everyone would end up happy.

Sunday, October 17, 2010

Fox News and Conservative Talk Radio Promote False Beliefs

A survey of 750 Americans showed that people who relied on Fox News for their information were more likely than others to know four rumors about the New York City mosque—all of which have been refuted—and to believe them. Survey participants were all asked to rate how much they relied on various media outlets for their news. They were also asked whether they heard any of the rumors and if they believed in them.

The rumors were that:

  1. the proposed center is scheduled to open on September 11, 2011 in celebration of the 10-year anniversary of the World Trade Center attacks
  2. Feisal Abdul Rauf, the Imam backing the proposed Islamic cultural center and mosque, is a terrorist sympathizer who refuses to condemn Islamic attack on civilians
  3. the Muslim groups building the center have deep ties to radical anti-American and anti-Semitic organizations
  4. the money for the center is coming primarily from foreign financial backers associated with terrorist organizations.

The results showed that people who said they relied on Fox News, either online or on television, were more aware of rumors about the mosque and were more likely to believe the rumors though they were untrue than those with low reliance on Fox. An average respondent with a low reliance on Fox News believed 0.9 rumors on average, while an otherwise average respondent with a high reliance on Fox believed 1.5 rumors—an increase of 66 percent. Respondents who relied heavily on CNN or NPR believed fewer false rumors, the study found. High reliance on CNN reduced the number of rumors believed by 23 percent, while heavy use of NPR reduced belief by 25 percent.

Erik Nisbet, assistant professor of communication at Ohio State University, conducted the study with R Kelly Garrett, assistant professor of communication at Ohio State. All the comparisons were made while holding constant other variables, such as education, party affiliation, ideology, and other media use. Garrett said:

Our analyses demonstrate that the relationships we found aren't just a side effect of some other characteristic, such as political ideology or party affiliation. These results suggest that even a well-educated, liberal Democrat would be more likely to believe the rumors, if he relied heavily on Fox for his news.

Reliance on conservative talk radio had a similar effect on users as did Fox News. Those with a heavy reliance on conservative talk radio heard on average two rumors, compared to 1.5 rumors for those with a low reliance—an increase of 33 percent. People who relied heavily on broadcast television news—ABC, CBS or NBC—were less likely to have been exposed to the rumors. Heavy reliance on those sources was linked to a 22 percent decrease in rumor exposure compared to those with low reliance on those outlets. Broadcast news placed less emphasis on the mosque controversy than did the cable news outlets.

People who said they relied heavily on newspapers for their news (either print or online) increased their exposure to rebuttals by 67 percent when compared to people who relied little on papers. These rebuttals were shown to strongly promote accurate knowledge about the rumors.

The best way to get accurate information about the proposed Islamic cultural center seemed to be newspapers, according to the study. Nisbet noted that it was not just because newspaper readers are more attuned to politics. Comparing people who paid similar attention to the mosque controversy, those who read newspapers still had greater exposure to the rebuttals. Nisbet said:

This is one of the unique contributions of newspapers in the media landscape. When you consider that newspaper readers are more likely to be exposed to rebuttals of false information compared to other media outlets, it is worrying that newspapers in general have been struggling. It is something we should be concerned about.

The findings suggest that among those who believed none of the four rumors, two-thirds are opposed to the proposed project. But that increases to 82 percent among those who believed three or more rumors. Even more dramatic is the effect that belief in these rumors has on support for mosques outside of New York. Predicted opposition to building of a mosque in the respondent's own neighborhood increased from 39 percent among people who believed none of the rumors to 63 percent among those who believed three or more of the rumors. Nisbet observed that:

These rumors have a negative effect well beyond the specific controversy in New York City. They seem to shape attitudes about Muslims and their role in our society, no matter where we live. That's a big concern.

The survey was designed to focus on how differences in exposure and belief in rumors and support for the proposed New York mosque were associated with media use. That is what it did but it is too small to accurately represent the whole American population. Nevertheless, the survey worryingly indicated the potentially unsocial effects of a type of reporting that falsely emphasizes human prejudices rather than seeking to correct or minimize them for the sake of social harmony.

Friday, October 15, 2010

Americans Favor Federal Research Funding on Science and Medicine

Research!America commissioned a national poll which found most Americans (58%) would vote for a candidate who wanted higher federal spending on job creation and federal health research funding. 91% of Americans think research and development (R&D) is important to their state's economy, and 71% said investing in health research is important for job creation and economic recovery.

Despite strong public support for research funding, the poll found that 53% are not well informed about the views of their senators and representatives on medical, health and scientific research. Mary Woolley, president and CEO of Research!America said:

Our poll findings show that Americans understand very clearly the connection between greater investment in research and economic growth and job creation, yet too few know their candidates' views on research. I urge all Americans to find out where their candidates stand on these important issues.

88% of Americans said it is important for Congress to work on a bipartisan basis to research to make health a top national priority. Research!America's chair, former Illinois Congressman John Edward Porter said:

Research investment is absolutely essential to America's future—for our health and our economy—and it's essential that candidates for Congress understand this. Each dollar invested in research produces more than double that amount in economic output. Americans deserve leaders in Congress who will work together to achieve sorely needed results for our nation's health and economic challenges today and in the future. Medical research, science and innovation are investments we simply cannot afford to postpone.

The poll also found:

  • 87% think a good use of tax dollars is military investment improving health for service members and veterans
  • 84% say the US should work to improve health globally through research and development
  • 88% think basic scientific research should be supported by the federal government
  • 87% say he US should adopt the aim of other countries to spend 3% of GDP on research and development
  • 74% say US competitiveness and future economic prosperity depends on education and training in science, technology, engineering and math
  • 84% say prevention and wellness reduce health care costs, and 77% say research helps solve these rising costs
  • 70% favor federal funding for research using embryonic stem cells
  • On balance, Americans favor speeding up the time it takes the US Food and Drug Administration to approve drugs: 42% say is too long, 12% say not long enough and 28% say it is about right.