Playing Games

I know very little about the stock market–just enough to recognize that the term “playing the market” is more revealing than those who use it may recognize. The 2008-9 financial crisis revealed that–rather than sober decisions to invest in solid companies in hopes of long-term growth– a large number of “masters of the universe” were simply gambling.

In other words, the stock market has become a casino– yet another symptom of a society that has abandoned the basics in favor of game-playing. And not so incidentally, the rules of those games favor the obscenely rich.

The recent GameStock pushback by small investors couldn’t have been more aptly named.

Unless you’ve been hiding under a rock the past few weeks (not that I’d blame anyone for hiding at a time when all aspects of American society seem to be coming apart), you’ve undoubtedly heard the basic outlines: GameStop is a retail chain that began by selling video games; it has struggled to stay open, thanks to the COVID-19 pandemic and the attendant increase in streaming. Its problems were widely recognized and it was a disfavored–even reviled– stock on Wall Street.

So the “pros” (aka gamblers) thought they could make money by “shorting” the stock as its price went down.

When investors decide to short a stock, they are essentially betting against it. They “borrow” shares of the stock on the assumption its price will decline; they plan to buy the shares at the lower price, return what they “borrowed,” and pocket the difference. (You will notice that this is strictly “game playing”– no goods or services are produced, no jobs created–no social benefit ensues.) If the stock goes up rapidly, however, the gambler-investors are forced to “cover their shorts”–to buy back the stock at a higher price.

So what happened with GameStop? According to Time,“amateur” investors who connected through a widely read social media message board “orchestrated a massive take-down of several marquee hedge funds while profiting hugely in a matter of hours.”

Not only are Wall Street players aghast with one pro saying that the moves were “unnatural, insane and dangerous,” but the surge in GameStop from less than $2 billion in market cap to more than $24 billion in a such a short time got the attention of regulators. The Attorney General of Massachusetts William Galvin said he was looking into the matter and called for a halt in GameStop trading, and the White House press secretary said that the administration was concerned about market integrity.

The blow-back against that was swift. On Reddit, one participant summed it up, “So market manipulation by federal pumping $ into falling banks & corporation is OK but Reddit users rallying GameStop is wrong and must be regulated…Funny how quickly the financial press cries for hedge funds.”

What happened in the past few days on Wall Street is akin to what happened in Britain when voters chose Brexit and in the United States when Trump was elected: a mass of people, angry at the privileged few and feeling that the system was rigged to reward the elite and screw everyone else, coalesced into a potent phalanx that upended a status-quo.

As you might imagine, the “Masters of the Universe”  who were were caught off guard and who sustained substantial losses were outraged. They denounced the small, amateur investors as misguided, misled and destructive. Defenders of those investors pointed to the truly excessive profits from manipulation that have largely gone to a few thousand hedge funds, private equity executives, professional investors and their rich clients.

Thanks to the way today’s market works, a small investor who held $100 of GameStop stock would lose her $100 if the company went bankrupt. But a hedge fund might make $200 from that same bankruptcy. As the Time article points out,  leverage, arcane financial instruments and access to them by only a few of the “big guys” is what makes that crazy outcome possible.

And the “victory” of the “little guys” was short-lived; as this is written, the stock has declined again, so in this particular “game” there’s been plenty of financial hurt to go around.

Bottom line, we need to add regulation of investing (aka disincentivizing gambling) to America’s “to do” list.

As Alexis Goldstein recently wrote in the New York Times, “Rather than gambling on the dubious promise of more Americans gaining access to the casino, it’s time to rewrite the rules to ensure that the house doesn’t always win.”

Comments

The Downside Of Democracy…

It’s hard to disagree with the pundits and political scientists who point to the vote for Brexit (and the worrisome number of votes for Donald Trump) as evidence that majority rule is not necessarily a blessing.

In the idealized version of democratic systems, a majority of citizens cast informed votes after considering the positions articulated by the candidates or descriptions of the issues vying for their support. (Political scientists Achen and Bartels dubbed this the “folk theory’ of democracy in their book Democracy for Realists. I recommend it…)

One problem is that much of 21st Century policy has become too complicated and/or interdependent with other aspects of our common lives to allow the average voter to be genuinely informed. Another is that campaigns and candidates are richly rewarded for misrepresenting reality. There are electoral advantages to be gained by turning issues into “us versus them” choices, and plenty of political actors willing to do so.

Brexit is a good example. The Week recently had a very good description of the “unanticipated consequences” of the UK’s departure from the European Union.

Those who followed the campaign noted that it played heavily upon resentment of EU bureaucracy, and especially tensions over immigration. The Vote Leave campaign was led by Boris Johnson, who led rallies in a red bus featuring the slogan “We send the EU 350 million pounds a week, let’s fund our NHS instead.” Johnson and the other proponents claimed that the U.K. would keep its tariff-free trade with the EU, but no longer would be subject to EU law; best of all, the U.K. could “take back control” of immigration. Wages would be higher and the country would sign new trade deals with better terms. 

All gravy, no gristle.

Reality–as Brexit opponents warned– has been considerably different. Import/export companies face a raft of new paperwork that will cost them millions of pounds a year. Worse, the trade deal doesn’t cover the services sector, which represents some 80 percent of Britain’s economy.

As for the financial savings, the true net amount that the U.K. paid to the EU was $208 million a week, less than half of what was claimed, and little of that money is going to the NHS, which remains strapped for cash. While the border between EU member Ireland and Northern Ireland will remain open, there will be customs checks.

There’s a lot more (grim) detail in the linked article, but the bottom line is that Brexit is predicted to cost Britain about 4 percentage points of its gross domestic product over the next 15 years, and unemployment, inflation, and public borrowing are all likely to rise.

In the United States, we have plenty of examples of campaigns that over-simplify or distort the issues involved, and count for their success on the likelihood that most voters will not recognize the complexities or potential pitfalls. But thanks to demographic shifts and the peculiarities of our electoral system, we also have a growing problem that most other Western countries don’t have.

In 2018, Norman Ornstein explained it in a tweet:

“I want to repeat a statistic I use in every talk: By 2040 or so, 70 percent of Americans will live in 15 states. Meaning 30 percent will choose 70 senators. And the 30 percent will be older, whiter, more rural, more male than the 70 percent. Unsettling to say the least.”

Ornstein’s analysis was checked by the Weldon Cooper Center for Public Service of the University of Virginia, which concurred. 

Democratic systems are those that accurately reflect the wishes–expressed through the ballot box– of a majority of citizens. In the U.S., majoritarian preferences are constrained only by constitutional safeguards of individual rights, primarily those protected by the Bill of Rights.

I have posted before about the reasons that Indiana’s legislature is dominated by–and answerable to–rural areas of the state, and the multiple ways in which that reality makes us backward and dysfunctional. If Ornstein is correct–and he is–the entire country will be in our shoes–dominated in the very near future by voters whose priorities simply do not reflect–or even include– the preferences and needs of urban America. 

I don’t know what you would call that outcome, but it sure isn’t democratic….

Comments

So Here We Are…

Can you stand one more post about the January 6th insurrection?

Investigations in the wake of that shocking assault are steadily turning up evidence that it was anything but a spontaneous response to Trump’s crazed rally speech. It had been planned, and not just by the conspiracy-believing members of the rightwing’s radical fringe, but with the connivance of seditionist members of Trump’s campaign, his White House, and members of Congress.

The identities of these conspirators will eventually be made public, but who they are is ultimately less important than what they are–representatives of White Christian Nationalists who see themselves as losing out in today’s America.

Thomas Edsall writes a weekly column for the Washington Post on politics, demographics and inequality. In the wake of the riot on January 6th, he considered how “racism, grievance, resentment and the fear of diminished status came together” to fuel the fury and violence. He began with the obvious: the dominant role played by “out-and-out racism and a longing to return to the days of white supremacy.”

But Edsall also acknowledged the need to probe more deeply–to try to ascertain the roots of the anger and to identify the elements of contemporary life that serve to “trigger”  violent expression.

It may sound trivial at first, in light of what happened, but how important is the frustration among what pollsters call non-college white men at not being able to compete with those higher up on the socioeconomic ladder because of educational disadvantage? How critical is declining value in marriage — or mating — markets? Does any of that really matter?

How toxic is the combination of pessimism and anger that stems from a deterioration in standing and authority? What might engender existential despair, this sense of irretrievable loss? How hard is it for any group, whether it is racial, political or ethnic, to come to terms with losing power and status? What encourages desperate behavior and a willingness to believe a pack of lies?

Edsall posed those questions to a range of academic researchers. Their responses were sobering.

A sociologist at NYU dubbed the rioters “ethnonationalists,” and described  Trump supporters as those who want to return to a past when white men considered themselves the “core of America”–when minorities and women “knew their place.” Since they realize that such a return would require the upending of the existing social order, they’re prepared to pursue violent measures.

Another sociologist, a professor at Johns Hopkins, concurred:

They fear a loss of attention. A loss of validation. These are people who have always had racial privilege but have never had much else. Many feel passed over, ignored. Trump listened to them and spoke their language when few other politicians did. He felt their pain and was diabolical enough to encourage their tendency to racialize that pain. They fear becoming faceless again if a Democrat, or even a conventional Republican, were to take office.

There was general recognition from those Edsall consulted that It is incredibly difficult for individuals and groups to come to terms with the loss of status and power. Before Trump came along to provide a culprit, these individuals lacked what one scholar called “a narrative to legitimate their condition.” Trump provided a narrative that gave “moral certitude” to people who  believed that their decline in social and/or economic status was the result of unfair and/or corrupt decisions by so-called elites.

According to a professor of psychology at Yale, the insurrection reflected angst, anger, and refusal to accept an America in which White (Christian) Americans are losing dominance.

And, I use the term dominance here, because it is not simply a loss of status. It is a loss of power. A more racially, ethnically, religiously diverse US that is also a democracy requires White Americans to acquiesce to the interests and concerns of racial/ethnic and religious minorities.

Others who responded to Edsell’s inquiry noted that contemporary America is especially vulnerable to right-wing anger due to our high degree of income inequality, and lack of a welfare state safety net to buffer the fall of people into unemployment and poverty.

You can click through and read the various responses, but they all reminded me of an exchange in the film An American President. Michael Douglas, playing the incumbent, points to his opponent during a press conference and says something to the effect that “you have a choice between someone who wants to fix the problem or someone who wants to tell you who to blame for it.”

Trump voters chose the guy willing to tell these deeply unhappy people who to blame.

Comments

The People’s Business

The polarization that characterizes American politics these days begins with very different world-views–and very different beliefs about what government is and what it is for. Those differences used to exist within a “big tent” Republican Party, back when there were still a lot of perfectly sane Republicans. (I still remember those times; I told you I’m old…)

I still remember the telling difference between the rhetoric employed by Mayor Stephen Goldsmith, who liked to refer to citizens as “customers” of government, and the Hudnut Administration that preceded Goldsmith’s. I served in the Hudnut Administration, and although we didn’t borrow from business terminology, I think it’s fair to say that we considered citizens to be  shareholders, not customers.

We understood that citizens are the owners of the government enterprise.

So far, the Biden Administration has taken steps to do the people’s business, to reflect a belief that government should actively pursue the public good as reflected in the desires of a majority of its citizen-owners. As Heather Cox Richardson recently noted, Biden has refused to engage with the craziness and has instead acted on matters ordinary people care about.

Biden is using executive orders to undercut the partisanship that has ground Congress to a halt for the past several years. While Biden’s predecessor tended to use executive actions to implement quite unpopular policies, Biden is using them to implement policies that most Americans actually like but which could never make it through Congress, where Republicans hold power disproportionate to their actual popularity.

According to a roundup by polling site FiveThirtyEight, Biden’s executive actions cover issues that people want to see addressed. Eighty-three percent of Americans—including 64% of Republicans—support a prohibition on workplace discrimination over sexual identification, 77% (including 52% of Republicans) want the government to focus on racial equity, 75% want the government to require masks on federal property, and 68% like the continued suspension of federal student loan repayments. A majority of Americans also favor rejoining the World Health Organization and the Paris climate accords, and so on.

There is, of course, a limit to what can be accomplished by Executive Order. Biden has thus far shown an admirable intent to “stay in his lane”–to restrict his actions to those that can be defended as appropriate to the Executive Branch. But doing the people’s business–fulfilling the numerous needs and demands of government’s “owners”–will require action by Congress.

Congress, unfortunately, is massively dysfunctional.

The current debate in Congress about the filibuster illustrates that today’s partisan divide is between those who believe government is obliged to do the people’s business–to carry out the wishes of the owners of the enterprise– and those who quite clearly believe that their role is to prevent that business from being conducted (unless, of course, the business at hand involves a tax cut that will benefit their donors.)

The nation’s Founders contemplated a Congress that would engage in negotiation and compromise, and would then proceed to pass measures by a simple majority vote–not a super-majority. Today, thanks to the evolution of the filibuster over the years, it takes sixty votes to pass anything, no matter how innocuous.

Of course, the Founders also believed that the people we would elect to Congress would be “the best and brightest”–public-spirited, educated and reasonable men (yes, I know…) who would take their legislative responsibilities seriously. I wonder what they’d think of the gun-toting, conspiracy-believing wackos who are currently walking the halls of the Capitol and warning about fires started by Jewish space-lasers …

Not to get overly partisan here, but those lunatics are all Republicans…..and they have no concept of–or ability to do– “the people’s business.”

Comments

Health Costs And Benefits

Americans have been arguing over health care (actually, health insurance) for my entire life–and as I frequently mention, I’m old. Every time the federal government has extended access to health insurance, conservative politicians have insisted that America cannot afford it.

“Medicare for All” proposals invariably meet with outrage–and disinformation. In addition to insistence that universal health care would bankrupt the country,  opponents used to warn that extending access would ruin what they say is the “best medical care in the world.”

That claim that “we’re number one” has diminished considerably, as more people have recognized that we’re actually number thirty-seven or thirty-eight, and that the only people who receive the “best” medical care are people who have lots of money. But Republicans have continued to insist that America just can’t afford universal coverage.

Which brings me to a very interesting report in The Hill, titled “22 Studies Agree: Medicare for All Saves Money.”

The evidence abounds: A “Medicare for All” single-payer system would guarantee comprehensive coverage to everyone in America and save money.

Christopher Cai and colleagues at three University of California campuses examined 22 studies on the projected cost impact for single-payer health insurance in the United States and reported their findings in a recent paper in PLOS Medicine. Every single study predicted that it would yield net savings over several years. In fact, it’s the only way to rein in health care spending significantly in the U.S.

All of the studies, regardless of ideological orientation, showed that long-term cost savings were likely. Even the Mercatus Center, a right-wing think tank, recently found about $2 trillion in net savings over 10 years from a single-payer Medicare for All system. Most importantly, everyone in America would have high-quality health care coverage.

The studies found that Medicare for All would eliminate three-quarters of the estimated $812 billion the U.S. now spends on health care administration. Administrative costs in the United States are so high because insurance companies–and there are hundreds, if not thousands of them– individually negotiate benefit rules and rates with thousands of hospitals and doctors. They also require different billing procedures , use different forms and have different rules for submitting claims.

The studies estimate that savings from Medicare for All would be about $600 billion per year. And that’s not including savings on prescription drugs, estimated to be another $200 or $300 billion a year if we paid about the same price as other wealthy countries pay for their drugs.

Even more savings are possible in a Medicare for All system because, like every other wealthy country, we would have a uniform electronic health records system. Such a system generates additional savings because system problems would be easier to detect and correct. A uniform claims data system helps reduce health care spending for fraudulent services. In 2018, total U.S. health care costs were $3.6 trillion, representing 17.7 percent of GDP.

The “cherry on top” of these calculations? Savings were calculated assuming the elimination of deductibles and out-of-pocket expenses.

The article also pointed to something that is not widely understood: government already pays approximately two-thirds of all American health care costs. A few years ago, when I participated in a multi-disciplinary study, the calculation was that some seventy percent of all health costs were being paid for by some unit of government– not just via Medicare and Medicaid, but also through the VA, CDC awards of research dollars,  federal, state and local health care programs, coverage for government employees (including thousands of employees of public schools and universities), and ACA tax subsidies for private insurance.

A more expansive and accurate cost/benefit analysis would also include things like the decline in bankruptcies–some 50% of personal bankruptcies are due to medical costs not covered by insurance.–and evidence that crime and other forms of social discord decline sharply when social safety nets improve.

Here’s my question: if Medicare for All improves health care and costs less, what is the real reason so many Republicans oppose it?

Comments