Bernard's Top 10: Uber for lawyers; How fat was blamed for sugar's crimes; Ever been hunted by a drone?; Japan's end game; A self-directed debt jubilee?; Central bank mistakes and consequences; Clarke and Dawe; John Oliver

Here's my Top 10 items from around the Internet over the last week or so. As always, we welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz. 

See all previous Top 10s here.

My must read is #5 on how bad science becomes public policy by looking at the debate about sugar vs fat.

1. Uber for lawyers - I'm fascinated by the potential for new technology to transform expensive service industries such as medicine and education and law.

I'm not a doctor or lawyer or professor so I'm hoping it dramatically cuts their costs. There's an element of schadenfreude, I'll admit, but it could also meet a whole lot of un-met need and strip out some of the super-profits currently built into these industries.

Here's the FT looking at the prospects for 'Uber-ising' the legal profession.

The top law firms in the UK and US — the most advanced and competitive legal markets — have sharply increased what they charge. In the mid-1980s, partners at top London firms charged between £150 and £175 an hour, according to a report by the Centre for Policy Studies, a think-tank. By 2015, this had reached £775-£850 an hour, with this year’s range expected to exceed £1,000.\

In the US in 2014, 74 firms enjoyed profits per partner of more than $1m, with Wachtell, Lipton, Rosen & Katz, the highest earners, turning in profits per partner of $5.5m, according to the journal American Lawyer.

While many see the mismatch between what top lawyers earn and what most can afford to pay as a problem, others see it as an opportunity. The legal profession, they say, is ripe for disruption. Cab drivers in London are, like lawyers, highly trained; mastering “The Knowledge”, the layout of the city’s streets, takes several years. But the cabbies’ high-quality, high-price service has been upended by Uber, the app-based taxi hailing system that has brought a flood of lower-cost drivers, using satellite navigation, on to the roads.

2. Turning Japanese - With all the dramas in Europe and China in recent months, it's easy to forget that Japan is still a very large economy with very big problems -- including a falling population, falling prices, falling wages and a fast-rising Government debt.

Yet it always seems to manage.

Here's Ambrose Evans Pritchard with a typically blood-curdling piece on Japan's looming issues. He cites the former head of the IMF for good measure. The phrase non-linear is used for extra curdling of the blood. I'm not sure I buy the story. It's amazing how long you can service stonking debts with negative interest rates, which Japan has, and seems likely to have for some time.

“To our surprise, Japanese retirees have been willing to hold government debt at zero rates, but the marginal investor will soon not be a Japanese retiree,” he said.

Prof Blanchard said the Japanese treasury will have to tap foreign funds to plug the gap and this will prove far more costly, threatening to bring the long-feared funding crisis to a head.  

“If and when US hedge funds become the marginal Japanese debt, they are going to ask for a substantial spread,” he told the Telegraph, speaking at the Ambrosetti forum of world policy-makers on Lake Como.

Analysts say this would transform the country’s debt dynamics and kill the illusion of solvency, possibly in a sudden, non-linear fashion.

3. Just forgive the debt - This section in Ambrose's report was particularly interesting and begs the question: what happens once your central bank has hoovered up all your Government bonds.

I would have thought a self-directed debt jubilee would do the trick.

The central bank owned 34.5pc of the Japanese government bond market as of February, and this is expected to reach 50pc by 2017. Japanese officials admit privately that a key purpose of ‘Abenomics’ is to soak up the debt and avert a funding crisis as the big pension funds and life insurers retreat from the market. The other unstated goal is to raise nominal GDP growth to 5pc in order to ‘bend down’ the trajectory of the debt ratio, a task easier said than done.

Prof Blanchard did not elaborate on the implications of Japan’s woes for the global financial system, but they would surely be dramatic and there are growing fears that this could happen within five years. Japan is still the world’s third largest economy by far. It is also the global laboratory for an ageing crisis that the rest of us will face to varying degrees.

4. Ever been hunted by a drone? - This piece by Malik Jalal in The Independent explains what it's like.

I have been warned that Americans and their allies had me and others from the Peace Committee on their Kill List. I cannot name my sources, as they would find themselves targeted for trying to save my life. But it leaves me in no doubt that I am one of the hunted.

I soon began to park any vehicle far from my destination, to avoid making it a target. My friends began to decline my invitations, afraid that dinner might be interrupted by a missile.

I took to the habit of sleeping under the trees, well above my home, to avoid acting as a magnet of death for my whole family

5. 'Pure, white and Deadly' - It turns out the warnings about the heavy use of sugar are not new, according to this excellent analysis in The Guardian.

A British professor of nutrition, John Yukin, sounded a similar warning in a book in 1972, but was then attacked by the food industry and his warning was largely forgotten. Robert Lustig is today's anti-sugar guy.

This piece takes a hard look at how some science becomes accepted wisdom, and others doesn't.

“If only a small fraction of what we know about the effects of sugar were to be revealed in relation to any other material used as a food additive,” wrote Yudkin, “that material would promptly be banned.” The book did well, but Yudkin paid a high price for it. Prominent nutritionists combined with the food industry to destroy his reputation, and his career never recovered. He died, in 1995, a disappointed, largely forgotten man.

For at least the last three decades, the dietary arch-villain has been saturated fat. When Yudkin was conducting his research into the effects of sugar, in the 1960s, a new nutritional orthodoxy was in the process of asserting itself. Its central tenet was that a healthy diet is a low-fat diet. Yudkin led a diminishing band of dissenters who believed that sugar, not fat, was the more likely cause of maladies such as obesity, heart disease and diabetes. But by the time he wrote his book, the commanding heights of the field had been seized by proponents of the fat hypothesis. Yudkin found himself fighting a rearguard action, and he was defeated.

6. How long can central banks keep making mistakes? - This piece by Oxford economist Simon Wren Lewis on central banks making mistakes and the eventual consequences for central bank independence is particularly topical for New Zealand -- the original pioneer of central bank independence in partnership with inflation targeting.

He points out central banks didn't forecast the GFC, then were too tame in their reaction, and now they are hiking too early. Will there be three strikes and they're out?

What central banks should be doing in these circumstances is allowing their economies to run hot for a time, even though this might produce some increase in inflation above target. If when that is done both price and wage inflation appear to be continuing to rise above target, while ‘supply’ shows no sign of increasing with demand, then pessimism will have been proved right and the central bank can easily pull things back. The costs of this experiment will not have been great, and is dwarfed by the costs of a mistake in the other direction.

 

It does not appear that the Bank of England or Fed are prepared to do that. If we subsequently find out that their supply side pessimism was incorrect (perhaps because inflation continues to spend more time below than above target, or more optimistically growth in some countries exceed current estimates of supply without generating ever rising inflation), this could spell the end of central bank independence. Three counts and you are definitely out?

 

I gain no pleasure in writing this. I think a set-up like the MPC (Bank of England's Monetary Policy Committee)  is a good basic framework for taking interest rates decisions. But I find it increasingly difficult to persuade non-economists of this. The Great Moderation is becoming a distant memory clouded by more recent failures. The intellectual case that central bank independence has restricted our means of fighting recessions is strong, even though I believe it is also flawed. Mainstream economics remains pretty committed to central bank independence. But as we have seen with austerity, at the end of the day what mainstream economics thinks is not decisive when it comes to political decisions on economic matters. Those of us who support independence will have to hope it is more like a cat than a criminal. 

7. Disposable people - This New York Times piece on the culture in many US tech companies now is an eye-opener. People seem much more disposable than they used to be. There is a particularly nasty and sociopathic libertarianism being spread out of San Francisco these days.

AT HubSpot, the software company where I worked for almost two years, when you got fired, it was called “graduation.” We all would get a cheery email from the boss saying, “Team, just letting you know that X has graduated and we’re all excited to see how she uses her superpowers in her next big adventure.” One day this happened to a friend of mine. She was 35, had been with the company for four years, and was told without explanation by her 28-year-old manager that she had two weeks to get out. On her last day, that manager organized a farewell party for her.

It was surreal, and cruel, but everyone at HubSpot acted as if this were perfectly normal. We were told we were “rock stars” who were “inspiring people” and “changing the world,” but in truth we were disposable.

I am old enough to remember the 1980s and early ’90s, when technology executives were obsessed with retaining talent. “Our most important asset walks out the door every night,” was the cliché of the day. No longer.

Treating workers as if they are widgets to be used up and discarded is a central part of the revised relationship between employers and employees that techies proclaim is an innovation as important as chips and software. The model originated in Silicon Valley, but it’s spreading. Old-guard companies are hiring “growth hackers” and building “incubators,” too. They see Silicon Valley as a model of enlightenment and forward thinking, even though this “new” way of working is actually the oldest game in the world: the exploitation of labor by capital.

8. Totally 'Have I got news for you'. - I've just re-discovered this after a few years away from Britain. It's the model for 7 Days and is excellent on the Panama Papers.

9. Totally John Oliver on America's credit rating system. This is fascinating, particularly given New Zealand is moving towards America's 'positive' credit reporting system and the IRD will soon start sharing tax debt information with the credit rating agencies here -- Dun and Bradstreet and Veda Advantage.

10. Totally Clarke and Dawe on Australia's totally nutty (and fun) political landscape. Malcolm Turnbull must wish he lived in New Zealand.