Motu researchers on the case against democracy, the phantom poll swings, Piketty and housing capital, why the peasants were better off than you, weapons of math destruction, what a Donald Trump academic article would look like and more

Today's Top 10 is a guest post from Loic Henry, Kate Preston, Nathan Chappell and Eyal Apatov at economic and public policy research house Motu

As always, we welcome your additions in the comments below or via email to david.chaston@interest.co.nz.

And if you're interested in contributing the occasional Top 10 yourself, contact gareth.vaughan@interest.co.nz.

See all previous Top 10s here.

1. The Case Against Democracy
In The Republic, Plato argued against democracy and dreamt that his city of Kallipolis would be ruled by philosopher kings — trained specialists who were just and wise. Few today are comfortable with giving power to an elite class, and yet concern of voter ignorance never goes away. Caleb Crain takes us through the history, up to modern-day political philosopher Jason Brennan, who unashamedly argues for epistocracy — rule by the knowledgeable. The article argues that, interesting as Brennan’s arguments are, the details are essential but neglected:

2. Beware the Phantom Swings
Pollsters at YouGov argue that the recent dramatic bounces seen in US polls were statistical mirages. They show that when bad things happen to Trump, his supporters are less likely to respond to a survey, and similarly for Clinton. This leads to changes in sample composition that don’t reflect the broader population, and journalists wrongly interpreting the latest scandal. Other polls try to make their samples representative by weighting for demographics, though the YouGov writers believe this is a poor solution; they suggest weighting by past vote instead.

3. Piketty and Housing Capital
What if the US long-run increase in the share of aggregate income from capital (Piketty, 2014) was driven by land owners, and not entrepreneurs and venture capital? If this is true, does it suggest a stronger link between monetary policy and inequality (via housing prices and imputed rent) than previously suggested? Since home is a key mechanism for transferring income across generations, does the rise of a new landlord class exacerbate intergenerational inequality?

4. Before Capitalism, Medieval Peasants Got More Vacation Time Than You. Here’s Why
In 14th century England, peasants worked less than half of the days in the year. How does that compare to the laborious lives of the modern worker? In some countries, long vacations are a thing of the past. One of the worst cases of the developed world is the United States, where workers now get an average of just eight days of holidays per year. A downward trend in how much time we have for leisure has emerged despite evidence from research showing that overworking labourers reduces productivity. In this article, Parramore reminds us of Keynes’ prediction that we would be working 15 hour weeks by 2030. As the year 2030 now looms less than two decades away, five day weekends don’t look likely anytime soon.

5. Weapons of math destruction
Cathy O’Neil warns us to have a healthy skepticism of the algorithms and mathematical modelling that influence policy. Mathematics as a pure discipline may find objective truth, but the application of math to our social lives is still susceptible to bias and prejudice. We should be wary of black-box policymaking falsely dressed as irrefutable truth.

6. In New Zealand, The Land Can Be A Person. Meanwhile, in Australia
In 2014 the Te Urewera National Park was granted the rights of a legal person. This unusual right was given to Te Urewera in a reflection of the Māori worldview which comprises a strong connection to the land. This article contrasts the New Zealand government’s reconciliation process with Māori to the dire situation of Aboriginal affairs in Australia. Bruce Pascoe, an Australian Indigenous writer, is hopeful that similar progress can be made for Aborigines, and indeed a small movement is underway in parts of Australia to push for a treaty. Back home, the Te Urewera Act could set an example for future change. The Whanganui River too, has since been granted legal personhood - read more

7. African Sweatshops and Poverty Alleviation
Mass hiring via industrial sector development, is argued to be an important to poverty alleviation policy at the macroeconomic level. However, the effects of these policies on the workers themselves is less clear. In a recent study, a group Ethiopian job-applicants were randomly offered to participate in self-employment program, received a formal employment offer in a factory, or receive no assistance at all (i.e. control group). Overall, the study finds many preferable outcomes for those participating in the self-employment program, while the factory workers did not show any preferable outcomes compared with the control group, and most quit within the first year.

8. Animated map of US unemployment
If you like beautiful representations of data, this website is for you. It summarises recent sets of data, presents relevant insights about statistical analysis methodologies, and also gives tutorials to learn how to reproduce the work in R. A geek’s paradise! The link goes to a geographical representation of the US rate of unemployment over time from 1990 to 2016. These unemployment rates were collected month-to-month at the county-level and are an interesting way to show how the American economy was affected by the 2007 crisis and its recovery after the GFC.

9. Why the Nobel Prize for Economics is well deserved
Oliver Hart and Bengt Holmström won this year's Nobel Prize in Economic Sciences for their contributions to contract theory. Their research was praised for shedding light on how contracts help people deal with conflicting interests in areas such as insurance and employment. One purpose of their research is to design the best contracts to ensure that the parties make mutually beneficial decisions and to avoid perverse incentives.

10. And finally, if Donald Trump wrote an academic article…

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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40 Comments

A lot shaking their heads...and doing something about it...

(Maybe the University..Challenged...Trump version)

But can we "House" more people in a hurry, is my educated guess...when our lot are so slothful... is also my major concern.

Our Housing Minister had better wake up to reality, it is all about real estate...not Imagined.

http://www.scoop.co.nz/stories/BU1611/S00433/146-increase-in-recruitment...

Trump university is the one subject to legal action. Former students are claiming they learnt nothing. Based on that introduction it's because nothing of substance was ever said. Including that the Trump university hand-picked mentors were not hand-picked.

Shaking my head as Trump , and the NZX reaction has cost me $$$ so far, while other sharemarkets are OK or peaking.
What will make the NZX great again??
Just love the Trump research, funny and insightful.

No3.

In my view it is Monetary policy itself ( and the nature of our monetary system ) that leads to the inequality that is talked about...

When someone starts talking about "imputed rents"... in regards to inequality and so called tax free income....... I get a little uncomfortable.
In the real world I find the idea of imputed rents , kinda meaningless. In the real world we spend Actual income and cashflow....

If someone saves all their surplus income in order to buy a house while another spends all their surplus income on lifestyle choices , how would you measure the wealth inequality between them over time..??? and what does that mean..??

Does it mean that a squirrel should be obliged to share his nuts in winter with a squirrel that played during nut gathering season??? .... you know... each according to their needs..!!

1 - the issue with this is who determines a person level of knowledge, who do you determine they are not biased for person reason/gain. Agreed, giving everyone a vote comes with risk as many are less or ill-informed. But this alternative is not a solution.

8 - That visualisation of unemployment is awesome. The GFC shows a huge increase and it seems to have pulled back (visually anyway) to what it appeared to just prior. Very cool visualisation of data.

Here is what happens with Globalisation that no one is talking about.

People work in factories.
Now let us say that the cost of a car is equal to 6 months wages.
Now the factories move to China.
The cost of the car comes down to 3 months wages – good.
But the factory jobs have gone and i am now either unemployed or working at McDonald's on lower wages.
Now the car costs me 6 months wages – nothing gained except a loss of skills

Id throw in the double standards of Govt. regulations and compliance, in regards to , health, environment, ...etc.

We don't care how the car was built in China... don't care about the social and environmental costs..etc.
Yet we have a heavy hand with t local manufacturers, in regards to compliance etc...

The double standards of free trade..??

And the Cherry for China, means it will only last 6 months at best, if that, so they can sell another one....Same with Great Wall, etc..etc.

May be a cheap copy of western vehicles, but the cowboys making make em totally unreliable.

Made in China, is great for a lot of useless tat, but when you want something to last....there are other more reliable sources.. and vehicles

Democracy - It is impossible to have Democracy and Big Government at the same time.

When you have big government saying if Gay people can or cannot marry or not
When you have big government telling you what your human rights are
When you have big government setting up a department of women's affairs, department of Maori affairs, Minister of the world cup, minister for Auckland etc etc
When you have big government telling you to wear a safety helmet, wear a seat belt, fence your swimming pool, what you can build on your property, and on and on.

You cannot have democracy and big government running your life it is impossible.

We need to rid the world of big government and big bureaucracy if we want democracy - we cannot have it both ways

I think you can't have the same people printing money (unbacked) promising it to the lucky people voting for it.

If Hillary Clinton had been elected everyone would have gone back to sleep and nothing would have changed.

But because Donald Trump was elected they have all woken up and are outraged.

maybe now we will see real change, not in the government but in the people were it matters.

So what's going on with the currency in India? Larger denomination notes being withdrawn, for ???? I feel like a big story is passing us by while we're all distracted by the American circus.

There is the risk of unintended consequences in a country that has the largest private gold ownership in the world. But there are some bigger stories about other than the election IMO. Saudi stopping oil shipments to Egypt, so that Egypt has had to cosy up with Russia. Plus China's ever decreasing exports. Headwinds all around yet the FED wants to raise rates, good luck with that.

You need to read 90@9 more often. We had that news on Wednesday.
http://www.interest.co.nz/news/84496/markets-watching-us-results-closely-chinas-exports-fall-again-india-withdraws-large

You are right though. It is a very big story. And there are literally million of people teher without bank accounts who saved in cash. Poor people mainly. They have a real problem now, and are being preyed on by people with bank accounts who can make the exchange to the new currency. I hope they fix it quickly. It was a good idea, aimed at sorting out the huge black economy. But it has an enormous unintended consequence on people on low incomes and no bank account.

Everything comes down to money – so “What is money”

It is often said “Its my money, i worked hard for that money”

Lets look at that “Hard earned money”

Log onto your internet banking and what do you see?

Well you see a Text message telling you how many dollar Points you have.
Yes, look at this bank text message as dollar points rather than real money, because it is NOT real money you are looking at.
You spend these dollar points just like you spend air points

Look

Say you wanted to fly to England.

You earn dollar points and save them up. When you have enough dollar points you exchange them for an airline ticket to England

Now look at air points
You earn air points and save them up. When you have enough air points you exchange them for an airline ticket to England

Exactly the same

Now look again

You want to buy an appliance at Noel leeming
You earn dollar points and save them up. When you have enough dollar points you exchange them for an appliance at Noel leeming

You earn flybuy points and save them up. When you have enough flybuy points you exchange them for an appliance at Noel leeming

Exactly the same

But, you may argue, it is not the same because money is a “Store of value”

Hmmm, what is “A store of value?”

Well you save it up and spend it later because it still has value.

Exactly whether it is dollar points, air points or flybuy points they all have value at a later date.

Money is nothing more than a points system telling you how many privileges you have earned.

Really all money needs to do is facilitate trade. It is when it departs from that function is when things start to go wrong.

Money is nothing more than a points system telling you how many privileges you have earned.

I've spent alot of time reading all the different ideas about money.. ( and there are some different points of view )

In the end..... there are 3 qualities that defines what is "money"

1/ unit of acct/measure
2/ medium of exchange
3 / store of value..

These qualities define the functions that we use money for..... If any one of those qualities is badly diminished then there is a flight from that particular "money"..

In our Modern monetary system it is the store of value quality that is getting trashed...
In the last 40 yrs Central Banks have allowed an unfettered growth in money supply..
The CPI is not a good proxy to measure the decline in purchasing power of money because productivity growth and other efficiencies/innovations..etc.. , which has along term trend of making things cheaper, gives the illusion that the purchasing power of money stays the same...

The thing is the supply should not matter. As long as the Government/Central bank guarantees the money it keeps those three properties regardless.

It all broke when people started
- Betting money on money.
- Earning money on money.
- Trading money for money.
- Loaning money for money.

At that point it went from being a store of value, to a store of risk. Risk that if you have it, you will lose it.

How do you mitigate that risk?
Ensure you only borrow.

But, if everyone borrows, and everyone pays interest on that borrowing, you run out of money. Now you have a supply issue.

How do you fix a supply issue?
You make more.

But, how do you distribute it?
You give the money to the lender. Now you have an inequality issue.

How do you fix that?
Stop the betting, earning, trading, and loaning of money for money.

But if you stop that the world ends - after all money makes the world go round.

This is a useful view on the matter you make : At that point it went from being a store of value, to a store of risk. Risk that if you have it, you will lose it.

Otherwise I know you have looked into these matters in your comment Roelof and I quite agree. You could say a properly functioning economy needs money that functions properly.

Nocents... Too me , you are simply describing the nature of "Capital Formation".., and the financial mkts. that have grown around that.

It is something we do with money ... ( and credit ).... Its not a bad thing.

Capital Formation is a very good thing... its' an amazing thing..!!! All the innovations that are in our homes and around us ...stems from that.

( having said that, I don't agree with the form of Capitalism that we have .. ie ..Debt Capitalism. )
I think our monetary system , which essentially is debt as money, is a destructive thing, in the long term... It has allowed for the massive growth in the FIRE economy .
In this regard the supply of money does matter.... It grows exponentially and is created in the form of credit (debt )..

Capital formation is fine in terms of pure stock markets. There is nothing wrong with buying a share in a company.

But when you have currency trading, futures, etc... that is just gambling pure and simple. It does not benefit society in any way.

Yes and no.... Most exporters, and primary producers use the derivatives mkt to manage risk.
Speculators play a vital role in being a counterparty to risk transfer and providing liquidity..

You Make it sound evil... its' not.... and I do get your point..

Also... Capital formation can be many things... eg.. Crowd funding...peer to peer lending..IPOs'...etc..etc

It's not evil, it is just not the point of money. The risk they are managing is the risk that they lose money. Not a good, not the value of the good, rather the money itself.

Money was never meant to be a commodity. To be bought, sold, traded, and gambled.

Money hasn't failed, it has simply been corrupted by a failed system.

1. The case against democracy is well put by today's Economist newsletter: 'Yesterday’s surge in bank shares is a sign that markets are hoping that Mr Trump will ignore the people who elected him president. Investors think he will drop the nativist, protectionist elements of his agenda, while deregulating and cutting taxes for the rich.'

The markets? Or the people? They're no longer the same thing. And it's this dislocation that's behind the gathering questioning of globalisation - which, it appears serves one side very well and the other with indifference. We'll see which of these the Trump administration answers to.

Perhaps the case against democracy now has a demagogue at its head. Truly a post-modern event.

Workingman..... R u drawing a long bow here...???

Maybe bank stocks are rallying, simply on the rumor of Jamie Dimon as treasury secretary. ???

I hope that doesn't happen...

So true. The markets are no longer the people.

Globalisation removes 'the markets' from any democratic footprint or accountability - as nation states worldwide have found, or are yet to find.

So the markets serve global investors (shareholders) and the global financial community. These amount to a pretty small slice of 'the people'. And these have done very well from globalisation.

On the other side of the coin, 'the markets' ensure the acquiescence of 'the people' by supplying them with ever more plentiful, ever cheaper, consumer products. The problem is that the work of making these products increasingly goes to the cheapest production environments.

The global company and its shareholders do superbly well. It seems to the consumer that he or she is doing superbly well too - just look at what there is to buy, and how relatively cheap it is. But that consumer may soon be without a job. That's where the tear in the fabric is.

I should add that those who lose their jobs - though they're usually in the host country, where the global companies and the markets grew up and reside - are no great problem either to the markets or the companies. Just over the horizon is a whole new group of consumers, who having had the production work come to them, can now afford to buy a few things. Thus ravaged cities and communities in the West and 24-hour shopping in developing countries. There are ethical issues - as well as democratic and economic issues - in this to solve. Trump?

Can we go further and say that globalization goes way beyond removing just mkts from any democratic footprint or accountability.. ???

In my view Both Brexit and Trump may be a reaction to the the ideology of globalization..???
.

#1. "Government by trained people who are just and wise." How droll. I imagine Plato who thought that bit of silliness up imagined himself doing the training and deciding who was just and wise.

#3 " does the rise of a new landlord class exacerbate intergenerational inequality?" errrh. Yes.

#4 "Keynes’ prediction that we would be working 15 hour weeks by 2030" Productivity etc has indeed increased enough to mean we could spend less time at work. But instead we have people tipped onto the scrapheap entirely and others who are working more than ever before.
Only way we are going to make automation etc work for us is that we all have ownership of it's benefits. We all own the companies and enterprises. Benefit always flows to the owners, so we have to get the rate of ownership up.

Eventually there will be no work at all. So ownership must be 100% shared to avoid a catastrophic inequality. Based on that logic the system essentially becomes purely circular, at which point cash/money/trade becomes irrelevant.

Everything is essentially free, as everyone gets out exactly what the put in (across the entire system)

In theory, this is where communism works, and capitalism fails.

Reality on the other hand says we are in for a very rough ride the next few decades.

Just listened to episode of the Guardian Science Weekly Podcast about Weapons of Math Destruction, featuring interview with the author. Good overview if you don't want to commit to a whole book.

Hi Roelof
We all live in a world of Myths, Lies and Propaganda. We have to start thinking for ourselves, that is thinking outside the box.
Money is nothing like what we think it is
Imagine this
Say the 1% own half the worlds wealth and that amounts to $100 Trillion and the 99% owned the other half.
Now say the 99% elect a government who takes all the wealth off the 1%, what will they have?
Well the government will NOT have Money, but assets in the form of Shares, Bonds, Property, Gold Bullion, Art, Jewellery and so on.
But say the government does not want these assets it wants the money to spend on Schools and Hospitals and Roads.
So the government try to sell these assets – What happens?
Well the Market value of all these assets crashes – Why?
Because the $100 trillion valuation of all these assets was grossly inflated and now the value has fallen to their real value. So the $100 trillion of assets may only be worth say $20 billion.

So if you want to bring the 1% down to size you have to burst their inflated asset bubble.

We can see the very same thing happening in NZ in a very tiny minor way between the homeowners and the renters.
As house prices rise so does the inequality between the renters and the owners. Burst the housing bubble and you minimise the inequality.
Very simple to see and understand when we open our eyes and look.
So let us burst the 1%’s asset bubble and bring them down to size.

Mike B,

Money is a very simple thing... It evolved naturally to more easily facilitate transactions, beyond the limitations of barter.
As well as being a medium of exchange ( transactions).. it needed to have a store of value so people could use it when they needed to. ( ie. they had trust in its long term value )...
People found that after a while that they could use money as a "measuring stick",. they were able to use money to determine relative values of various things..., in the same way we use the metric system to measure things..
Thats it.... beyond that and you are describing something more than just money.

In your example, when u talk about dumping $100 trillion of assets you are talking about the laws of supply/demand... ( Did the Govt pay for those assets or simply steal them..???, in your example )

Ray Dalio describes the law of supply and demand in a unique way... He measures demand in terms of Money + Credit and supply in terms of Quantity.. Any particulary market is simply a series of transactions, between buyers and sellers.... the price paid is a function of money + credit and the quantity of goods for sale.

In 1985 M3 money was $85 billion... today it is $280 billion.
This massive growth in money supply affects both the store of value aspect of money and also its ability to be a stable unit of measure... ( ie.. large money supply growth becomes distortionary ).
( In this regard we have been duped... Most of us accept that the CPI somehow measures the changes in the "store of value" aspect of money )

In terms of first principles ,... Every new dollar created affects the value of every already existing dollar.
Increases in money supply is a transfer of wealth.

Mismanagement of the money supply, by allowing unfettered growth, simply accelerates the transfer of wealth.

In my view, this is the primary mechanism that has facilitated the transfer of wealth into fewer and fewer hands.... that has lead to wealth inequality.
This has been the "petrol" that has enabled the stupendous growth in the FIRE economy..

Having reread what u have written... I think I get what u are saying thou..!
Idont agree with u on the idea of crashing the housing mkt to bring equality between renters and owners..??
With that line of thinking why not just take the houses from the haves and simply give to the have nots..??

better to make changes at a first principle level....
( eg.. Address the effects that tight urban limits have on land values in a rapidly growing city )
( eg. Have some dialogue on what our Monetray system should be... should it be growing exponentially??? should new money be created as debt..?? should the private banking sector be the ones that create new money , as debt, out of thin air ...etc...etc )

Hi Rolof
At this point i would just like to challenge the idea of money being a unit of measure.
If money is a unit of measure then so is a piece of chalk. As you use the chalk it wears down to nothing
Take a 5 cent piece
In the old money this was a sixpence
In 1960 (56 years ago) the one farthing coin went out of circulation in Britain
A farthing is one nine hundred and sixtieth of a pound sterling. In NZ hat is 480th of a dollar.
People used to go shopping with their farthings.
How much shopping could you do today with a coin that was 480th of a dollar?
Just like chalk the money has worn down to nothing
So if money is a unit of measure so is chalk
What is a Unit of measure?
A kilometre is a unit of measure of distance
A Gram is a unit of measure of weight
A Calorie is a unit of measure of energy
And so on
These units are fixed were money is not
You go into a shop and buy a cabbage for $2
I go into another shop and buy a cabbage for $3
What is the correct unit of measure for a cabbage?

I believe that these economists have created myths not facts
Money is a diminishing store of value and always has been but economists wont say that

I believe you are talking economic facts but not reality

Thanks for your feedback

True Mike, there has been only one form of money that has survived the ages, and is therefore the only one worth measuring against

Mike,
We use money as a unit of measure... We do it every day. We use it to determine the comparative value of things.. Money makes this easy... We do this process naturally, intuitively..almost.

With your example of cabbages ... If I am taller than you does that mean the metric system is wrong..??
Of course not....
Because the price of cabbages is measured in $ we can determine which is the best value and make decisions.
If cabbage A was priced in Donkeys...and cabbage B was priced in Pigs... how do u compare the relative value of each cabbage..??

I agree with you.... because our current monetary system does not have a "fixed quanity" of money its ability to be a unit of measure is distorted....
That is akin to changing the measurement increments of a ruler to make a short person seem taller..

This doesn't change the concept that one of the qualities of money is that it is a unit of account....a unit of measure.

My understanding of the economic world, and my ability to make money in the mkts only really fell into place when I came to my own understanding of money and the nature of our current Monetary system..
Its that big a deal...
It is a shame its not taught in schools... but then again , I've never come a cross a subject that has such varied and conflicting views.... ( I suppose that applies to economics , as a field of study, in general )

I believe that these economists have created myths not facts
Money is a diminishing store of value and always has been but economists wont say that
I believe you are talking economic facts but not reality

If you can understand the facts of how an engine should work ... then u have a better chance of figuring out whats happening when the engine starts going wrong.. eg..smokes...misfires..uses too much petrol..etc
And.. u have a better chance if u are a mechanic... ie.. u have skin in the game and move and shake in the real world... ( not the world of academia )

Most economists are academics..and not necessarily "original thinkers".. I don't think it is so much about them creating myths.. Its them accepting what they are taught.. ( even my own views are not the "truth" )

Nassin Taleb has a great artical talking about IYI... ( Intellectual yet idiot) ... I get what he means.

http://www.zerohedge.com/news/2016-11-09/nassim-taleb-explains-who-just-...

Thank U Roelof for a good discussion unfortunately we will have to leave it there. maybe some time later. Thanks