Flashboys and "Investor" Outrage

Doug Orr, Guest Blogger

In his article “The Big Casino,” in the latest issue of Dollars & Sense magazine, economist Doug Orr notes the recent attention—thanks largely to Michael Lewis’ celebrated book Flash Boys: A Wall Street Revolt—to high-speed stock trading. Lewis tells a story in which the problem goes no deeper than the rigging of the stock-market game to favor some players over others. (It is a measure of the superficiality of Lewis’ analysis that the solution on offer, and the objective of the story’s heroes, is to set up a different kind of casino!) “The problem with the stock market is not just that the casino game has been rigged to favor some gamblers,” Orr argues. “More fundamentally, the problem is the existence of the casino in the first place.”

Gamblers at a blackjack table know they will occasionally lose. But if they see a player who can take his bets off the table if he is losing and can take part of every pot as well, they will be very upset. This is why Michael Lewis’ book Flash Boys: A Wall Street Revolt, which describes how high-frequency traders are able to “frontrun” the market, has raised such a furor in the business press. Gamblers like playing the game, but not if the game is rigged. When they finally find out how it is rigged they will protest loudly.

On April 3, in reaction to the revelations in Flash Boys, brokerage-firm founder Charles R. “Chuck” Schwab issued a statement calling high-speed trading a “growing cancer” that threatens to destroy faith in the fairness of the markets. Schwab pointed out that while the total number of trades stayed relatively flat from 2007 to 2013, the number of trade inquires rose from 50,000 per second to 300,000 per second! He called this “an explosion of head-fake ephemeral orders” designed to “skim pennies off the public markets by the billions.” He claimed that “high-frequency trading isn’t providing more efficient, liquid markets,” but rather it is “picking the pockets of legitimate market participants.” He pointed out that some high-frequency traders claim to be profitable on over 99% of their trading days, a statistical impossibility unless the game is rigged.

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Global Food Security Needs States to Ally with Family Farmers

Sylvia Kay, Guest Blogger

Sylvia Kay is a researcher at Transnational Institute (TNI). She works on a wide range of issues including land grabbing, water, and agricultural investment.

South Africa’s most famous cleric, Desmond Tutu, in his inimitable style, once said, “If an elephant has its foot on the tail of a mouse, and you say that you are neutral, the mouse will not appreciate your neutrality.” His blunt speaking has particular relevance to important negotiations taking place in Rome this week at the United Nations Committee on World Food Security, which will define principles for “responsible agricultural investment” (known as RAI) in the context of an ongoing food crisis and an unprecedented wave of land grabbing.

When it comes to agriculture and food, the elephant is agribusiness. Just three companies control 50% of the commercial seed market; only four companies control 75% of the global trade in grains and soya. Their argument is that the state’s role should be that of a neutral broker, encouraging primarily private investment in agriculture. They are willing to accept guidelines for “responsible investment,” but within a model that sees ever increasing levels of foreign direct investment and the deepening and further integration of national agricultural sectors into global commodity chains and markets. Theirs is essentially a business-as-usual approach which seeks to retrofit the RAI principles to existing agribusiness initiatives.

While such principles will boost the profits of some corporations, the evidence shows that it will not deliver on the CFS mandate to realise the right to adequate food for all. One in eight people in the world are currently undernourished—and this has worsened in recent years. In fact, reliance on global markets led to global food prices in 2007 rising to levels in real terms not witnessed since 1846. This has not only added between 130 to 150 million people to those living in extreme poverty, it has also fueled an unprecedented wave of land grabbing across the global South by governments seeking security from food riots and corporations seeking profits from perceived scarcity.

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Trans-Pacific Partnership: Another Trade Liberalization Scam

John Weeks, Guest Blogger

The gathering pressure for Congress to “fast track” the Trans-Pacific Partnership (TPP) demonstrates yet again that trade liberalization is one of the few aspects of economic policy about which there is agreement across the mainstream of the political spectrum, in both the United States and Europe. Almost all conservative commentators endorse it with gusto, for centrists it is an article of faith, and even many progressives accept it implicitly by their criticism of industrial country protection.

The neoliberal ideologues sell it by bestowing the label “free trade,” which is allegedly reached by repeated measures of “trade liberalization.” No matter that the TPP has little to do with trade and everything to do with setting loose capital on a global scale. Well tested and demonstrably disastrous in the North American Free Trade Association, this liberating of capital includes 1) global extension of corporate patents under the moniker “intellectual property rights,” 2) shifting enforcement of those patents from national governments and courts to ad hoc international tribunals, and 3) prohibiting as “protectionist” measures protecting labor rights and the environment.

This is not “freer” trade, but re-regulation of trade to entrench corporate profit making. However, if you call it freer trade, you can sell it to the public. In order to discredit this corporate sales pitch, I have to drive a stake through the heart of the Free Trade dogma that is the ideological justification for neoliberal globalization.

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Mexico and Monsanto: Taking precaution in the face of genetic contamination

Timothy A. Wise

Regular Triple Crisis contributor Timothy A. Wise leads the Globalization and Sustainable Development Program at the Global Development and Environment Institute (GDAE), Tufts University. This is the second installment in his series on Mexico, genetically modified organisms, and genetic contamination of native maize. See his earlier post on the subject here.

To listen to the current debates over the controversial requests by Monsanto and other biotech giants to grow genetically modified (GM) maize in Mexico, you’d think the danger to the country’s rich biodiversity in maize was hypothetical. It is anything but.

Studies have found the presence of transgenes in native maize in nearly half of Mexico’s states. A study of maize diversity within the confines of Mexico’s sprawling capital city revealed transgenic maize in 70 percent of the samples from the area of Xochimilco and 49 percent of those from Tlalpan.

Mexico is the “center of origin” where maize was first domesticated from its wild ancestor, teocinte. The country is arguably the last place you’d want to risk the possibility that its wide array of native seeds might be undermined by what indigenous people have called “genetic pollution” from GM maize.

Last October, a judge issued an injunction putting a halt to all experimental and commercial planting until it can be proven that native maize varieties are not threatened by “gene flow” from GM maize. The precautionary measure comes more than a decade too late.

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Is the Piketty Enthusiasm Bubble Subsiding?

Jeff Madrick

The Piketty bubble may be coming to an end. Economists are starting to criticize the heart of his argument. That is not to diminish important aspects of his book. But the most profound of his claims simply may not hold.

Arriving with a fanfare worthy of Caesar, Thomas Piketty’s long book, Capital in the 21st Century was at first welcomed almost uncritically by enthusiastic centrists and progressives both. Why not? As one read the first sections of the book, who wouldn’t have? I am an admirer and remain one. Here was an economist widely respected in the mainstream telling us point blank that the rich earned far more than they deserved, that economic theory regarding labor markets failed, that the most respected economists had little sense of the real world, and that inheritance was a source of persistent inequality.

Most impressive was the quantity and depth of empirical backing. Piketty scolded economists for depending on models with little empirical basis. This needed to be said by someone so respected. Piketty’s remarkably influential work on income inequality with his colleague Emmanuel Saez is what really revolutionized thinking about economics—and paved the way for his enthusiastic acceptance. Using tax records, they showed the remarkable concentration of wealth in the top 1%—basically they counted how many really rich people there were. Their findings about the extreme distribution of income towards the risk were shocking and confirmed anecdotal evidence.

The empirical analysis in the new book went further. It showed that the equality that existed since World War II and began to reverse in the early 1980s had been an aberration. Capital usually grew faster than incomes throughout history. And it would likely continue to do so! Piketty found that this relation in which r, the rate of return on capital, exceeded g, the growth rate of the economy, seemed permanently etched into not merely history but the future.

And he told us that the best way to deal with such a law of inequality was to tax the rich through a global wealth tax.

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Antibiotics Are Becoming Ineffective All Over the World, Why?

Martin Khor

Triple Crisis contributor Martin Khor has written recently about the rising problem of antibiotic-resistant bacteria. Here, he is interviewed by The Real News Network producer Lynn Fries about the issue. Khor pulls no punches about the magnitude of the danger, calling it “as serious to human life as the climate change crisis that we are all trying to address and fighting against.” He goes on to address the necessity of government action on antibiotic resistance, as well as the impediments to such action (including a different kind of resistance—from the pharmaceutical industry).

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The Tragedy of the Soma Mine-Workers

The Tragedy of the Soma Mine-Workers: A Crime of Peripheral Capitalism Unleashed.

Erinç Yeldan

One of the greatest work-crimes in mining industry occurred in Soma, a little mining village in Western Turkey. At noon-time on Tuesday, May 13, according to witnesses, an electrical fault triggered a transformer to explode causing a large fire in the mine, releasing carbon monoxide and gaseous fumes. (The official cause of the “accident” was still unknown, at this writing, after nearly 30 hours.) Around 800 miners were trapped 2 km underground and 4 km from the exit. At this point, the death toll has already reached 245, with reports of another 100 workers remaining in the mine, yet unreached.

Turkey has possibly the worst safety record in terms of mining accidents and explosions in Europe and the third worst in the world. Since the right-wing Justice and Development Party (AKP) assumed power in 2002, and up to 2011, a 40% increase in work-related accidents has been reported. The death toll from these accidents reached more than 11,000.

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Why is Calorie Intake Falling if Incomes are Rising in India?

Deepankar Basu and Amit Basole, Guest Bloggers

Deepankar Basu is an assistant professor of economics at the University of Massachusetts-Amherst. Amit Basole is an assistant professor of economics at the University of Massachusetts-Boston. This blog post summarizes the findings from their recent Political Economy Research Institute (PERI) working paper “Fueling Calorie Intake Decline: Household Level Evidence from Rural India.” The full paper is available here.

The Indian “Calorie Consumption Puzzle” has attracted a lot of attention recently. The puzzle is that average per capita calorie intake has been declining over the past few decades, even as real per capita expenditures and incomes have been rising. According to National Sample Survey (NSS) data, between 1983 and 2009-10, average inflation-adjusted monthly expenditure increased by 28% but calorie intake declined by 16% in rural India (Figure 1). Since, at any given point in time, calorie intake tends to increase with income, the Indian time trend is unexpected and puzzling.

Figure 1: Average real monthly per capita expenditure (MPCE) and calorie intake in rural India. Real MPCE is obtained by deflating nominal MPCE by the consumer price index for agricultural labourers (with 1986-87 as the base year). Source: Report 508 and 538 of the National Sample Survey Organization, India and authors’ calculation from unit-level data.

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Rhode Island’s Crisis of Inequality, and a First Step to Tackle It

Douglas K. Smith, guest blogger

Introduction

I am Doug Smith, the Executive Director of Columbia Journalism School’s Sulzberger Leadership Program. I have authored a number of books on best practice for business, based on three decades of consulting experience.  I am also one of the co-founders of Econ4, a network of economists and other analysts seeking to shift the way economics is taught, understood, and practiced—away from the failed practices that produced the Great Financial Crisis and the extraordinary income and wealth inequalities that now imperil our democracy.

On May 6, I submitted written testimony to the Finance Committee of the Rhode Island Senate in support of a proposed law to help rein in rising economic inequality in the state. The law would give preference in the awarding of state-government contracts to businesses that limit the ratio of pay between their highest-paid executive and lowest full-time employee to no more than 32-to-1. The text below is based on my testimony.

For Triple Crisis readers unfamiliar with Rhode Island, it is the smallest by area of the fifty U.S. states. It is, however, also the second most densely populated, making Rhode Island’s economy essential not just to Rhode Islanders but also people across the Northeast region of the United States. Today, Rhode Island’s economy is in serious jeopardy—in large part because of the raging income and wealth inequality imperiling people across the globe—from Greece to Great Britain and, yes, from Romania to Rhode Island.

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Rhode Island's Crisis of Inequality, and a First Step to Tackle It

Douglas K. Smith, guest blogger

Introduction

I am Doug Smith, the Executive Director of Columbia Journalism School’s Sulzberger Leadership Program. I have authored a number of books on best practice for business, based on three decades of consulting experience.  I am also one of the co-founders of Econ4, a network of economists and other analysts seeking to shift the way economics is taught, understood, and practiced—away from the failed practices that produced the Great Financial Crisis and the extraordinary income and wealth inequalities that now imperil our democracy.

On May 6, I submitted written testimony to the Finance Committee of the Rhode Island Senate in support of a proposed law to help rein in rising economic inequality in the state. The law would give preference in the awarding of state-government contracts to businesses that limit the ratio of pay between their highest-paid executive and lowest full-time employee to no more than 32-to-1. The text below is based on my testimony.

For Triple Crisis readers unfamiliar with Rhode Island, it is the smallest by area of the fifty U.S. states. It is, however, also the second most densely populated, making Rhode Island’s economy essential not just to Rhode Islanders but also people across the Northeast region of the United States. Today, Rhode Island’s economy is in serious jeopardy—in large part because of the raging income and wealth inequality imperiling people across the globe—from Greece to Great Britain and, yes, from Romania to Rhode Island.

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