Purpose of markets | Grief | Ethical Progress
What a start to the year. Between the on-going pandemic, strong financial markets, US politics... Let’s start with a thought on the purpose of markets. There’s an autism aware blog from Anoushka on the difficulties of the endings of years or of anything.
➳Interstitial times, on the difficulties of endings
➳Mark Carney on the purpose of markets, financial crisis, COVID and climate.
➳The possible re-birth of blogs/newsletters as mainstream.
➳Ethical Progress, better today than before
➳Ray Dalio on grief
➳Jeremy Grantham on late stage bubbles
➳Dan Wang on China
➳Using spaced repetition prompts for recall
➳FiveThirtyEight on US responses to protests.
Back in 2019, if you described the happenings of 2020 and so far this year in 2021 I think the majority of us would not have predicted the outcomes across a wide range of factors but in particular stock markets (actually the performance of gold and bitcoin might be as one would have thought).
My day job investing studiously tries to not bet on overall “macro” factors - the large swings for markets - but I am intimately tied to these forces and bombarded with views on them daily - hourly in fact. And many friends have asked about markets - and most of you have pensions and the like to think about. As always there are positives (job creation, re-booting of economy, innovation) and negatives (length of cycle, pandemic, policy, trade, politics, valutions…) - if you’d like a chat please do contact me. If you can afford to (busy times), I think this is a year to pay attention to what you might do in this area as there are strong arguments for turning points or inflections that you should watch out for.
These are certainly very interesting times…
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Interstitial times “Spike has had low-level problems with things ending for a long time. As a toddler, I can remember having to check in with him as the end of a TV programme approached to remind him that it was ending soon. Without the reminder, the rude shock of the ending could cause him extreme upset. These days, he is increasingly good at finding his own solutions for endings. When we watch a movie, he insists on watching all the credits (good for catching those in-credit scenes which others might miss). I thought it was his completionist bent, but perhaps it is the buffer it creates. A gentle segue from the world of the movie back to the real world.
This year, Spike’s anxiety only really ramped up at the beginning of December. This is an improvement. Two years ago it kicked off at the beginning of September and became entwined in his mind with the permanent closure of an important feature on his Wii console and a change in ownership of a beloved bus route. I could see that he felt like his world was disintegrating. His solution was to write to Professor Brian Cox, requesting the invention of a time machine to undo his problems - stat. (Still waiting on your reply, Brian.)...
3 min blog on the difficulties of endings.
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Former central banker (UK/Canada), Mark Carney gives the 2020 Reith lectures. He tackles the purpose of markets, financial system resilience and climate. He has collated much of the current stakeholder, shareholder, free market, “late” capitalism debate and puts it through the lens of the pandemic, bubbles, and climate and from an active and influential player.
I think he’s putting much of the debate in the mainstream and there are critiques both of unregulated markets (not grounded in values) and the need for a just transition, but also that market forces are very neccessary for wealth generation and to solve the challenges (a critique of those who don’t favour markets at all). In one interpretation that would be arguing for state capacity.
4 hours of lectures (plus some very brief questions from Nobel Lauerates (the likes of Paul Krugman), politicians etc. I don’t have a super simple summary but I would highlight:
He views markets as a necessary mechanism for wealth creation. But markets are amoral and so needed to be grounded in values, such as social values, and that’s his reading of the full works of, eg, Adam Smith.
“...Smith’s writings warn of the mistakes of equating money with capital and divorcing economic capital from its social partner….”
His arguments look at unpriced externalities (climate, COVID), human errors (“irrational decisions”) and then…
”…the drift from moral to market sentiments. They include the undercutting of the social foundations of the market, the corrosion of values arising from pricing of goods, services and civic virtues, that have been traditionally outside the market, and the flattening of values by forcing decisions to be made according to utilitarian calculations. Let’s take the first of these drifts, the changing nature of markets. Now of course markets don’t exist in a vacuum, the market is a social construct whose effectiveness is determined partly by the rules of the state and partly by the values of society. It requires the right institutions, a supportive culture and the maintenance of social licence. Values of trust, integrity and fairness are critical to effective market functioning, and these values have increasingly been taken for granted. Milton Friedman’s classic pion to shareholder value includes the following caveat: A corporate executive’s responsibility is to make as much money as possible, while conforming to the basic rules of society, both those embedded in law and in ethical custom.
And where do these basic rules come from? Economic and political philosophers from Adam Smith to Friedrich Hayek have long recognised that beliefs are part of the inherited social capital which provides the social framework for the free market. That social capital is the product of both formal institutions and culture, including what the Nobel laureate, Douglass North, referred to as incentives embodied in belief systems. The question is whether the expansion of the market, an expansion that Friedman helped unleash, is changing the underlying social contract on which it has been based. Could the emphasis on the individual over the community or on our selfish traits over our altruistic ones imperil both the market’s effectiveness in determining value and ultimately society’s values? In short, in moving from a market economy to a market society, are we consuming the social capital necessary to create economic and human capital? The ethical customs that Friedman assumes can change. Indeed, many of those necessary to support market functioning are corroded when financial returns become disembodied from their impact on other stakeholders. Friedman himself revealingly acknowledged the importance of such moral sentiments when he observed that a company might devote resources to provide amenities to its community, but only in the expectation of attracting employees, and that it could engage in such hypocritical window dressing by calling this social responsibility lest it, and I quote,
“Harm the foundations of the free market to a dmit that this fraud was all in the pursuit of profit alone.” This is how corrosion happens, and did happen in the ensuing decades…”
And in my reading of his lectures, his current views are very formed from his own experience as a central banker, as seen here:
“....The starting point is the right balance between the market and the state, and this has shifted in recent decades with markets gaining in stature and influence. The market is becoming the organising framework, not only for economies, but also increasingly for broader human relations with its reach extending well into civic and family life. In parallel, the social constraints on unbridled capitalism, religion and the tacit social contract have been steadily eased. The Thatcher/Reagan revolution fundamentally shifted the dividing line between markets and governments. This change in direction was long overdue and their reforms unleashed a new dynamism. With the fall of communism at the end of the 1980s, the spread of the market grew unchecked. And so by the time I joined the G7 as the Deputy Central Bank Governor in the early 2000s, the conventional wisdom of market efficiency reigned supreme. Policymakers like myself had nothing to tell the market, they only had to listen and learn. Put it another way, the market was always right. But as my central bank colleague, and later Italian Minister of Finance, Tommaso Padoa-Schioppa once observed, when we grant an entity infinite wisdom, we enter the realm of faith. Faith can guide life, but blind policy, and such cognitive capture led to the self-cancellation of the policymakers’ judgement as only the market knows. And such trust dictated that the only solutions proposed to market failures were to add more markets or to reduce regulation further…”
There is much more in the lectures especially the 4th one on Climate. Long time readers won’t find anything that new in the climate lecture but he suggests:
“...The solutions to the climate crisis are intimately tied to our fiscal economic and social wellbeing. We need to leverage these social coalitions that have formed for climate action, but those coalitions won’t and shouldn’t hold if we don’t have a just transition. We can’t achieve environmental sustainability if we sacrifice our economy and with it, peoples’ livelihoods. Similarly, we won’t devise all the necessary solutions or implement them with sufficient speed without market forces.
And let me suggest here’s how you can reinforce these efforts.
First, if you work for a company, find out whether it has a plan to transition to net zero. If so, great, how can it be made better? And if it doesn’t have a plan, why not? Does management think governments and people are bluffing with their net zero targets? Or do they consider the company separate from society?
Secondly, wherever you put your hard-earned savings, in a bank, a pension pot, or in stock market, find out whether it’s been managed towards net zero. And if not, why not? Are the people investing your money missing out on major opportunities or are they taking unnecessary climate risks, or do they think that you just don’t care? If you care about the climate, make your money matter.
And third, ask not what the climate is doing to your country, but what your country can do for the climate. Does your country have a credible net zero plan? Does your government require large companies to disclose the impact of climate on their operations and must those companies have net zero plans? Do shareholders, ultimately you have an automatic vote on these plans? In other words a say on transition. Are banks planning for climate failure and do they know how they can contribute to climate success? “
Worth reading for an insight into what he will likely be arguing for in the coming climate talks in Glasgow. (2 min blog with link to BBC lectures)
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The possible re-birth of blogs/newsletters as mainstream + why you should start one
I left the world of theatre blogging in its heyday. Blogging in general was at its peak. Blogging started a steady march downwards as those who needed to earn a living moved to bigger platforms for advertising or regular work, and mainstream media needed more clickbait headlines and blogs for revenue. Plus communities could use Etsy, YouTube, Twitter, Insta and now TikTok... and other forms rather than the blog.
But niche and long-form didn’t die, though it may have faded, and over the last couple of years, the newsletter has undergone a revival. You are reading one! There has been a steady stream of columnists and experts who have moved to a newsletter and on to the SubStack platform. (If I was doing this more, I'd consider moving my list to Substack and it's worth looking at some of the letters there.)
It’s not only for journalists. Specialists have also done well from the newsletter format. I think it’s a good way of organising your thoughts and also sharing ideas with friends. Either in your areas of expertise but also as a way of keeping in touch with people and more distant friends.
Twitter and IG are a little easier - and I am only a recent convert to Twitter - but I think there is something to be gained from the longer form that blogs/ newsletters can give you and also thus make it a form of journaling (which is also good for you). So - I think everyone should start a newsletter.
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Ethical Progress, better today than before. I’ve been thinking how much progress (or not), we as humans have and the challenges around “progress studies” (cf Tyler Cowen, Patrick Collison) and the idea that the rate of progress has slowed down recently (say in the last 10 to 20 years) vs. mid 20th century. These have mostly been in the items of human development that we can more easily measure (life expectancy, science innovations, crop yields, mobility and the like) but I wonder about our social progress via the lens of where people mostly put “common sense morality”.
200 years ago, womens’ vote was not the norm and neither were many notions of equality many societies have today. Further back, slavery was the norm and it isn’t today.
From a personal view, I think in particular of the ethical progress we have made with autistic people and other differences. There are still enormous challenges that I don’t want to belittle. (I was speaking to someone who noted that autistic children in Sierre Leone are considered under spells of witch craft today by many people). But it strikes me it’s better today than say the 1950s both for parents - where for instance the awful “refrigerator mother” theory was common thinking - and for children - while we still face enormous struggles. If we can continue to make social progress this should hopefully continue to enrich humanity.
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Spoke recently with author Doris Iarovici about grief amongst many topics. About how much grief can be shared or not, how humans experience it and react. Billionaire, Ray Dalio recently lost his son (about my age) and has written a little about his process. Recall he has written a set of principles, amongst them a radical transparency. He’s also written a lot about China, and what happens at the end of long cycles (eg populism).
My Mum recently lost her Mum - My Poh Poh, Grandma - She was over 100. This picture is me, Poh Poh and a praying mantis. I mentioned her before under Asian Grannies and I offer this paragraph in memory. "Everyone’s grannies in the universal are extraordinary. They are complex and nuanced in the local. Mine brought up 5 children. She sewed, she cooked, she upholstered, she hustled - an entrepreneur before we thought of entrepreneurs - cooking feasts for local embassies, making cakes for occasions - pineapple tarts were a favourite - she wore a gold belt which was traded up and down in size as her personal savings and investment account. She came to help look after me when I was young. She had this exaggerated sniff of you, which you couldn’t escape from, and she held your scent like she had the measure of you, now and always. Complex, fierce, funny."
The sniff is something that seems to have been passed down this family line to me (!)
Ray Dalio on Grief (3 mins, Linkedin)
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Dan Wang on China (15 min read). An insightful commentator on China, Wang reviews his year covering a long section on food (yay IMO) and a view of China’s governance which framed recent happenings in way I had not thought of.
“This year I discuss China's institutional strengths as well as its growing repressiveness; technology as a means to avoid decadence & complacency; Proust; the party's main theory journal; biking in Beijing; a culinary ranking; and more.”
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Between May 1 and November 28, 2020, authorities were more than twice as likely to attempt to break up and disperse a left-wing protest1 than a right-wing2 one. And in those situations when law enforcement chose to intervene, they were more likely to use force — 34 percent of the time with right-wing protests compared with 51 percent of the time for the left. FiveThirtyEight on US responses to protests.
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On how to improve recall and learning, by former Khan academy tech person. “Happily, prompt-writing does not require arcane secrets. It’s possible to understand somewhat systematically what makes a given prompt effective or ineffective. From that basis, you can understand how to write good prompts. Now, there are many ways to use spaced repetition systems, and so there are many ways to write good prompts. This guide aims to help you create understanding in the context of an informational resource like an article or talk.”
Links:
➳Interstitial times, on the difficulties of endings
➳Mark Carney on the purpose of markets, financial crisis, COVID and climate.
➳The possible re-birth of blogs/newsletters as mainstream.
➳Ethical Progress, better today than before
➳Ray Dalio on grief
➳Jeremy Grantham on late stage bubbles
➳Dan Wang on China
➳Using spaced repetition prompts for recall
➳FiveThirtyEight on US responses to protests.
I chat with Rebecca Giggs on her new book looking at humanity through the lens of the whale. There is video and a transcript. Self-recommending.
Thanks for reading. Feel free to forward this letter to anyone you think might be interested in signing up.
Archive and repeat words below. Stay well, Stay safe, Ben
Micro-grants. £10K for positive impact people.