Thursday Bookshelf: New TFS Bookstore Section IPE and First Two Sumbissions: The Stock Market Is Rigged and Inequality is Result of Under-Regulated Capitalism

As we continue to grow here at The Florida Squeeze, we’ll continually be adding new features to our website. There is no question that the number one issue on the minds of Floridians, Americans and most people across the planet is the economy.  If you’ve been following my work here and in other mediums and/or not drunk on off the Kool-Aid you probably know things are not good no matter what the spin doctors tells.  Good jobs are becoming scarce, wages are stagnating, and prices are rising while corporate profits, market exchange levels, and  the one-percenters’ share of the economy grow to record levels. In an world that is seemingly shrinking every second thanks to a combination of technological advancement, population growth, and globalization, our economic future is unknown or worse headed for another global slowdown. Staying in the know about whats going on in our globalized economy is critical. Everyday we read stories about automation, drones, and an economic “recovery” spearheaded by growth in the service and retail sectors, where wealth is stuck at the top and the creation of minimum wage and/or  what I’ve previously called, “bad jobs” seems to be the new norm.

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We need to formulate ideas, solutions, plans, and policies to fix some of our most systemic problems, and here’s the key: AS A PARTY. Yes, we can spend more money telling Florida voters that our opponents are racists, their policies are wrong, and and that they are the wrong people to be running our state  thereby continuing to ignore exactly what Florida voters are crying out for: ideas on how we can fix our stagnating economy. The result of this strategy?  Consequently continuing to lose statewide elections.  At TFS, its our belief that our duty as voters does not stop at the ballot box or working on campaigns. It continues here, in the discussion of policies and ideas that we can propose that will not only garner us support at the ballot box, but will fuel an economic recovery that will serve as the jolt to the middle and working classes that is so desperately needed. We can start doing that by examining the current literature on so many of our most pressing economic concerns: economic growth, wealth/income inequality, wage stagnation, market regulation, tax policy, and host of others. So, today, we are proud to announce the addition of a new section to the TFS Bookstore: International Political Economy. Weekly, we’ll add and discuss works that cover such policy areas: economic growth, globalization, regulation, inequality, global trade, tax policy, fiscal/monetary policy, etc.  Let’s get started.

Today, we are submitting two  must reads, that are already being heralded in academic circles . The first, examines the capitalist system from a twenty-first century perspective.  But have no fear, French Economist Thomas Piketty lays it out in such a way, that anyone can pick it up and understand the concepts- in other words, its light on the arithimatic and formula side of the policy. Piketty argues that the inequality is the end result of a the under-regulated success of the capitalist system. The second, is from world renowned author and financial journalist Michael Lewis, whom tells the story of how Wall Street’s technological advancements have changed trading, and now high frequency trading (HFT) seemingly rigs the market and how a group of men found a way to fix it. Most know him as the author of The Blind Side which chronicled the life of NFL offensive lineman Michael Oher, and Moneyball the baseball movie about the Oakland Athletics, their general manager Billy Beane  and the fascinating field sabermetrics in baseball presented originally presented by Bill James, both of which were later made into Academy Award winning films by the same name.

CapitalPiketty First let’s talk about Thomas Piketty. Piketty is well known to folks that have studied or worked in economics and IPE. His work with fellow economist Emmanuel Saez is cheered in the academic community as some of the most important contributions to the global understanding of  top end wealth concentration.  Togther that are most known for the World Top Income Database thats one of my golden sources that examines trends in income distribution and returns on investments in a global context. That in itself, is something you must check out for yourself. If you’re my friend on Facebook, you might already know it as I’ve featured it as #NerdPorn before.  The best part about the project is that its a project- constantly being updated with fresh data. Who could ask for more?

Piketty’s latest  “Capital in the Twenty-first Century”is an update to 19th century German economist Karl Marx’s “Das Kapital.” I know what you are thinking. But calm your inner Allen West and Ted Cruz, this is not some call for a socialist revolution. Far from it. As a Washington Post review put it:

“Capital in the Twenty-first Century,” is clearly modeled after Marx’s “Das Kapital.” But where Marx’s research was spotty, Piketty’s is prodigious. And where Marx foresaw capitalism’s collapse leading to a utopian proletariat paradise, Piketty sees a future of slow growth and Gilded Age disparities in which the wealthy — owners of capital — capture a steadily larger share of global wealth and income. 

 

In other words, Piketty’s view of the future is quite grim but does include ideas on ways to curb some of the major consequences of capitalism’s under-regulated success.  As economist and co-director of another golden source,Center for Economic and Policy Research Dean Baker concluded:

The story is that slowing growth will lead to a rise in the ratio of capital to income, which we have already seen throughout the world with the rise in stock and house prices. This is turn will imply growing inequality as wealth distribution is hugely unequal and there is little reason to believe that the market will somehow reverse this inequality. Piketty’s remedy is higher income taxes on the rich and wealth taxes, solutions that he acknowledges do not seem to have good political prospects right now.

The latter part of that quote is most important here and tell the real grim part of this story. We have proven solutions to our economic troubles. They are sitting right there, in academia. But because of our broken politics, rigged political and financial system that caters to those that can afford to buy influence, they rot on the shelves. It’s time for us to start embracing the policies and solutions that coincide with our party’s values, principles, and ideals and running our campaigns based on them not running away from them.

Our second addition to the TFS bookstore, is Michael Lewis’ “Flash Boys” and its already making people on Wall Street absolutely lose their minds and you know if you write something and it really makes heads explode on wall street, you are doing something right. Lewis is constantly under attack as he continues his book tour these days  as outs the the latest best kept secret on Wall Street- the creation of an essentially (and literally) underground financial market that only the uber wealthy can afford to use- a financial market thats entirely run by machines. No, this is not some science fiction novel, or Schwarzenegger spin off. This is how the wealthiest of the wealthy are rigging our financial system.

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These computers are executing what are known as “high frequency trades” (HFTs) the practice by which wall street brokers gain just microseconds of advantages on automated exchanges in an era where stock profits are at record highs yet stock ownership (less than half are invested) is at record lows and these types of trades make up more than half of the market. “Flash Boys” argues that the market is now rigged by a small number of wall street insiders that have made billions of dollars. In his 60 Minutes, interview this past Sunday, Lewis was asked “Whats the headline,” to which his response was, the stock market is rigged, everyone that’s invested is a victim, and the visual we have of a bustling trading floor in lower Manhattan has been replaced by data centers full of computers, that have essentially removed humans from the process.

Lewis introduces us to (amongst others) Bradley Katsuyama, the man who figured out what has happening, and wanted to figure out ways to fix it. A financial sector veteran (Royal Bank of Canada)  in his own who had worked for firms that utilized such trades Katsuyama leads Lewis, and then Lewis to the reader to some jaw dropping realities: these computers, which are reading market trends, and utilizing trades and worse, driving up the price for the the regular trader thus rigging the market for those who can afford it.Katsuyama and his team’s work on this serious and structural problem, that he calls legalized front loading, has lead him to create a new type of market place that includes speed bumps to prevent HFTs from rigging the market and losing millions if not billions of dollars in revenue for the regular trader out there.

I hope you’ll pick up both these books, and share all of submissions to the TFS Bookstore as we continue to find policies from our history and solutions from the worlds best thinkers of today, that can help us put Florida and the country back on  the right track.

As always, thanks for reading.

JS
@JustinSnyderFL

 

 

 

 

8 comments

  1. The business media has attacked Michael Lewis unmercifully; questioning his credibility, what personal gains he stood to make and his fact checking process. It appears much of what the book includes was also published in Wall Street Journal reporter, Scott Patterson’s book, “Dark Pools.” I don’t think he ever was on the end of such vitriol. I’m guessing this is because Lewis is so popular and the remote possibility his book could be turned into a movie. Whereas, Patterson’s book didn’t really move the needle nor the debate. I haven’t gotten a copy of Flash Boys yet, but I’m reading “Dark Pools” and will report back.

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  2. According to deadline.com, “Sony Pictures and producer Scott Rudin are near a deal to acquire Flash Boys, the hottest-selling book in the country.”

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  3. Joe Nocera agrees on the similarity with Dark Pools. Although Patterson did a great job with his earlier book, “The Quants.” I think he overdoes the subject. It dense and tough to penetrate writing, whereas Lewis keeps it simple and transparent. In fact, after reading a chapter or two of Dark Pools, the first time, I turned it back in as I didn’t think the problem was that big of a deal. In this book Patterson creates his own jargon and falls in love with it. He uses the term “Bot algos” for robot algorithm. Michael Lewis would probably use simpler language, like, “automated trading algorithms” . http://www.nytimes.com/2014/04/05/opinion/nocera-michael-lewiss-crusade.html?_r=0

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    1. Not sure how to delete the above comment.

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  4. Joe Nocera agrees on the similarity with Dark Pools. Although Patterson did a great job with his earlier book, “The Quants.” I think he overdoes the subject with this book.. It’s dense and tough to penetrate writing, whereas Lewis keeps it simple and transparent. In fact, after reading a chapter or two of Dark Pools, the first time, I turned it back in as I didn’t think the problem was that big of a deal. Patterson creates his own jargon and falls in love with it. For instance, he uses the term “Bot algos” for robot algorithm. Michael Lewis would probably use simpler language, like, “automated trading algorithms” . http://www.nytimes.com/2014/04/05/opinion/nocera-michael-lewiss-crusade.html?_r=0

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  5. Good radio interview with Piketty by Tom Keene with Bloomberg. http://media.bloomberg.com/bb/avfile/vzOzTjla9BeY.mp3

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  6. “(A)t the IMF/World Bank meeting was every world leader was talking about this book,” said Tom Keene with Bloomberg regarding Piketty’s book.

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  7. “(A)t the IMF/World Bank meeting every world leader was talking about this book,” said Tom Keene with Bloomberg regarding Piketty’s book.

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