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Economic Dissonance

Monday, February 9th, 2015

In today’s economy, the theory of cognitive dissonance is itself dissonant.

Social psychologist Leon Festinger believed that humans strive for internal consistency, and that two or more contradictory beliefs cause mental stress.  Yet in today’s world, it seems that every policy, every vote, every executive order is designed to contradict rationality and add to our collective mental stress.

We’ve given a few examples of economic dissonance in the past:

The stock market.  During six years of quantitative easing (QE), bad economic news caused the stock market to rise and good economic news caused the stock market to fall.  That’s because bad news meant more Fed bond buying and good news made bond buying unnecessary.

Higher inflation.  Lower oil prices have done more to give the economy a boost than trillions of dollars in bond buying – yet the Federal Reserve Board has fretted that the U.S. is headed toward deflation.  Its policies were designed to increase inflation to the magic rate of 2%.  Why 2%?  No one seems to know.College Costs

The unemployment rate.  The widely used U-3 unemployment rate drops when people give up looking for work and leave the workforce.  As a result, we have absurdities such as this latest report from The Boston Globe:

“U.S. employers hired at a stellar pace last month, wages rose by the most in six years, and Americans responded by streaming into the job market to find work.

“The Labor Department says the economy gained a seasonally adjusted 257,000 jobs in January. The unemployment rate rose slightly to 5.7 percent from 5.6 percent.”

So Americans are “streaming into the job market” – causing an increase in the unemployment rate! (more…)

Attention Deficit Capitalism

Friday, June 13th, 2014

“Democracy would not be democracy, rule of the people, without at least a modicum of political attention and activity from its citizens.”                                                                                                                                                                                              James Bovard, Attention Deficit Democracy

Is anyone paying attention?

It seems as though the faster the world moves, the shorter our attention span becomes.  And today, speed is measured in nanoseconds.

Many have become complacent as technology has taken over.  High frequency trading, in which computers make the decisions, accounts for the majority of trades today.  HFT is based on arbitrage.  Computers look for discrepancies in pricing and take advantage of them, and that’s how money is made.  A company’s performance is irrelevant.

Humans created computers, but can’t compete with them.  They can try to produce a better algorithm, but the computers will make the decisions.epi_college_unemployment.png.CROP.promovar-mediumlarge

Technology has affected much more than just trading, of course.  Consider communications.  The telephone made it possible to communicate almost instantly.  The Internet, though, has made communications even faster.  Anyone with a computer can send a message to a database of thousands with the click of a mouse.  We can not only hear, but see people anywhere in the world while we talk to them, and our smartphones guarantee that we remain virtually connected at all times.

These and other technological developments have been a big boost to productivity, but they remove the human element.  Life in real time is also life on auto pilot.  We’re connected electronically, but disconnected socially and emotionally.

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