Blog Archives

What’s Been Normalized? Nothing Good or Positive

When the initially extraordinary fades into the unremarkable background of everyday life, we say it’s been normalized. Put another way, we quickly habituate to new conditions, and rationalize our ready acceptance of what was previously unacceptable.

Technology offers many examples of extraordinary advances quickly becoming normalized as we habituate to new devices and behaviors, but my focus today is on policies and cultural norms that were radical departures from accepted norms at their introduction but which are now accepted as “normal.”

This normalization of extreme policies conceals the often equally extreme unintended consequences of the new policies and norms.

Let’s start with two examples which have unleashed unintended consequences that have completely distorted markets: allowing pharmaceutical companies to advertise directly to “consumers” and allowing corporations to buy back their own shares. Each of these activities had been banned for self-evident reasons, yet were allowed in the neoliberal rush to deregulate industries without regard for the long-term consequences.

Now Big Pharma dominates advertising in late-night TV and various print publications, directing “consumers” to “ask their doctor about”…. The ads all feature a comical parody of disclosure, with a fast-talking voice talent listing all the horrific side-effects as quickly as possible in the hopes “consumers” won’t hear the real-world consequences of the oh-so-pricey med being promoted.

I’ve long mocked this Big Pharma profiteering via my parody ads for imaginary meds such as Delusionol:


Tagged with: , ,

The Global Distortions of Doom Part 1: Hyper-Indebted Zombie Corporations

It’s funny how unintended consequences so rarely turn out to be good. The intended consequences of central banks’ unprecedented tsunami of stimulus (quantitative easing, super-low interest rates and easy credit / abundant liquidity) over the past decade were:

1. Save the banks by giving them credit-money at near-zero interest that they could loan out at higher rates. Savers were thrown under the bus by super-low rates (hope you like your $1 in interest on $1,000…) but hey, bankers contribute millions to politicos and savers don’t matter.

2. Bring demand forward by encouraging consumers to buy on credit now.Nothing like 0% financing to incentivize consumers to buy now rather than later. Since a mass-consumption economy depends on “growth,” consumers must be “nudged” to buy more now and do so with credit, since that sluices money to the banks.

3. Goose assets based on interest rates by lowering rates to near-zero. Bonds, stocks and real estate all respond positively to declining interest rates. Corporations that can borrow money very cheaply can buy back their shares, making insiders and owners wealthier. Housing valuations go up because buyers can afford larger mortgages as rates drop, and bonds go up in value with every notch down in yield.

This vast expansion of risk-assets valuations was intended to generate a wealth effect that made households feel wealthier and thus more willing to binge-borrow and spend.

All those intended consequences came to pass: the global economy gorged on cheap credit, inflating asset bubbles from Shanghai to New York to Sydney to London. Credit growth exploded higher as everyone borrowed trillions: nation-states, local governments, corporations and households.

While much of the hot money flooded into assets, some trickled down to the real economy, enabling enough “growth” for everyone to declare victory.

But the unintended consequences also came to pass: 


Tagged with: , , , , , , ,

The Unintended Consequences of the $15/Hour Minimum Wage

For many, the most direct way of increasing the income of low-wage workers is to raise the minimum wage significantly. Many high-cost states have already passed legislation to raise the minimum wage to $15/hour.

Despite the official claims that inflation is near-zero, low-income workers have been pinched by stagnant wages and higher costs. Longer term, wages as a share of the nation’s GDP have been declining for decades (see chart below).

But this well-intentioned program has unintended consequences, not just for those it intends to help but for the economy as a whole. Long-time correspondent J.M. recently shared some incisive analysis of the many less-than-positive consequences of much higher minimum wages.

In this context, it’s useful to revisit Smith’s Law of Conservation of Risk: Every sustained action has more than one consequence. Some consequences will appear positive for a time before revealing their destructive nature. Some consequences will be intended, some will not. Some will be foreseeable, some will not. Some will be controllable, some will not. Those that are unforeseen and uncontrollable will trigger waves of other unforeseen and uncontrollable consequences. (July 8, 2014)

Here is J.M.’s thought-provoking commentary:

Please bear with me, I am still playing with these ideas on the consequences of a $15/hour minimum wage:


We, rather snarkily, look down our noses at the European habit of the 90-minute lunch.

What if the 90-minute lunch were a necessity, given the staffing levels, and not a cultural affectation? Suppose labor cost $20/hour (with benefits) and there were only two people working in the restaurant…a husband/wife team. Would it be even possible to be served within time standards that we, in the United States, currently consider to be the barest minimum levels of service?

Politicians LOVE giving gifts that they do not need to pay for. They can feel extremely generous. That is why raising the minimum wage is so appealing to them. They think it is “free”.

But in the case of the 90 minute lunch…who pays? Who takes the hit to their quality-of-life? Not the “rich” business owners.


I was standing in line at Walmart the other day. As a retiree, a fifteen minute wait is tedious but not a big deal.

A young African-American gent in a highly reflective shirt (i.e. a man on his lunch break from construction/road work) stood at the far end of the line. He had a small container of popcorn chicken, some chips and a soft drink. I asked if he was on his lunch break from work. He said that he was. To the credit of every person standing in that check-out line (seven of us), we moved him up to the front of the line and out the door. He did not need to spend half of his lunch break (assuming a thirty minute break) standing in line.

That degree of generosity might be the exception. That man was lucky.

The magnificent “gift” that we are inexorably marching toward, the $15 minimum wage, will come out of the hides of working people eating lunch or running errands after work.

Not only will the transaction price of a sandwich rise, so will the opportunity costs.To date, I have seen much ink spilled regarding the transaction price but almost nothing about the inevitable opportunity costs. De-staffing will gut throughput of support services and impair “high value” enterprises.

The fast food lunch that formerly cost $7 and 4 minutes will cost $10 and 15 or 30 minutes. At $15/hour, an additional 26 minutes adds $6.50 to the real cost of that meal.

A secondary effect will be that doctor’s, dentist’s, lawyer’s, accountant’s (etc.) offices will have 90-minute mid-day downtimes instead of 30 minute downtimes. People needing professional services will be pushed off. Some people will defer seeking help for that tingling in their left arm or that suddenly severe “indigestion”.

A relatively small portion of the population makes the minimum wage. The cost to society for a highly skilled, and highly compensated, person is much, much higher than the minimum wage. And it does not need to be the thoracic surgeon who is tangled up, waiting in line. It can be the second nurse to the anesthesiologist. A lack of any one of the team will negatively impact their productivity.

Businesses are already transitioning on the expectation of $15/hour. They are figuring out how to run with fewer people.

In some cases, reducing people means dropping to a single person. That poses a risk to stand-alone businesses that accept cash. One reasonable expectation is that small businesses will only accept credit/debit cards during their slow periods and when risks of armed robberies are high.

The ripples travel far and the consequences injure the very people who politicians visualize helping.

Thank you, J.M., for sharing your commentary on the unintended consequences of $15/hour minimum wage. Many analysts favor expanding the Earned Income Tax Credit (EITC) to boost the wages of low-income workers rather than raising minimum wages. In effect, the EITC raises the net income of low-income workers without passing on higher costs throughout the economy.

The costs of the Earned Income Tax Credit are relatively modest, and are ultimately paid by higher-income households–those best situated to pay a bit higher tax to increase the net income of the (relatively modest number of) lowest-paid workers.

A Radically Beneficial World: Automation, Technology and Creating Jobs for All is now available as an Audible audio book.

My new book is #14 on Kindle short reads -> politics and social science: Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle ebook, $8.95 print edition) For more, please visit the book’s website.

Tagged with: , ,

The Destroyer of Fake “Recoveries”: Unintended Consequences

Destroy the market’s ability to price assets, risk and credit, and you take away the essential information participants need to make rational, informed decisions.

A correspondent recently summarized why unintended consequences eventually destroy all politically expedient strategies that temporarily prop up a systemically unsustainable Status Quo:

“Unintended consequences almost always equal or exceed the benefits of whatever your temporary gains were in a complex system. We see this over and over again, in all sorts of different complex systems.”


Tagged with: , , ,

Certainty, Complex Systems, and Unintended Consequences

When it comes to complex systems and unintended consequences, the key phrase is “be careful what you wish for.”

A lot of people are remarkably certain that their understanding of how systems will respond in the future is correct. Alan Greenspan was certain there was no housing bubble in 2007, for example (or he did a great job acting certain). There is no shortage of people who are certain the U.S. dollar is doomed to collapse, but only after losing the reserve currency status.

Other people are certain China can launch a gold-backed currency that will replace the dollar as the world’s reserve currency.

Some are certain the U.S. stock market is going to crash this year, while others are equally certain that stocks will continue lofting higher on central bank tailwinds.

Being wrong about the way systems responded in the past doesn’t seem to deter people from being certain about the future.


Tagged with: , , , , , , , , , , ,