Tyler Cowen’s comments on income inequality and technology… I disagree

I just read Tyler Cowen’s comments in the International New York Times Upshot piece titled, “How Technology Could Help Fight Income Inequality“, and I could not make it past the second paragraph before the words came rushing out of my mouth, “rubbish!”.

It is a short piece so I invite you to read it yourself but I will remark on a few of his comments that just leave me unsettled.  Cowen essentially argues in his piece that we should consider letting technology solve the income inequality problem – that “Technology has contributed to the rise in inequality, but there are also some significant ways in which technology could reduce it.”

Funny enough, however, Cowen early on concedes that, “It is a bit harder to see how information technology can lower housing costs, but perhaps the sharing economy can make it easier to live in much smaller spaces and rent needed items, rather than store them in a house or apartment.

What I read from this is, “well, o.k., technology will not help lower housing costs, but hey, maybe this thing called the “sharing economy” will make it easier for folks to tolerate income inequality.  Oh, and since you have to tolerate living in a shoe box and don’t have space for all of those products that 2/3 of the American economy needs you to spend money on, you can just share those too.  Its gonna be great! 🙂

While I can agree with Cowen that there are some areas where technology can help alleviate the income inequality problem, I disagree with his notion that it in itself can be the solution.  What I find remarkable with Cowen’s comments is that he mentions nothing of how government can help – libertarian bias???  How can anyone talk about income inequality without addressing some of the overt obstacles to achieving it – such as an education system that favors means, or government regulation that discriminates against investors who are  not wealthy enough?  Perhaps that is what he meant when he said that, “these possibilities reframe the inequality problem”.

Mr. Cowen finally ends his piece with stating his belief that, “there exists a plausible and more distant future in which we are mostly much better off and more equal.”  I am getting butterflies in my stomach just imagining the possibilities! (sarcasm)

Mr. Cowen, the Jack and Jills of America are tired of sugar coated pep talks about how free markets will be good for everyone and that the sun will shine everywhere – if only you are patient and think happy thoughts.  Whether it is the idea that eventually wealth will ‘trickle down’ or that technology will solve it – the average American, in fact, the average global citizen, is not buying it anymore.

I urge you to consider addressing the core drivers of income inequality instead of trying to reframe the conversation into an extension of failed economic policies.

Posted in Economics, Politics, Society, Technology | 3 Comments

Folks, secure your digital life!


Securing your digital life is becoming increasingly more important. Too much of our life, and the information that is part of it, is somehow or somewhere online. This is not something that should scare you, but it should be something that you are aware of and understand how to take steps to minimize the possibility of your personal information being compromised.

I am NOT a security expert and this is not comprehensive, but below are a few easy to implement steps to take that will SIGNIFICANTLY increase the difficulty of your accounts being compromised.


Folks, if there is one account that should require a meaningful effort to lock down – this is it. Your email account is generally THE gateway to the rest of your life. Not only does your email likely have thousands and thousands of correspondence (many with attachments), but your email address is likely THE way to gain access to many of your other accounts. So if someone obtains access to your email account, well, they are in a position to really wreak havoc on you if that is their intention. LOCK IT DOWN FOLKS!

We all recycle passwords, but your email account (at least the one you use as a primary one) should have its own designated password that is not used anywhere else. This account is just too important and should have its own that is changed on a regular basis. You decide how often but make it part of a routine –change it twice a year, for example.

Try using a random sentence as a password that is easy for you to remember. Mix up a few letters with numbers. For example, try replacing the letter E with the number 3. It is easy to remember and adds to the complexity of the password.

Example: bostonyank33sdriv3soup! (Boston Yankees Drive Soup!)

2 Factor Authentication

Many of you have probably seen the security token key chains that businesses and banks have used to access their systems. It usually was a little key fob with a random number that was always changing. This is 2 factor authentication. Basically, it is a method that requires not only your password BUT ALSO a separate code that only the person with physical access to the token has.

2 factor authentication is a system that requires SOMETHING YOU KNOW with SOMETHING YOU HAVE. The token can be your smart phone. There are apps (I recommend Google Authenticator) that you can install on your smart phone to act as your key fob. You can easily implement this system with many of your accounts (Gmail, Twitter, Facebook, Dropbox, Evernote, even Xbox Live) and I highly recommend it.

I recommend you install the Google Authenticator app on your phone and then setup 2 factor authentication with your accounts where possible. Just remember, you will need physical access to your phone to gain access once your accounts are setup – so keep your phones handy and make sure they are locked down with a code or password as well!

If you google “2 factor authentication” you will find ample information on how to set it up. Likewise for other accounts. Take 20 minutes out of your day and set this up and know that your accounts are MUCH safer now.

Stay safe and happy holidays all!

Installing Google Authenticator – Click Here

Twitter – Click Here

Facebook – Click Here

Google Accounts – Click Here

LinkedIn – Click Here

Posted in Technology | Leave a comment

Is there a storm coming?

Calm before the storm

Calm before the storm

Anyone who has spent some time in a sailboat will have an appreciation for the ‘calm before the storm’.  It is a brief moment that is simultaneously peaceful and unsettling; there is no mistaking it.

Everything slows down and the world around you gets reduced to a silence that competes only with the occasional clang of wilted sails and water splashing around as a reminder that you are a guest in an unforgiving environment.

With the Bank of Japan making a Halloween announcement that it will dramatically increase the scope of its accommodative monetary policy, I am getting that tingling sensation that my sails are losing wind and time is slowing down.

I have been a critic of the Fed’s QE program for some time now and have only watched with sadness as other countries have had to follow suit with their own central banks.  I can’t say they had much choice but to simply react to the Fed – something that has not gone over well with some of our global neighbors.  India and Brazil come to mind but other nations have taken notice as well.  It may not be obvious to some, but we could be at the initial stages of what might end up as a full blown currency war – all done by proxy at the central banks.  Brazil’s Finance Minister, Guido Mantega, said as much as early as 2010.

As I have mentioned before, there are massive externalities associated with accommodative monetary policies.  The most significant being the currency flows between nations.  The Fed’s QE program initiated a tsunami of money flowing out of the United States and into emerging markets – thus creating a boom in those respective markets that was partly, if not mostly, created through debt.  Just like a tide going in and suddenly retreating, any change in monetary policy can quickly drain that emerging market of cash as investors flock back to the U.S.

Benn Steil wrote a piece in Foreign Affairs last July describing the effect that the Fed’s mere mention of tapering had on Ukraine’s ability to finance debt and the subsequent rift that ensued with Russia – the consequences of which are still playing out to this day.

“Ukraine’s financial problems had been mounting over many years, but it was the mere prospect of the Fed pumping fewer new dollars into the market each month that pushed the cost of rolling over its debt — that is, paying off old obligations with new bonds — beyond Kiev’s capacity to pay. Had the Fed stayed dovish, Ukraine could have at least delayed its financial crisis, and a crisis delayed can be a crisis averted. Yanukovych ultimately turned for help to Moscow, which successfully demanded that he abandon an association agreement with the European Union in return. Ukrainians took to the streets — and the rest is history.”

My concern is not just that accommodative monetary policy is beginning to unravel, but that the underlying weaknesses that persist throughout the global economy will come front and center with a vengeance – chiefly among them deflation and income inequality.

Deflation is one of those seemingly abstract concepts that many relegate to academia.  Unfortunately, as is the case with many other economic ideas – and as John Maynard Keynes famously put it,

“The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”

Deflation in the aggregate is a psychological impairment that can  prevent large swaths of the population from engaging in normal economic activity.  The simple act of purchasing a good becomes a ponderous task that brings with it doubt and uncertainty.  Slowly, a vicious self reinforcing cycle takes hold and drives economic activity to a grind.  Because deflation is rooted in a psychological sentiment that lives within each individual, it is the contrary actions of those same individuals from which deflation must be defeated – a task not be taken lightly.

One would not normally expect to see deflation during times of expansionary monetary policy but in fact it is exactly what we are seeing.  Whether in Europe now or possibly in the United States, the prospects are evident and should be a concern for not only policymakers but businesses and consumers alike.

Income inequality is something that is receiving much needed attention lately but has been festering for almost three decades.  The data is clear and more important – the sentiment is palpable.

Richard Wilkinson gave an excellent TED Talk that I recommend you listen to.  See below.

What I am most interested in – and what worries me the most – is the overall feeling, whether warranted or not or correctly placed, of inequality that different groups around the world are expressing and how they are coping with it.

Inequality by itself is not something that stokes concern; however, when viewed from the context of a group that feels marginalized or excluded from participating in prosperous times, or when inequality is adopted within the framework of a social movement – therein lies the danger.

Will Durant wrote in The Story of Civilization that there are certain factors that condition civilization.   Even though this beautifully worded and timeless work was written close to 90 years ago, his description of those factors that can negatively impact civilization are not only relevant today, but almost prescient – as if we are being warned.

“Certain factors condition civilization, any may encourage or impede it.

First, geological conditions.  Civilization is an interlude between ice ages: at any time the current of glaciation may rise again, cover with ice and stone the works of man, and reduce life to some narrow segment of the earth.  Or the demon of earthquake, by whose leave we build our cities, may shrug his shoulders and consume us indifferently.

Second, geographical conditions…. If the soil is fertile in food or minerals, if rivers offer an easy avenue of exchange, if the coast-line is indented with natural harbors for a commercial fleet, if above all, a nation lies on the highroad of the world’s trade, like Athens or Carthage, Florence or Venice – then geography, though it can never create it, smiles upon civilization, and nourishes it.

Economic conditions are more important.  A people may possess ordered institutions, a lofty moral code, and even a flair for the minor forms or art, like the American Indians; and yet if it remains in the hunting stage, if it depends for its existence upon the precarious fortunes of the chase, it will never quite pass from barbarism to civilization.

The disappearance of these conditions – sometimes of even one of them – may destroy a civilization…. the relative smallness of the families that might bequeath most fully the cultural inheritance of the race; a pathological concentration of wealth, leading to class wars, disruptive revolutions, and financial exhaustion; these are some of the ways in which a civilization may die.  For civilization is not something inborn or imperishable; it must be acquired anew by every generation, and any serious interruption in its financing or its transmission may bring it to an end.  Man differs from the beast only by education, which may be defined as the technique of transmitting civilization.”

Emphasis is my own in the above paragraphs.  While the average person is not necessarily involved in the ‘chase’ for food as our primitive ancestors once where, there is today a seemingly comparable ‘chase’ for financial stability that is in most cases the single most important factor in attaining even our most basic needs – food and shelter.

I cannot presume to understand what exactly Will Durant eluded to or meant by ‘pathological concentration of wealth’ but it nonetheless sparks my interest.

Lastly, his comments about the financing or transmission of civilization is something that resembles very much a warning that education is (or at least should be) a top priority.  I will not comment on the state of education in the United States and much less so globally, but most should be able to walk away from that statement with a fairly clear understanding of how serious that subject is.

My primary complaint about QE has been that it served only to buy time or put off the inevitable – a deflationary environment that was setup from decades of stagnant wage growth and productivity gains that were disproportionately distributed to the top.  If we are seeing bouts of deflation and weak economic growth now during unprecedented times of expansionary monetary policy, what can we expect when QE ends and the inflationary forces that come from it begin to subside?  The Fed, along with similar attempts at other central banks, has tried and failed to bring inflation to their target 2%.

We live in a very complex and interconnected world and understanding and forecasting what might happen is no simple task.  At best, we can try to piece together clues that might amplify our foresight and understanding of the events taking place.  One clue I see as a possible silver lining is the skills shortage that persists globally coupled with declining population growth among the developed nations.  I see this as one possible inflationary solution to what looks to be a coming period of slow growth and declining prices.

Of course, I am under no illusion to think that I KNOW what will happen; only that I am feeling a little uneasy in these waters and see some ominous looking clouds in my horizon.

Posted in Business, Economics, Finance, Global Interest Rates, Globalization, Macro, Monetary Policy, Ruminations, Stocks | 2 Comments

Tell the SEC to Modify the Accredited Investor Definition

Seedinvest has submitted comments to the SEC regarding the accredited investor definition.  They have an online petition form for those interested in signing and submitting to the SEC.  I highly recommend it, but you need to do so BEFORE JULY 29, which is when the comment period closes.

I submitted my comments and wanted to share them below.

Dear SEC,

I agree with the comment submitted by Kiran Lingam at SeedInvest on July 8, 2014 available at http://www.sec.gov/comments/s7-06-13/s70613-546.pdf that raising the accredited investor thresholds would be disastrous for startups, job creation and the U.S. economy.  I believe the SEC should refrain from increasing these thresholds and should also adopt knowledge/experience based standards for an individual to become an accredited investor.

Under the current rules and definitions, I am not considered an accredited investor.  I am a young working professional with a degree in economics and finance and yet the “accredited investor” rules have precluded me from having the opportunity to invest in numerous opportunities.  While I can appreciate and understand the concern to protect investors, I absolutely cannot reconcile the use of what equates to financial discrimination as an appropriate tool to achieve such results.  The thresholds for income and wealth, at best, seem arbitrary and biased towards those who already have wealth.

In an environment where many Americans already feel like the deck is stacked against them, where wealth begets special privileges, where markets and the government rules that control it seem less and less egalitarian;  this rule only exacerbates the sentiment.  The right to invest in private companies should be just that, not a privilege available only to those with means.

Again, I kindly urge you to consider in earnest the comment submitted by Kiran Lingam at SeedInvest on July 8, 2014 and with particular attention to those related to adopting knowledge/experience based standards for an individual to become an accredited investor.  Protecting investors is an important function of the SEC, excluding many Americans from investing in private companies is not.

Kind regards,

Jose Lionel Velez

Posted in Business, Corporate Finance, Finance, Law, P2P Lending, Politics | 3 Comments

Stock-Vacancy Ratio: Lowest Reading Since 2000

After updating my chart with the most recent JOLTS data from the BLS, I noticed that the Stock-Vacancy Ratio is currently at a historic low – at 1.06, beating the 1.09 reading in 2000.

Bureau of Labor Statistics: JOLTS Data (Monthly)

Bureau of Labor Statistics: JOLTS Data (Monthly)

What does this mean? That is a good question.

What I find interesting and fun to ponder over is the possible relationship between the ratio and macroeconomic conditions – specifically overall labor market conditions and inflation.  It is also hard for me to ignore the fact that the last two times the ratio was this low was at the onset of both the 2000 Tech bubble and the 2008 housing crisis.

Overall Labor Market Conditions

When I view this chart I interpret it as a general measure of labor market efficiency.  Are employers finding enough people to fill open positions?  Regardless of what the employment rate is, it could be 5% or 10%, what matters here is whether or not open positions are being filled.

What the chart is currently telling me, and what I have been seeing for the last two years, is that there has been an increasing number of unfilled positions.  Or to put it another way, while the number of hires has been steadily increasing since 2009, the number of openings has been growing at a much faster rate. Why?  More pondering required.

Between the Stock-Vacancy Ratio, anecdotal evidence and the effect of Baby Boomers beginning to step out of the labor market, I have become confident in concluding that we are at the precipice of a moderate to severely tight labor market that will bring with it inflationary pressures.  It could be 1 year away or it could be 10 years away, but I think the data makes it quite clear.  I’ve already written about the Baby Boomers and their affect on the labor market for both the medium to long term as well as the short term effect to younger generations.  I’ve also written about the difficulties that firms are facing in finding talent.

There is a talent war brewing and it will only get worse as Boomer retirements begin to pickup.  If firms are having a hard time finding the right candidate, it stands to reason that they will have to either be more aggressive in developing their own or poaching them from another firm.  I find it interesting to see that both the rate of increases in hiring and quits have mirrored each other since 2009 – is it too speculative to say that perhaps the majority of those quitting are merely transfers to a new firm as a result of poaching?


This is a spill-over effect that I would expect from a tight labor market.  A natural effect of firms having trouble filling positions is to spend more to attract talent.  We saw this during both the height of the tech and housing bubbles.  The Fed should be watching this closely, as it would not be compatible with their current policy actions and would more than likely require swift action on their part.

In a nutshell, I consider this a VERY interesting data point to watch.  As usual, a graph is like a piece of art and while I may see one thing, someone else may see another.  Lets see what happens.

Posted in Business, Economics, Human Resources, Labor, Ruminations | 2 Comments

Money for Nothing – Watch this movie!

This is a movie every person should watch to get a better understanding of what the Federal Reserve is, the history behind it and the folks that drive monetary policy under its mandate to manage inflation and the unemployment rate.

I was fortunate enough to attend the premier in Dallas last September and was thoroughly impressed.  The decisions that the Federal Reserve makes have outsized impacts on our every day lives that many have little understanding of.

I wrote recently about the Fed’s September 2013 announcement to continue QE and will be working on a follow up this week.  As many already know, QE has been ‘tapered’ by $10 billion a month in December and another $10 billion a month last month.

In the meantime, I highly recommend you watch “Money for Nothing”.  Check the link below to find a showing or buy the DVD.


Posted in Economics, Finance, Monetary Policy | 1 Comment

Are Boomers Crowding Out Tomorrow’s Workforce?

I’ve come across a few articles discussing the idea that the older workers are, or are not, taking jobs from the young.  I find this discussion interesting and one I want to ponder over a bit.

The first is one from the Dallas Morning News posing the question, “Will the surge of older workers take jobs from the young?“.  The article begins with a few economists claiming that there is no evidence to support the idea.  They rely on the Lump of Labour fallacy to explain away the possibility that too many older workers may be crowding out younger workers.  This is where I part with my economist colleagues.

While not a topic for this particular conversation, I see a much needed bifurcation happening in the field of economics; where some economists will rely on complex mathematical models and theories and others will use a more holistic and dynamic approach to understanding the economic world we live in.

I am more inline with academic James Galbraith of the University of Texas at Austin, who says in the article that, “it’s like refuting elementary arithmetic.”  Look at the chart below and see who has seen the fastest growth in employment.

U.S. Employment Level (% by Age Group)

U.S. Employment Level (% by Age Group)

Another story came across the wire on NPR’s Marketplace discussing the prospect that younger workers can expect lower wages and underemployment – something that will affect them for the rest of their lives.  I find this relevant to the discussion of whether younger workers are being crowded out and important to understand how it is going to impact them.

There are serious long term issues that we will be facing from this situation.  If you look at the U.S. Employment Level by age group, you will see that the 55 and older cohort has increased from around 15% of the labor force to its current level of around 23% – a  more than 50% increase.  They have been the fastest growing portion of the labor market over the last decade.  This growth has presumably been at the expense of the younger workers.

This is not to say that Boomers are at fault, they are just as entitled to participate in the labor force as the young.  It is simply to give background to what we are experiencing and to find a solution.

Keep in mind that those same young workers who are idling at low-paying jobs and expected to experience significantly lower earnings over their lifetime are the same ones that will be expected, and severely needed, to pay into the Social Security system that will support the retiring Boomers.

As I have mentioned previously, there will be challenges to businesses who are not preparing themselves for the ‘crew change’ that will take place when Boomers begin retiring in significant numbers.

The politics of this can be expected to get ugly.  On the one hand you have retiring Boomers who have been paying into Social Security for their entire lifetime and will be adamantly opposed to scaling back benefits for what they consider theirs while you have the younger workforce, who is crucial to sustaining the system by paying into it and therefore providing the benefits that Boomers are expecting, that is not going to be happy with paying large sums of their already low earnings into a system that they have little confidence will be there when it is their time to collect.

A solution will need to be found in the middle and pain will need to be felt by everyone involved.  We will have to make the best of a bad situation where too much was promised and not enough was committed.

Posted in Business, Economics, Human Resources, Labor, Macro, Politics, Ruminations, Society | 2 Comments