economics and society

By 2020, the largest pools of pension fund assets are projected to remain concentrated in the US and Europe. In North America, pension fund assets reached $19.3 trillion in 2012 and PwC estimates that by 2020, pension fund assets will rise by 5.7 percent a year to achieve over $30 trillion of the $56.5 trillion in total global assets, more than 50 percent of the global total.

Indeed, according to the PwC report, Asset Management 2020: A Brave New World, demographic changes, accelerating urbanization, technological innovations and shifts in economic power are reshaping the asset management environment where pension funds have been playing and  will play an outstanding role in the global saving and investment process.  Three key factors seems to stimulate the global growth in assets: i) changes in government-incentivized or government-mandated retirement plans that will turn out to increase the use of defined contribution (DC) individual plans; ii) faster growth of high-net-worth-individuals in South America, Asia, Africa and Middle East regions up to 2020; iii) the expansion of new sovereign wealth funds.

However, in spite of the pension funds’ power to centralize huge amount of “savings from workers”, in this scenario of financial globalization, workers do not seem to have strong defense against the impacts of the current global scenario on the savings of workers and the flows of workers’ income.

In a context of uncertainty, the pension funds’ portfolio management is based, as Keynes warned, on precarious conventions.  Pension funds are part of a set of interrelated balance sheets and cash flows between the income-producing system (hedge, speculative and Ponzi firms) and the financial structure that affect the valuation of the stock of capital assets, the evolution of credit and the pace of investment. Current pension funds’ performance ultimately relies on the endogenous nature of financial instability.  Throughout the business cycle, when profits decline, as they inevitably do, credit and external sources of funding generally become restricted and the price of assets also fall. This scenario affects the performance of these institutional investors and reduces the value of the stock of workers’ savings in pension funds.

As a matter of fact, the connection between pension funds and speculative finance is one of the contemporary features of the management of the working savings. Continued low interest rates would impact the future profitability of pension funds, particularly in those portfolios where income-fixed assets predominate.

Among other current challenges to the management of pension funds is the evolution of austerity programs. In many countries, austerity programs have also relied on changes in retirement plans. Soon after the global crisis of 2007-2008, many European countries  announced austerity measures that included  changes in retirement age and pension payments. As a result, loss of retirement rights has turned out to become part of the new set of public policies.

Indeed, many governments, under global investors’ pressure, should meet budgetary targets and pursue further structural reforms- also related to age and amount of pension within retirement plans.  In truth, the current era of financialization and austerity – and its impacts on retirement plans and job creation – is certainly affecting day-to-day life of workers and the future of pensions. In other words, it is affecting the flows of workers’ income and the savings of workers.


Part 2 of Lecture on Spirituality and Development: Friday, 27th Jan 2017 by Dr. Asad Zaman, VC PIDE — for Students of Religion & Development Paper, Center of Development Studies, University of Cambridge. Link for part 1: Spirituality . 50m Video lecture:


  1. The meaning of development has varied dramatically across time, space, cultures.
    1. When Britannia ruled the Waves:
      Development definition suited Britain: Sea-Power, Coal Mines, Industry, Climate, Race
      No entry for “democracy” in Encyclopedia Brittanica, 1930
    2. Post-War Rise of USA
      Initial Definition: Democracy, GNP per capita – both criteria serve to ensure leadership of USA.
    3. Later, some Oil Economies had Higher GNP/Capita than USA
      So REDEFINE Development to include Income Distribution, so as to keep US on top
    4. Later, Switzerland, Japan and some other Scandinavian countries had Higher Wealth + Lower Gini. How to measure development to ensure USA is on top? Answer: Redefine Development to include Infrastructure
    5. Conclusion: Definition of Development Changes to suit the powerful. Criteria are chosen to ensure that the powerful are on top.
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wisdomThe adventure of leaving home, and exposure to unlimited educational opportunities as well as a radically different social environment, made us heady with excitement as freshmen at MIT. We often stayed up all night discussing our new experiences. Since we could not come to any conclusion regarding the most important question we face: “what is the meaning of life?”, we resolved to seek guidance from one of our professors. Most were teaching technical subjects like math, physics and chemistry, but our history professor occasionally talked about the bigger issues of life. Upon being asked, he gave us an answer which satisfied us at the time: he said that first we must learn the little things that we were being taught, in order to be able to answer the bigger questions that life poses.

It was many years later that it gradually dawned upon me that we had been scammed. Our teachers had no answers to these questions, and so they shifted our attention to the questions that they could answer. We were counselled to look under the light, for the keys which had been lost in the dark. It was not always that way. In The Making of the Modern University: Intellectual Transformation and the Marginalization of Morality, Harvard Professor Julie Reuben writes that in the early twentieth century, the college catalogs explicitly stated that their mission was to shape character, and produce leaders. Students were to learn social and civic responsibilities, and to learn how to lead virtuous lives. However, under the influence of an intellectual transformation which gave supreme importance to scientific knowledge, and discounted all other sources and types of knowledge, consensus on the meaning of virtue and character fragmented and was gradually lost. Universities struggled very hard to retain this mission of character building, but eventually gave up and retreated to a purely technical curriculum. Because this abandonment of the bigger questions of life has been extremely consequential in shaping the world around us, it is worth digging deeper into its root causes

Enlightenment philosophers had hoped that reason would lead to a superior morality, replacing what they saw as the hypocrisy of Christian morality. They thought that Truth was comprehensive, embracing spiritual, moral, and cognitive. However, by 1930’s this unity was decisively shattered. The triumphant but fatally flawed philosophy of logical positivism drove a wedge between factual cognitive knowledge and moral/spiritual knowledge. It became widely accepted that science was value-free, and distinct from morality. Prior to the emergence of this division, social scientists had defined their mission as understanding and promoting human welfare. Social and political activism had been a natural part of this mission. However, this changed in the early twentieth century with the widespread acceptance of Max Weber’s dictum that social science, like physical science, should be done from a value neutral perspective of a detached observer.

Positivist philosopher A J Ayer said that moral judgements had no “objective” content, and hence were completely meaningless. Similarly, Bertrand Russell said that despite our deep desires to the contrary, this was a cold and meaningless universe, which was created by an accident and would perish in an accident. These modern philosophies displaced traditional answers to the most important questions we face as human beings. According to modern views, we must all answer these questions for ourselves. No one else has the right to tell us what to do. All traditional knowledge is suspect, and instead of following custom or authority, we should arrive at the answers in the light of our limited personal experience and reason. Indeed, this is a core message of Enlightenment teachings which is built into the heart of a modern education.

The treasure of knowledge which is our collective human heritage has been collected by hundreds of thousands of scholars, laboring over centuries. Imagine what would happen if we were required to use our reason to establish and validate every piece of knowledge that we have. It would be impossible to learn more than a very tiny fragment of this knowledge. As a practical matter, we accept as givens vast amounts of material taught to us in the course of a modern education. This is necessary; if told to re-discover mathematics from scratch, even the most brilliant and gifted child would never get beyond the rudiments of the material in elementary school textbooks. But for the most important question we face in our lives, we are told that all traditional knowledge is useless; we must work out the answers for ourselves. There is a huge amount of discussion, conversation, and controversy contained in the writings of ancients. But we were educated to believe that the wisdom of the ancients was merely meaningless verbiage of the pre-scientific era. Thus, we never learned about Lao Tzu’s saying that loving gives you courage, while being loved gives you strength.  We learned fancy techniques and tools, but never learned how to live.

Real education can only begin after removing positivist blinders, and realizing that we have no choice but to trust the stock of pedigreed knowledge. It takes a lifetime of reasoning to arrive at a few simple results – we can look at the lives of those who made remarkable discoveries and see how, despite the magnificence of their contributions, their work was confined to a narrow and specialized domain.  Furthermore, they were only able to see far by standing on the shoulders of giants of the past. In benefitting from the stock of accumulated knowledge, our main task is to discriminate, to extract the gold nuggets from the mountains of dirt, and to avoid being deceived by fool’s gold. Today, as always, and in all fields of knowledge, the best path to expertise is via discipleship, unquestioning acceptance of instruction from experts. A premature application of reasoning and critical thinking leads to rejection of thoughts which contradict our prejudices, and makes learning impossible. Discipleship requires putting away preconceptions, emptying our cups, and opening ourselves to complex systems of thoughts entirely alien to anything we have ever conceived before. It is only after absorbing an alien body of knowledge that we acquire the ability to understand, reason and critique. A modern education creates multiple barriers to the pursuit of real knowledge that we desperately need to lead meaningful lives, by renaming ancient knowledge as ignorance, and by presenting us with illusions masquerading as knowledge. Like the wife of Alladin, we have gladly given away the ancient lamp for the bright and shiny modern one, without being aware of our loss. The path to recovery is long and difficult, as unlearning requires being open to possibilities and exploring directions that seem patently wrong to our modern sensibilities. It is not easy to suspend judgment and let go of what we have already learned, in order to acquire new ways of looking at the world. Yet, this is exactly what is required, if we are to learn to live, and not waste this unique and precious gift of life that has been granted to us for a brief moment only.

See also: The Secrets of Happiness, and Re-Enchanting the World. Published in The Express Tribune, 26th December, 2016.Posts on Diverse Topics: My author page on LinkedIn. Other works: Index .

subprimecrisisThis is my book review on Amazon — I thought it would be of interest to WEA readers.

In a complex world, discovering causality is very difficult. Many things happen simultaneously, and post hoc ergo propter hoc reasoning is a common fallacy that is hard to detect and critique. Here is how I understand Meltzer’s arguments. Meltzer defines Capitalism as private ownership of means of production, and free enterprise with minimal government regulations. In practice, ALL economies have government regulation of free enterprise, and a mix of private and public ownership. This gives Meltzer a free hand in proving that Capitalism works. Wherever he sees growth, he attributes it to the “capitalist” portion of the mixed economy. Wherever he sees failure, he attributes it to the “communist” portion – government regulations and control of production.

For example in a 90% capitalistic economy in the USA, a small injection of regulations (say 5%) leads to disaster and catastrophe. However in China, an economy which remains largely communist (government owns more than half of means of production), growth is attributed to the small injection of capitalist methods. Whereas the gradual liberalization of Chinese is praised, the Russian experience is not mentioned at all. At insistence of free market ideologues like Meltzer, Russia was forced to adopt a radical free market strategy (Shock Therapy of Jeffrey Sachs) which led to disaster.

In addition to wrong attribution of causality, I disagree with Meltzer on some factual claims. He considers the Reagan-Thatcher era of de-regulation to be a general success on economic fronts. Here is my capsule summary of banking regulation history, which is drastically different from Meltzer’s portrayal of the same history. Wild speculation by banks led to collapse of banks in 1929, wiping out life savings of millions, and creating massive misery which lasted for decades in the USA. In wake of this failure, a regulatory structure which included the Glass Steagall act, was put into place which PREVENTED competition and speculation by banks. This worked very well for fifty years, with only minor and inconsequential bank failures until the 1980’s. Then, with much fanfare, Reagan deregulated the S&L industry via the Garn-St. Germain Act, announcing a new era. Inside Job: The Looting of America’s Savings and Loans by Pizzo, Fricker & Muolo documents how the deregulation led to systematic looting and the S&L crisis. As a result of the crisis, Taleb estimates (see page 43 of The Black Swan: Second Edition: The Impact of the Highly Improbable: With a new section: “On Robustness and Fragility”) “large American banks lost close to all their past earnings (cumulatively),about everything they ever made in the history of American banking – everything.” Similarly, repeal of the Glass-Steagall act, which prevented banks from speculating, eventually led to the global financial crisis of 2008, in which free enterprise by banks led to the loss of trillions of dollars. An antidote for the belief that the private sector is more efficient and less corrupt than the government is a series of articles by Matt Taibbi, for instance “The Bank of America: Too Crooked to Fail” [ see […] ]

To summarize, unregulated free markets led to the Great Depression. Regulations and Keynesian economics (which allows Governments to help the unemployed) led to stability and prosperity until the 1970’s. De-regulation and liberalization in the Reagan-Thatcher era led to a massive increase in concentration of wealth at the top, and repeated financial crises, including the S&L crisis of the 80’s and the global financial crisis of 2008. HOWEVER, free market ideologues like Meltzer have an ENTIRELY different interpretation of this same history. According to them, the Great Depression was caused by mis-management of the monetary policy by the US Government. The same mistake caused the S&L crisis in 1980’s, and again, government (mis-)regulations are to blame for the global financial crisis.

One point on which Meltzer and I agree is that the Dodd Frank act is not worth the paper it is written. However, to Meltzer, this is evidence that regulations don’t work. Many others, including myself, see it as evidence of regulatory capture. The 37 page Glass-Steagall act clearly and strictly prevented banks from speculative investments, and worked very well for half a century. The strength of the financial sector prevented the passing of the necessary regulations, and created the 900+ page monstrosity of Dodd-Frank, full of loopholes one could drive a truck through. Effective and necessary regulation could not be passed because the strong private sector prevented it from happening.

How can we decide who is right? From the birds eye perspective taken by Meltzer, I believe that it is impossible to be sure. However, when one gets down to the nitty gritty details of history – who did what to whom, a pretty clear picture of the causal chains emerges. In this respect, Naomi Klein’s book The Shock Doctrine: The Rise of Disaster Capitalism is fantastic. I can honestly say that I learnt more about real world 20th century economic history and theory from this one book than I did from my Ph.D. in Economics at Stanford. The reader is invited to read both books and decide on the answer to Whether Capitalism works? for herself or himself.

One of the core and central properties of markets is that they lead to increasing concentration of wealth at the top. This is because market allocations of goods and services respond to money, automatically conferring great power to those with wealth. For instance, market incentives lead to the production of luxury handbags anmythrealityd briefcases for plutocrats priced at $40,000+. According to the World Health Organisation (WHO), the price of one such bag can save more than 300 lives.

The extremely ugly realities of market societies are hidden from view because markets generate myths to glorify achievements, project illusions and conceal defects. Indeed, the creation of market myths is a second core and central property of markets, which is not mentioned in any current economics textbook. Market myths are crucial to the survival of market societies since knowledge of realities would lead to a revolution of the bottom 99% who are exploited by the super-rich. In this essay, we analyse a few of the central myths of market societies, and contrast them with the realities.

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greedIdeology and Science are diametrically opposed to each other. An ideology is a set of beliefs that is maintained even in face of strong empirical evidence to the contrary. Science is primarily concerned with explaining the empirical evidence. Theories which conflict with observations are rejected.  This does not mean that ideology is necessarily wrong or bad – we must maintain our belief in justice, morality, honesty, trust, integrity without any empirical evidence; indeed, even when strong empirical evidence suggests that these beliefs will not bring us popularity or personal benefits. However, ideological beliefs in wrong ideas can blind us to the facts and prevent learning which is essential to progress. Nobel Laureate Joseph Stiglitz remarked that modern Economics represents the triumph of ideology over science. This essay explains the reasons for his remarks.

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The perpetuation of inequality through clustering in neighborhoods is graphically depicted in: “Living in a poor neighborhood changes everything about your life” by Alvin Chang. Of course, this concept cannot even be formulated in conventional economic theory. I think we must move beyond the idea that neoclassical economic theory is “wrong” and come to the realization that neoclassical economist accomplishes perfectly what it is designed to do. It is designed to conceal those aspects of economic reality which could create unrest among the bottom 99%, as well as those aspects which enable the 1% to achieve extraordinary privilege and power at the expense of the rest. For instance,  “The Veil of Money” shows that QTM and standard monetary theory is designed to conceal how the mechanism of money creation provides enormous advantage to the wealthy. “The Fairy Tale of GNP” shows how standard economic theory measures of progress are designed to conceal inequality and distributional injustice. The standard DSGE model, with only one representative agent, is designed to conceal the presence of disadvantaged groups, minorities and laborers.

In reading obits to prepare  an article in memory of Muhammad Ali, I came across something to the effect that Muhammad Ali was a child prodigy. In any just society, given educational opportunities, he would have grown up to be a scholar, a philosopher, a statesman, or other kind of superstar. However, given the realities of discrimination, he could only become a boxer. The drastically different economic realities of heterogenous communities within societies are systematically concealed by economic theory. The article below, about Muhammad Ali, was published in Express Tribune on 13 June 2016, with the title: “Remembering an Icon

The Greatest 

The dramatic shifts of fortune experienced by Mohammad Ali, who died recently on 3rd June 2016, reflects the checkered fortunes of the minorities he represented. It requires effort for contemporary mindsets to visualize the Civil Rights era of the 1960’s where Black Americans were fighting not just for social, economic and political equality, but most fundamentally, the right to lead lives with human dignity. Mohammad Ali was among the most colorful champions of equality in a now nearly forgotten era of Black liberation. He came to prominence on the world stage after a surprise victory against reigning heavyweight Champion Sonny Liston, when 7 to 1 odds were given against Ali. He earned the anger and ire of white public when he publicly announced his conversion to Islam, and renounced his “slave name” of Cassius Clay.

Muhammad Ali’s status as world champion provided him with the platform to express and articulate the sentiments of the oppressed Black minority regarding the Vietnam War.  He refused to “drop bombs and bullets on brown people in Vietnam while so-called Negro people in Louisville are treated like dogs and denied simple human rights”. [ read more]