Inequality

The growing dangers of the Sanctimonious Society

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Welcome to the sanctimonious society. Social media has taken this to new levels. Given the superficiality of much of today’s internet posts, memes and rants, what it has done is destroy the need for serious debate over contentious issues. Before discussing the likes of Twitter or Facebook censoring certain bloggers, the discourse is self-evident. How often do you read a credible rebuttal to a topical post? Hardly ever is the answer. Usually the criticism is laced with sanctimony, expletives and ridicule. The aim of trolling is none other than to shut down debate and make fun of the person who makes the statement. The intensity of cyber-bullying is chronic. In some respects it is none too surprising we are dealing with words like snowflake, trigger warnings and safe spaces these days.

Take cyber bullying stats from the Association of Psychological Science in the US. In 2015 more than 16,000 young people were absent from school daily because of bullying. 83% of young people say cyber bullying has a negative impact on their self-esteem. 30% of young people have gone on to self-harm as a result of cyberbullying. 10% of young people have attempted to commit suicide as a result of cyberbullying. People who have been bullied are at greatest risk for health problems in adulthood, over six times more likely to be diagnosed with a serious illness, smoke regularly, or develop a psychiatric disorder compared to those not involved in bullying. In the US alone, suicides per 100,000 head of population since 2000 are up 38% according to WHO.

However the WiFi world is quickly escalating unreasoned stupidity in the real world. The internet is awash with so much ill-considered social media activity that if one chooses to breathe for 10 minutes the story will likely have changed 180 degrees from the initial knee jerk. Take the terrible events of Charlottesville this week. The driver that plowed into the crowd was initially reported as a white supremacist before other media reported he was Antifa. Regardless of his affiliation his actions were repugnant. Anyone with common decency can see that. Trying to justify the legitimacy of masked Antifa (many who were carrying baseball bats) staging a ‘peaceful’ protest was somehow morally superior to alt-right torch bearers or vice versa is almost like trying to say watering your lawn with gasoline is less harmful than diesel to kill off weeds.

While the tragedies of the lost lives and depraved acts of violence from both sides is impossible to ignore, the (social and mainstream) media was awash with one sided views. There was no debate and balanced reasoning was next to non existent. One could argue the media has always been biased and to some extent that is true however in the social media world clickbait means revenue and the more sensational and less accurate the reporting the higher the likely ‘hits’ which only exacerbates the problem. We only need to look at CNN’s admission that the ‘Russiagate’ story has been a fabrication for ratings. Integrity be damned. Sadly that is becoming almost an all too common thread of today’s society. Selfish, narcissistic and insensitive bullying.

The other problem nowadays is that almost everyone carries a video camera. It is as if many think they are behind the safety of their own computer screens, oblivious to what is going on. Only a few months ago, an armed SWAT team boarded a Malaysian Airlines flight to suppress a crazed passenger. Despite the screams to get down, multiple people could be seen standing as tall as possible trying to improve the angle of the altercation on their iPhones. There is a sick surrealism to it. Yet if we take this clickbait of someone’s footage at Charlottesville, disseminated to an audience already prejudiced, it only adds to the hysteria. The instant it hits the mobs’ feed it can lead to incorrect assumptions to what is actually going on, even worse hampering emergency services efficacy in controlling the situation. Yet, 10 minutes later, the unedited version of the same scene or one shot from a different angle can completely undermine that biased view. It might show how the violence really escalated rather than the deliberately cut version showing the evil of the unhinged. If we managed to get all of the collective footage from 1,000s of smartphones and objectively analyzed it all it wouldn’t be surprising to see both sides fueling the violence in different areas. Yet because it fits the picture of the ‘divided’ country narrative no attempts are made to seek balance which only fires up the misinformation.

Did Trump take too long to condemn the KKK, Neo-Nazi and White Supremacists? Perhaps. Was he waiting for a full debrief on what went on? Perhaps. Are all 63 million odd Trump voters that don’t openly condemn these acts of violence guilty of being white-supremacists by association? No. Are all Democrats responsible for what Antifa does? No. Internet trolls seem less intent on getting tacit admissions of guilt from their enemy. Think of the campaign which has identified some of the torch bearers leading several to get fired by their employers. Where was the campaign to identify the baseball bat wielding Antifa thugs? Was it because they were masked? Some might cynically claim they don’t have jobs to be fired from. However this idea that only one side is guilty serves no purpose and risks further division.

What we have here is a failure to communicate. Both extremes are so caught up in their own views there is little scope for reasoning much less any desire to consider the alternative argument. This idea that Trump is all of a sudden responsible for unleashing this division is preposterous. Hate doesn’t surface in 6 months. It brews over longer periods of time. If anything Trump is a catalyst to it. His caustic manner is tipping an apple cart of decades of political correctness and walking on eggshells legislation that has sought in many cases to promote victimhood. The President’s actions now threaten many of these altruistic views and socialist ideals. They are upset. This isn’t to debate the rights and wrongs of policy set by previous administrations, rather seek to identify why this scourge is happening. It doesn’t justify any forms of violence but it highlights how tightly sprung things are. Just think of why a p*$$y grabbing vulgarian was able to defy all the odds in the election? Could it be that the underbelly of division has existed in America for so long? It finally reached breaking point and delivered him to the White House? The idea he has created this division is a complete falsehood. One might argue his tweets are stirring this hornet’s nest but the sad fact of the matter is that the problems have been brewing way before his inauguration. Ask yourself why hasn’t the mainstream media worked out the best way to cripple Trump is to ignore him? 18 months on since he won the GOP ticket they have not stopped hyperventilating which gives him more airtime than he deserves and ultimately makes them look foolish.

This bullying behaviour is only likely to get worse. The ever worsening cesspit of social media will only exacerbate the problem. Behind a keyboard, people feel they can afford to be 10 feet tall but seldom do they realize their actions could carry (un)intended negative reactions.

More laws are being created to clamp down on what is called ‘hate speech’ or discriminatory language. However we are witnessing more countries shut down free speech and innocent people are having their lives destroyed for expressing points of view that are completely acceptable and not even the slightest bit racist or bigoted (Australians will know the secret trial held by the AHRC of several QUT students expressing a fact). Seeking prescriptive measures to shut people up will invite exactly the sort of behaviour it seeks to prevent. One can call former EDL leader Tommy Robinson a bigot but he has two best selling books in the UK. Could it be there are more people in the UK that share his views than politicians are willing to admit because political correctness is easier for them to dodge discussing pertinent issues? Whether Tommy is right or wrong in his analysis is beside the point. He obviously represents a larger mindshare of the community. Shutting them up forces the movement underground. Do we ban his book? It doesn’t seek to address the problem which in his case is Islam. In some cases he has a point. The exposure of predominantly Bangladeshi/Pakistani rape gangs who have groomed 100s of innocent women across 18 British cities is an issue. Listening to Newcastle City Mayor Nick Forbes, one of the places impacted by this depravity, spent an entire interview dodging the question of these grooming gangs not wanting to discuss the M word. All it does is alienate more people against an optically biased system.

One can debate till the cows come home about whether the M word is the main factor but if it is not openly debated, it is not hard to see why some will grow prejudiced. It is hardly desirable. It doesn’t mean the thinking is right rather a growing number of people feel ignored. It doesn’t automatically make them racists or bigots. Some feel politicians are hiding from speaking openly of jihadi attacks on home soil, dismissing them as lone wolf attacks or the community’s fault for forcing them to commit such atrocious acts. If indeed the left leaning media is so assured of bigotry by Anglo Saxon Brits why not show the other side of the debate and broadcast hours of footage showing Muslim clerics speaking out against these attacks, everyday Muslims integrating with their non-Muslim communities and how they are actively working with authorities to weed the radicals that are demonizing their faith? No, it’s easier to point fingers at bigoted Brits who see no comfort offered by their elected leaders in what they see happening to their community. Once again bullying people for expressing what they perceive as legitimate concerns doesn’t solve the problem.

To put the shoe on the other foot, Robinson posted a video link of the start of an Oldham (a borough of Manchester) Council meeting. It showed the majority of Anglo-Saxon councillors with their heads bowed as the elected Muslim Mayor requested his imam to say prayers. Of course it easy to see why some might draw conclusions to the decline of centuries of British culture however looking deeper into the matter yielded interesting findings. Voter turnout at the last election in the 25% Muslim borough was around 30%. It was a fairly held election. Democracy. Whether local politics is too petty for some, if the residents of Oldham are so incensed by the idea of an imam saying prayers in Arabic and English after following the Serjeant at Arms carrying a mace bearing a Christian cross it is hard to have sympathy. If one is truly in fear of the cultural upheaval, why not use their democracy to change it? Expressing outrage at something that is controllable seems ridiculous.

Australia is in the midst of bullying as well. Same sex marriage (SSM) is on the table. A postal plebiscite is set to occur. Many argue that parliamentarians should vote on it and get it over with. Indeed there are far more pressing economic issues to deal with. Yet the Turnbull government lacks any moral authority and is beholden to so many internal factions to be able to pass so called marriage equality.

Still regardless of one’s views on SSM, the bullying is in full effect. Musician Nick Minchin created one of his hallmark curse-ladened parodies of a Peter Allen song called, “I still call Australia homophobic”. Sadly he is part of the problem, not the solution. One doesn’t have to be homophobic to be against SSM. Yet Minchin thinks it is ok to call these people ‘bigoted c*nts’. Such words have all the same traits of ridiculing Trump or Brexit voters in the lead up to the vote. It has the opposite impact at the polling booth.

A Tasmanian archbishop is being hauled before a tribunal for expressing his anti-SSM views on the grounds of spreading hate. Are his views old fashioned or just part of millennia of religion? A hotel was forced to cancel a lawful gathering of anti-SSM campaigners through intimidation. Is this the sort of behaviour (albeit at the fringe) that unites a nation on a subject?

Some argue it is a waste of $122mn to hold a SSM plebiscite for a government in a $750bn hole. Maybe it is but to many out there, they want a democratic vote to take place. Some feel lobby groups that ignore their concerns (however backward, ancient or stiff) on issues they hold dearly are the exact reason why a vote should be held. It doesn’t matter to them whether a Catholic country like Ireland passed gay marriage, these people don’t want to be brow beaten, attacked or pilloried for expressing an alternative view. I am quite certain that should ‘Yes’ get up in the plebiscite people will have had their say. Shouting down the views of others is wrong. Let their voices be heard and allow the marketplace for free speech settle the differences. Sadly this is not the case. Any polling done by Get Up which shows an emphatic victory should be discounted. Indeed if they are so sure of a ‘Yes’ outcome then they should be over the moon to let democracy back its findings. Secretly they think otherwise. What they view as a waste of money won’t be to others.

Some people fear (again we’re not debating the rights and wrongs of it) that should lobby group bullying win the fight for SSM by an act of parliament then what comes next? We only need to look at the Safe Schools Programme in Victoria which is nothing more than a way to enforce gender indoctrination under the guise of anti-bullying. Cross dressing/role playing, whichever bathrooms and other ‘progressive’ programs are not necessary for 6 year olds. Boys playing with Tonka trucks and Matchbox cars or girls playing with Barbie dolls is not something that requires the school system to enforce boys and girls to reverse toy box selections. When I was a baby my mother recalled I had a love for cars. Even from my pram I knew more car names than English words. I’m sure she wasn’t wheeling me around the Warringah Mall car park trying to force me to do male things. By the same token my daughters weren’t chained to the Bratz corner of Toys’R’us in order to force them to be girls. Seeing her mother apply makeup was something she wanted to do.

What this all boils down to is society’s growing intolerance for free and open debate. We do not lack the ability to talk but we’re incapable of listening. That alternative views must be mocked or banned. There are some with such inability to accept alternative views who suggest prison sentences for climate skepticism. Are the arguments for climate change so weak that alarmists believe the only way to force the end game is to legally ban freedom of opinion?

One imagines that if we put an Antifa and a KKK supporter in the same room unbeknownst to them both and asked a standard questions on a variety of topics they probably would agree on more than they would if within their representative groups. These experiments have been conducted before where complete strangers meet and by the end when identities are revealed there is an awakening. It isn’t forced but occurs naturally through cordial conversation.

I make no apology for my conservative views. One friend is an unabashed socialist. We debate intensely on a variety of issues we have polar views on. I recently wrote to him privately to thank him for broadening my understanding of his views. While I might disagree with him I certainly respect his right to debate his points, which he often does insightfully. Some points are indeed valid and on certain issues we see eye to eye. Others less so. However we listen.

Sadly sanctimony is becoming ever more firmly entrenched into our culture and it can have nothing but bad outcomes. Perhaps to end with a Jewish proverb – “slander slays three people: the spoken by, the spoken to and the spoken of”

 

What do we really want from an army?

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It is a serious question. What do we really want from our armed forces? We pay billions in taxes to hopefully arm them to the teeth with the best technology, skills, training and capabilities to win wars should we ever find ourselves in one. Victory is the only choice in war. The ideal scenario is to make the enemy fear you enough such as you won’t end up in battle. However the military should never be a place that is used to test social experiments.

Then why the push for making the military or any other emergency service anything other than the best? Gender balance and diversity are irrelevant. News has resurfaced that the Australian Defence Forces (ADF) are being set gender recruitment targets. It is insanity. Merit should be the only criteria. If 100% of them happen to be women based on merit then so be it but setting gender targets as a slated goal is obtuse. If more women wish to join the armed forces through desire, hunger and passion than men then that is expressing a clear will.

Eligibility standards are being lowered to help hit diversity targets. You can see the standards difference in these two charts posted by the ADF.

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Recruiters at the ADF have been told they must hire women or face relocation if they don’t comply. The recruiters say there are no jobs available for men in the in the infantry as a rifleman or artilleryman. But these positions are marked as ‘recruit immediately’ if a female applies. If a 50kg woman is in the artillery a 43.2kg M-107 shell is over 80% of her weight. An 80kg man would be lifting the same shells at around half of his weight. This is basic physics.

The West Australian newspaper reported one recruiter who said, “This is political correctness gone mad. I don’t care if it is a man or a woman – I just want to get the best person for the job.”

Yet the political correctness is promoted from the top. Defence chief, Air Chief Marshal Mark Binskin, stressed the importance of diversity for the ADF. “A diverse workforce is all about capability. The greater our diversity, the greater the range of ideas and insights to challenge the accepted norm, assess the risks, see them from a different perspective, and develop creative solutions.”

Let us not confuse diversity with skills. In WW2, the US Army employed Native American Indians to work in intelligence. The idea that their native tongue was next to impossible to decode if transmissions were intercepted by the enemy. The US military wasn’t making a diversity play to even out race, gender or religion. It was employing a clear tactical advantage to help win a war. Such intelligence is vital in planning battles and tactics. The enemy wants to know our plans in advance such they can ambush or counter. The Navaho language meant the Japanese intelligence forces were completely flummoxed and suffered huge losses as a result. The merit was the rarity of the Navaho language, a skill no one else had. Think of how hard the British worked at breaking the codes of the German Enigma machines at Bletchley Park. Skill is is the defining factor.

It gets more ridiculous. One senior retired military contact has said that those who are recruited are now allowed to raise a red card in protest if a drill-sergeant is offending their sensitivities. Seriously? Surely an army is as strong as its weakest link and if leaders can’t drill discipline into his or her troops what hope have they in battle? Perhaps they can just disobey orders and avoid a court martial because they deployed a red card on the battlefield. Surely no one joins the army expecting it to be a life of late morning lie-ins, frequent recreation and late nights at the bar.

The military should never be a social experiment. It is off limits. This is not to say women should not have a chance to join it. In fact the desire to serve one’s country is indeed an excellent trait to have but putting in place a system that excludes Victor, a fitness freak with a black belt in martial arts from joining the infantry, for Victoria, a lady with a BMI of 30 makes no sense. If Victoria is the black-belted gym junkie and Victor is a slob then of course it makes sense to recruit her.

At the end of the day with bullets whizzing around and artillery shells exploding around them it is not hard to envisage that every soldier looks to the person to the left or right of them wondering only about their capability to do the job, not celebrating the army’s pro-diversity drive. Anything that potentially damages morale should be avoided at all costs. Dropping standards for both genders is fraught with long term risks and turning the ADF into an organization that puts more emphasis on feeling warm and cuddly versus a gung-ho group of steely-eyed effective combat troops lowers our capability to defend.

We must move on from this politically correct nonsense because in the end it will literally kill us. Then again we are getting our submarines built in Australia, not because they will be better built but because our defence capability took a back seat to buying votes. Don’t think our enemies aren’t always keeping on top of our (growing lack of ) capabilities.

3 maps which explain a lot

IMG_0743The chart above shows the average % change in housing prices in the US by county today vs that in 2000 according to a Harvard study. The following maps show the results of the 2008 and 2016 election by county. Could this be yet another basic concept showing why the US voted the way they did last election?

2008 – a hope for change

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2016 – the last 8 years didn’t help – time to vote for wholesale change

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Feel free to draw your own conclusions. These three maps to me voice the disgruntled who remain destitute after all this time.

Crime in Japan – BBC interview 7 July

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Tomorrow, BBC World Service’s Edwin Lane will release the pre-recorded interview he conducted with me several months ago on the back of a series I wrote on Crime in Japan – Part 1 – Geriatric Jailbirds, Part 2 – Breakdown of the nuclear family and Part 3 – Fraud, Drugs, Murder, Yakuza and the Police some 15 months ago. Since then the reports have been reported in 14 different languages and reached c.5 million page/podcast impressions as the BBC also conducted an interview on BBC Radio 5 “Up all night”

The reason I ended up writing the research paper came by chance. While trawling through the Japanese National Police Agency statistics looking for data to help a client on motorcycle license trends, I stumbled over the crime stats and couldn’t believe the wealth of information that showed the sharp jumps in crime levels. There is some suggestion that much under-reporting went on several decades ago but as you can see in the reports the charts speak for themselves.

On a global basis, Japanese crime is low on almost any measure but the Ministry of Justice (MoJ) has had to expand prison capacity 50% in the last decade, facilitated early release to prepare for a sharp rise in elderly inmates. The pension-age cohort in prison now represents the highest percentage of total inmates. With that the MoJ has had to apply for a supplemental budget to cover the extra cost of healthcare in prison as the average age rises.

 

From Sesame to Elm Street

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ETF markets continue to surge in popularity. With low fees and basic packaging of the ETF product even Big Bird can understand what The Count is going on about. No wonder investors are snapping up these products faster than the Cookie Monster. However there is something chilling about the ETF market. In the lead up to and eventual crash of Lehmans et al CDOs, CDSs and other synthetic products were seen as the root of all evil. They were so complex that even Fields Medal winners in mathematics couldn’t make head nor tail of them. The ETF became the opposite – being too simplistic – and with that the product has brought huge complacency. To that end Sesame Street could well switch to Elm Street.

Today assets invested in ETF/Ps comprise over $3 trillion globally. Put simply the new funds flowing into ETFs vs. traditional mutual funds is at a 100:1 ratio and in terms of AUM is on par with total hedge fund assets which have been in existence for 3 times as long.

However ETFs, despite increasing levels of sophistication, have brought about higher levels of market volatility. Studies have shown that a one standard deviation move of S&P500 ETF ownership carries 21% excess intraday volatility. Regulators are also realising that limit up/down rules are exacerbating risk pricing and are seeking to revise as early as October 2015. In less liquid markets excess volatility has proved to be 54% higher with ETFs than the actual underlying indices. A full report can be seen here.

With the continuation of asset bubbles in a TINA (there is no alternative) world, ETFs in my view will lead to massive disappointments down the line. Their downfall could well invite the revival of the research driven fund manager model again as robots show they’re not as infallible as first thought in managing the volatility. Don’t forget humans designed the algorithms.

There is also the added risk of whether some ETFs actually hold the physical of the indices or commodities they mimic. A gold ETF is a wonderfully good way to store wealth without resorting to one’s own bank vault but how many ETF owners have inspected the subterranean cage that supposedly holds the physical the ETF is backed by? Has it been lent out? Does it own a fraction of stated holdings? It could be any other commodity too. Of course the ETF providers bang on about the safety of the products but how many times have we gasped when fraud reared it’s ugly head right in front of us. Bernie Maddoff ring any bells?

Given the implied volatility on the downside we need to bear in mind the actions of central banks. The Bank of Japan (BoJ) is the proud owner of 60% of the ¥20 trillion+ domestic ETF market. While the BoJ says it isn’t finished expanding its world’s largest central bank balance sheet (now 100% of GDP), the US Fed is looking to reduce its balance sheet by over 40% in order to normalize. While one can applaud some level of common sense pervading sadly the consequences of defusing the timer on the bomb they created at a period when the US economy is showing signs of recession will only be an overhang on asset markets. Should the US market be put through the grinder, global markets will follow.

It is one thing for the Fed to be prudent. It is another for it to be trying to cover its tracks through higher interest rates in a market that looks optically pretty but hides serious life threatening illnesses. The Fed isn’t ahead of the curve at all. It is so far behind the 8-ball that its actions are more likely to accelerate rather than alleviate a crisis. Point to low unemployment or household asset appreciation as reasons to talk of a robust economy but things couldn’t be further from the truth. Wage growth is not the stuff of dreams and the faltering signs in auto, consumer and residential markets should give reason for concern.

Since GFC we have witnessed the worst global economic revival in history. The weakest growth despite record pump priming and balance sheet expansion. Money velocity is continually falling and the day Greenspan dispensed with M3 reporting one knew that things were bad and “nothing to see here” was the order of the day.

Record levels of debt (just shy of $220 trillion or 300% of GDP when adding private, corporate and government), slow growth, paltry interest rates and coordinated asset buying have not done anything other than blown more air into a bubble that should have been burst. GFC didn’t hit the reset button. Central banks just hit print to avoid the pain. We’ve doubled up on stupidity, forgot the idea of prudent and sensible growth through savings and just partied on. Ask any of your friends in finance what they “really” think and I can assure you that after a few drinks they’ll tell you they’re waiting for the exit trade. They know Armageddon is coming but just don’t know when

Whether we like it or not, the reset button will be hit. I often argue people should not worry about the return ON their money but the return OF it. Global markets can’t be bailed out again with massive cash infusion. That has been a recipe for disaster, only widening the gap between haves and have nots. Debt must be allowed to go bad, banks must be allowed to go bust and free markets must be freed from the shackles of state sponsored manipulation to set prices. It will be ugly but more of the same can kicking won’t work.

ETFs are a sign of the times. They represent the slapdash approach to life these days. Time saving apps if you will. However nothing beats hard nosed analysis to understand what awaits us. Poor old Big Bird will be the canary in the coal mine and Sesame Street will be renamed Elm Street as the Kruger’s move in to give us nightmares Janet Yellen assures us aren’t possible.

Perhaps that is the ultimate question. As you go to work each day do you honestly feel that things are peachy as the management town hall meetings would have you believe? Are your friends or colleagues all bulled up about the future? Perhaps that is easier to answer than an ETF.

Repossession by remote

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A growing number of car loans in the US are being pushed further down the repayment line as much as 84 months. In the new car market the percentage of 73-84-month loans is 33.8%, triple the level of 2009. Even 10% of 2010 model year bangers are being bought on 84 month term loans. The US ended 2016 with c.$1.2 trillion in outstanding auto loan debt, up 9%YoY and 13% above the pre-crisis peak in 2005.

Why is this happening? Mortgage regulations tightened after 2008 to prevent financial lenders from writing predatory loans, especially sub prime. Auto lending attracts far less scrutiny. Hence the following table looks like it does with respect to outstanding accounts on loans

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Sub Prime auto loans, at all time records, make up 25% of the total. Devices installed in cars let collection agencies repossess vehicles by remote when the borrower falls behind on repayment. This lowers risk and allows these long dated loan products to thrive. Average subprime auto loans carry 10% p.a. interest rates. More than 6 million American consumers are at least 90 days late on their car loan repayments, according to the Federal Reserve Bank of New York.

While it is true that $1.2 trillion auto loan book pales into insignificance versus the $10 trillion in mortgage debt at the time of the GFC, a slowdown in auto sales (happening now) isn’t helpful. The auto industry directly and indirectly employs c. 10% of the workforce and slowing new and used car sales will just put more pressure on prices further lifting the risk of repossessions

It is worth reminding ourselves the following.

Last month the Fed published its 2016 update on household financial wellbeing. To sum up:

“44%. This is actually an improvement on the 2015 survey that said 47% of Americans can’t raise $400 in an emergency without selling something. The consistency is the frightening part. The survey in 2013 showed 50% were under the $400 pressure line. Of the group that could not raise the cash, 45% said they would go further in debt and use a credit card to pay It off over time. while 25% would borrow from friends or family, 27% would forgo the emergency while the balance would turn to selling items or using a payday loan to get by. The report also noted just under a quarter of adults are not able to pay all of their current month’s bills in full while 25% reported skipping medical treatments due to the high cost in the prior year. Additionally, 28% of adults who haven’t retired yet reported to being largely unprepared, indicating no retirement savings or pension whatsoever. Welcome to a gigantic problem ahead. Not to mention the massive unfunded liabilities in the public pension system which in certain cases has seen staff retire early so they can get a lump sum before it folds.”

If only this perpetual debt cycle could be stopped via remote. Someone else’s problem one would suggest.

Tesla – when the plug is pulled on subsidies

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It seems that the removal of generous electric vehicle (EV) subsidies in Denmark shows the true colours of those willing to buy a car in order to signal their willingness to save the planet. While Musk has been one of the most effective rent seekers around, it seems that if consumers aren’t given massive tax breaks they aren’t as committed to ostentatious gestures of climate abatement. In Q1 2017 alone it seems that Danish sales of EVs plummeted 60%YoY. In 2015 Danish Prime Minister Lars Lokke Rasmussen announced the gradual phasing out of subsidies on electric cars, citing government austerity and evening up the market. Tesla’s sales fell from 2,738 units in 2015 to just 176 in 2016. The irony of the Tesla is that it is priced in luxury car territory meaning that taxes from the less fortunate end up subsidizing the wealthy who can afford it!

Naturally if internal combustion engines (which by the way are becoming more efficient by the years as new standards are introduced) are taxed the same as EVs then it is clear they’d sell many more. Do not be fooled – car makers have not heavily committed to EVs for a very good reason – brand DNA. That is why we see so many ‘hybrids’ which allows the benefits of battery power linked to the drivetrain, which outside of design is the biggest differentiator between brands.

While many automakers missed the luxury EV bus, Tesla has opened their eyes. The three things the major auto makers possess which Tesla doesn’t are

1) Production skill – much of the battle is won on efficiency grounds. Companies like Toyota have had decades to perfect production efficiency and have coined almost every manufacturing technique used today – Just in Time, kanban and kaizen to name three.

2) Distribution – the existing automakers have been well ahead of the curve when it comes to sales points. Of course some argue that there is no real need for dealers anymore, although recalls, services (consumables such as brakes) and showrooms are none-the-less a necessity.

3) Technology – The idea that incumbent auto makers have not been investing in EV is ridiculous. Recall Toyota took a sizable stake in Tesla many years ago. Presumably the Toyota tech boffins were sent in to evaluate the technology at Tesla and returned with a prognosis negative. Toyota sold Tesla because the technology curve was too low. Toyota invests around $8bn in just hybrid technology alone per annum. Tesla spent $830mn last year as a group across all products. A ten fold budget on top of decades of investment in all available avenues of planet saving technology gives a substantial advantage.

Tesla is a wonderful tale of hope but it rings of all the hype that surrounded Ballard Power in fuel cells in the early 2000s. Ballard is worth 1% of its peak. As governments around the world address overbloated budgets, trimming incentives for EVs makes for easy savings. Now we have a good indicator one of the electric shock that happens when the plug is pulled on subsidies.

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