Structural Distortions Highlight Need for Sustainable Investments

The data sovereignty deficit, structural inequality, stock volatility & need for green investment, are connected. 

In February, when crashing stocks became the correction foreshadowed in the article “Income Inequality puts Everything We Value at Risk”, I listed three macro-critical factors — drivers of value that shape the overall size, scope and direction of the macro-economy — that deserve attention:

  1. Income: Virtually all income growth since 2000 has gone to the top 1% of income earners.
  2. Incentives: The economy has been effectively restructured to make wage growth and financial gain rival forces.
  3. Policy: No legislative or regulatory efforts currently under consideration will do anything to bridge this divide.

Today, the Dow Jones Industrial Average (DJIA) declined by 724 points — the 5th worst total point decline in history. The DJIA is now down overall for the year, despite bouts of upward movement and massive new corporate tax cuts intended to build confidence and fuel new investment. The S&P 500 is also down for the year. The 2018 Q1 correction against structural distortion is still ongoing.

Axios cites three major drivers of the stock market losses: “Tariffs, inter-bank lending rates and Facebook’s troubles.”

Structural risks are becoming more problematic, as leaders in the financing of industrial output struggle to deal with new policies that threaten a global trade war and the breakdown of decades of progress toward macro-economic integration.

The fraudulent acquisition and subsequent weaponization of data from 50 million Facebook users, touching 57 billion “friend” pairs — which Facebook’s CEO Mark Zuckerberg has described as a clear “breach of trust” — has resulted in a major segment of the digital economy coming into question. The problem is bigger than Facebook, because nearly every social media user wants services that don’t sell their data, and Facebook is just one of many networks that share or sell user data without case-by-case consent from users.

One wonders if anyone at Facebook has thought about polling users to see if they would prefer the network fully commit to never selling any of their personal data to anyone. (It might be worth knowing such a detail about the market comprised of their own users.)

What Facebook’s troubles tell us about this economic moment is very much like what the 2008 bundled-subprime mortgage crisis or this February’s week of stock plunges tell us:

  • Too many high-value business models, with countless points of connection to other segments of our overall economy, are not aligned with the value people are actually seeking from those businesses.
  • This misalignment is a symptom, a side-effect, and a driver of ultra-hyper extreme inequality in access to income flows.
  • Facebook’s users need to know their right to personal data sovereignty is protected, and will be protected as a top priority of a platform to which they turn over their most personal connections.

We need to re-align the levers of value-creation across the economy, and start by putting human interest ahead of what feels convenient to those who manage over-concentrated wealth. In particular, we could respond to the clear structural crisis we now see emerging by addressing those three economy-shaping forces:

  1. Income: We need to de-emphasize guarantees against liability (socialization of negative externalities) and re-emphasize guarantees for new investment that goes to new, higher wages.
  2. Incentives: Reward investors for creating jobs, technologies, and external benefits that empower people to generate more value and earn more. Empower and protect users and customers, to benefit from their new additional capability.
  3. Policy: Consumer rights protections, recreation and health, time-saving public transit, carbon dividends, and sustainable infrastructure investment, can be constructive correctors — counteracting a forced correction.

The natural choice when stock prices not only become volatile, but lose a lot of value very quickly, is to move money into more stable, guaranteed long-term bonds. This is not professional investment advice, but given the structural distortions now impacting the financial sector, the time looks right for a rapid ramp-up in highly verified green bonds linked to sustainable value-building outcomes.

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