Dienstag, März 25, 2008

The Truly Opressed...

Read the following and tell me what country we are talking about:

There is a country, with over 1400 years of history, with a unique culture, religion and ethnic blends. Over 1 million of its inhabitants have been killed by the country occupying it; the culture is being systematically obliterated; of the 6200 religious buildings, 6000 have been destroyed. There is no freedom of the press and the world knows virtually nothing about this repression.

Palestine? Zimbabwe? South Africa? Venezuela? Cuba?

Of course not. If it was about these countries, you'd be reading about it all the time in the papers.

It's Tibet.

Read this and try to understand: the government of China is not your friend. There are seven reasons why no one seems to care.

And every day the killing continues. But hey, as long as you can get cheap DVD players and throw-away consumer goods, what does that matter?

Montag, März 24, 2008

On Moral Cowardice...

I've just had the great fortune of seeing the first two episodes of HBO's John Adams.

I also went out and bought both Night Watch and Day Watch, two Russian films that deserve wider spread recognition.

The topic this evening is not what the left thinks moral cowardice is all about: according to Talking Points, moral cowardice is thus:

A moral coward is someone who lacks the courage to tell the truth, to accept responsibility, to demand accountability, to do what's right when it's not the easy thing to do, to clean up his or her own messes. Perhaps we could say that moral bravery is having both the courage of your convictions as well as the courage of your misdeeds.

To put it bluntly: balderdash.

That isn't moral cowardice: what is described is hypocrisy. Cowardice is not a lack of courage: it is, for the coward, a positive feature, rather than a negative.

A moral coward is someone who, when they are face with a conflict in which only violence can resolve the situation, chose the path of appeasement, of abjectly surrendering their principles for the sake of non-violence: those that would decry that there are times when good can only triumph through the necessary evil of force. Force, the taking up of arms, the declaration of war, the fight, is not in and of itself an evil thing: if done for the good, it is recognized as something unavoidable.

This is not to say that the ends justify the means: it is, however, to say that conflicts between men cannot always be resolved by appeal to the sweet nature of reason.

Dickinson, John Dickinson, of Pennsylvania, as portrayed in HBO's John Adams series, is a moral coward: he wants to appease the Crown, to petition the Crown for redress to their grievances, and indeed chooses not to be present when the critical vote is made to declare independence. His Quaker religion forbids him anything else: yet if those who would end our freedoms by force of arms can know that all they need to do is take up arms secure in the knowledge that appeasement is, for us, vastly superior to conflict, then this will bring about war, rather than prevent it. The appeasers of that day searched high and low for reasons that conflict should not happen.

One of the key lines in the Day Watch (Russian title: Дневно́й дозо́р or Dnevnio Dozor) is (I'm paraphrasing since the original was in Russian and I can only, at this point, go by the subtitles):

"The difference between Night and Day is that Night can lie and distort and manipulate, because we (the Dark) are always the bad guys. Light always loses because they have to say the truth."

Without going into great detail, both films show what happens when the good guys (the Light) are lied to and misled by the the Dark, resulting in principles being broken: a man is willing to sacrifice a child's life in an induced miscarriage (i.e. abortion) when he is not told that it is his own, in order to keep his wife, who has left him and told him that the child is not his. This turns him into a monster of his own doing: first at the end of the second film, when he can answer "No" when he first answered "what the heck, yes", is the impossible situation that he finds himself in turned around and eliminated from even occurring.

Moral cowardice is refusing to make the choice. Refer the problem to committee, put it off for a while, we're not ready for a war, perhaps the King will see reason.

I've known moral cowards: they're the ones who would appease in order to avoid having to go to war. Anything is better than war: what they fail to realize is that when the bad guys realize this, then war becomes more likely, since if you are willing to use violence readily to achieve your goals, and yet are faced by those who are manifestly incapable of having the will to defend themselves, you are being invited to make war.

Were that human nature was that of sweet reason. More the pity that it isn't...

Sonntag, März 23, 2008


This has got to hurt.


Not only is the earth not warming - global temperatures have fallen since 1998 or, if you prefer, they have stabilized since 2002 - but data on some of the fundamental model mechanisms in use to estimate the development of global climate has turned out to contradict these models entirely.

In other words, the models postulate one thing, but data collected via NASA's Aqua satellite since 2002 shows that this effect has, in the parlance of the trade, a different sign. In other words, the models are wrong.

Models are always wrong. They can be useful. In this case, if they are showing the opposite effect of reality, then the models are not useful.

And given the abuse of the model results by the global warming fetishists, the models are downright dangerous.

I enjoy saying "Told ya so". It'll be interesting to see if there is literally anything in the MSM about this.

I sincerely doubt it.

Donnerstag, März 20, 2008

True Imperialism & Tibet...

The Chinese don't understand what is going on in Tibet.

After all, the Chinese say, we came in, liberated them from their backwards, feudal parasites that were repressing them, denying them the their true historical development. We took their children and educated them, and we built roads and railroads so that they could partake in the glorious path of socialist development. How ungrateful the bastards are! They are obviously being agitated from outside, by counter-revolutionary forces, exemplified by that murderer and tyrant in red robes, the Dali Lama (stage sound effects: hisssssssssss, boooo).

After all, so say the Chinese, the Tibetans were prevented from developing properly, trapped in ignorance and poverty by a repressive religious regime, parasitical and obsessed with maintaining its power over the means of production. These parasites taxed their peasants and forced them to follow arcane and incomprehensible rituals that reduced their productivity and denied them the fruits of their labors.

The liberation of Tibet was a glorious service of the selfless and sacrificing Chinese people, who gave their lives in order to liberate their Tibetan brothers. After all, Tibet always belonged to China and it would have been an unbearable crime against the path of communist development, as laid out by the great, wide and glorious leader, Mao Zedong, to not have liberated the repressed masses in Tibet.

And now this is the thanks? It is inconceivable that the path of socialist development be turned around: no liberated people can ever want to return to their sordid, repressed path in order to be exploited by such ruthless parasites like the Dali Lama (hisssssssssssss, booooo).

For that reason it must be outside interference from those lackey reactionaries that scurry in the darkness and serve the Dali Lama (hissssssssssss, boooooo).

Well, they would say that, wouldn't they?

The Chinese are indeed clueless to their own nature: so long steeped in their own Maoist rhetoric, they cannot see the beam in their own eye.

The Chinese perceive themselves to be the perennial victims of foreign interference: that the political incursion, economic exploitation and military aggression of the West undermined the glory of China, humiliating China and making worthless its historical achievements. This is, to a large extent, the basis for how China views the external world. This is in stark contrast to the other major thread in Chinese thinking, of the innate and unique history of the Central Kingdom and the amassed wisdom of millenia of experience with problems. China can overcome its victim status first when the world recognizes the Central Kingdom for what it is: the center of the universe. Until this happens, China will remain a victim.

Talk about your insecurity complex. The way that China has reacted to the riots in Tibet is also classic passive-aggressive behavior: it's not our fault, it's always your fault. See what YOU made ME do?

China has behaved as a true imperialist power in Tibet: it has tried to destroy the culture, it has forced its system on the country, it has drawn artificial borders, it has moved large numbers of their own people into the country, acquiring power over all means of production, especially retail trade (from what I have heard, there are virtually no Tibetans involved in retail sales in Lhasa any more, as they have been systematically driven out of business by the Chinese).

And they are, fundamentally, afraid of Tibet: scoff what you may, there are more Tibetans living outside of Tibet than in Tibet. Tibetans are characterized not merely as a ethnic group that has adapted to life at very high altitudes, but also in their religious beliefs. Tibet is spoken as far east as Sichuan; not only do the Tibetans form the majority in Tibet, but also in Qinghai Province and a good half of Sichuan Province as well.

What China does not realize, are not capable of realizing, is that they were wrong to have invaded Tibet and to have forced the Dali Lama into exile. They were wrong to think that the Tibetan culture was backwards and not worthy: Tibetan culture is uniquely adapted to life at high altitudes, and while there are always exceptions to the rule, Tibetans were largely content with their simple life, intense spiritualism and support of their religion, given the largely barren and inhospitable regions where they live.

It is the Chinese who are, here, the true imperialists, incapable of recognizing their attempt to destroy and recreate the Tibetans in their own image. This can be traced back to the classic Central Kingdom arrogance towards anyone not Han: it is the greatest weakness of modern China as well.

Mittwoch, März 19, 2008

Five Years On...

It's been five years since the US implemented the UN Security Council decision that Iraq was in substantial and serious violation of no less than 17 UN Security Council Resolutions (678, 686, 687, 688, 707, 715, 949, 1051, 1060, 1115, 1134, 1137, 1154, 1194, 1205, 1284, 1441), with the last one - 1441 - being the most serious.

Let us remember 1441: it stated that Iraq was in material breach of Resolution 687, the cease-fire after Kuwait. The key word is material breach: this means:

...any failure to perform that permits the other party to the contract to either compel performance, or collect damages because of the breach.

This is a legal concept, and given the impossibility of collecting damages, it compels performance.

The US compelled performance. It took a war to do so: a war fought to minimize deaths on the other side, a war brought to a quick and almost bloodless conclusion. That is the war that deserved the infamous "Mission Accomplished".

Up front, the true heroes of this story are first and foremost the men and women who have served their country. They deserve our respect and admiration, and I thank them, deeply, for their service. And for those who would immediately ask why I am not there: I did not qualify for service, both at the time when I would have been inducted (yes, I am that old) and the time I would have volunteered.

I'm not going to argue with the left about their fantasies regarding why the Iraq war happened. They chose to ignore the facts and instead argue an interpretation of the facts that does not, frankly, meet even the simplest test of empirical verification (in other words, if you actually read what President Bush actually said at the time, you must realize how little the fantasies of the left have to do with empirical reality).

Let's, instead, revisit the time that the decision was made: we now know that both France and Russia were desperately seeking, behind the scenes, to avoid having the severe corruption of key decision makers in their governments from being known (Food for Oil program). We now know that within the UN, no one expected President Bush to actually believe in the UN, thinking instead that he'd be forced to back away, weakening the US position in the Middle East severely, which was, after all, the goal of countries like France, Russia and China. This was a time of naked power politics, swathed in diplomacy, but barely understood by outside observers at that time.

President Bush, to his permanent credit, denied them the destruction of the UN as a functioning body; he did the right thing, for the right reasons, and that is what is so completely and totally unpalatable to the left. He has been vilified, but that is par for the course: history will show him to be correct, especially if his successor follows up and completes his task.

I am utterly convinced that President Bush actually saved the UN from ruining itself by implementing UN resolution 1441: if he had backed down, the UN would have been exposed as being just as worthless as the League of Nations turned out to be, and while there remain massive problems with the UN, the idea that the UN can still play a meaningful role was saved by President Bush.

What has been achieved?

First and most fundamentally, Iraq is in compliance with Security Council Resolutions.

Second, Iraq has been transformed from a repressed dictatorship based on blood and terror to a democratic state, federalist, complete with completely normal inadequacies and problems.

Third, the US has stood up to Arab terrorism, faced it down and, at the end of the day, destroyed it, with the Iraqi people, in Iraq. If you do not understand the symbolism that this has, then you do not understand much about the Middle East. This far, far outweighs the negative symbolism of Abu Ghraib and the imagined triumph of Al Qaeda when it beheads innocents and sets bombs to blow American soldiers up. The way that Al Qaeda fought war led directly to their failure against the US.

Fourth, while Iraq has a long, long way to go before it can be considered peaceful and US troops can be withdrawn, there is progress being made in exactly this direction.

Fifth, this has been done with extraordinary restraint and at a minimal cost.

Now, I can well imagine those who wonder at some of these statements. Well you might: you don't understand the bigger picture, consumed as you are with small things.

I say that this has been done with extraordinary restraint. There have been, unfortunately, exceptions to this, and the Iraqis have understood, far better than the left ever will be able to, that while the US is not perfect, it has acted with civility and respect where it could have done exactly the opposite. It would have been simplicity itself to have used massive air power to flatten Fallujah and kill everyone in that town; we did not do so. Nor did we ever even contemplate it.

Minimal cost, you say? Hundreds of billions of dollars, close to 4000 dead and close to 30,000 wounded?

If you understand the big picture, yes.

I honor the dead by insisting that they did not die in vain and that their deaths will not be in vain. Their deaths must not, may not be in vain: that would be the cruelest and most dishonorable thing that a US administration could ever do to those who serve this country. The current administration refuses to do so: it could well be that another does. That is our way of government: when fools are elected, they can behave as fools. The honor of the sacrifice is not changed by this, and history is not kind to those who do so.

The same is true for the wounded.

If you have any idea of the sheer size and vitality of the US economy, the money we have spent, while not trivial, is minimal. Even the maximum amounts that partisan thinkers have come up with  - $3 trillion - remains, in comparison, relatively low. It sounds like a lot, but when you look past the headlines, as it spread out over decades, the relative amount becomes, well, relative. $3 trillion in the face of $100+ trillion is minimal ($100+ trillion being the size of GDP over the same time period as the $3 trillion cost).

Little went as planned. But if you understand anything of human history, of wars and conflicts, little in war ever goes as planned. You have contingency plans for everything, but these plans aren't blueprints for what to do, but rather guidelines for possibilities. Rumsfeld's litany of "known knowns, known unknowns and unknown unknowns" was absolutely correct: those who call Iraq a fiasco, a disaster, a blunder, a debacle, all do not understand what really happens during wartime, or are too partisan or too lazy to understand the bigger picture.

This is really what few seem to understand. Iraq, back then, was viewed as a secular state, repressed but relatively intact, ready to be freed and take its place amongst the nations of the world. Instead, Iraqis, after the war, made it clear that they really lived in a failed state, one that had long ceased to function as anything besides the plaything of Saddam Hussein and his Ba'ath party. It became the deadly playground of its neighbors, having long lost its own sovereignty.,The killing started not because of any innate hatreds, but because enough Iraqis, prodded and manipulated by their neighbors, who were acting out of their own self-interest, found it politically and personally suitable to begin killing their neighbors. It will end, as it appears to be doing so, when those people are killed and enough Iraqis decide that this is not how they wish to live. That is reality.

It is easy to call the last five years a failure, a mistake, a folly, a debacle, an error, to declare it to have been utter stupidity, the sign of bankrupt policy and to call it "Bush's war".

It is nonetheless wrong to do so. The hard part of Iraq is understanding why the US is there: to break the Arab cycle of failure, destitution, delusion, and incompetence that leads back to failure. To claim that Arabs lack a democracy gene is deeply racist and fundamentally ignorant of Arab history and culture. The goal, instead, is to help Iraq become a civilized state once again, one that will be capable of great things, given the natural riches of the country, coupled with a rich historical tradition capable of greatness.

All I expect to hear from the left is unthinking, dogmatic, knee-jerk reflex, polemic and lacking any semblance of understanding and comprehension, deeply reactionary and fundamentally disappointing. You'd think that unionists would leap at the idea of introducing unions to the unorganized workers of Iraq; that those enamored of "free" health care would jump at the chance to help a country organize it. But instead all that is visible is the shame of the left today: their idea that the US dare not be successful in Iraq.

It's been only five years. History will tell us in 50 years how it went. Anything else is folly.

Dienstag, März 18, 2008

Keeping the Government Out Of Markets...and Putting the Blame Where It Belongs for Sub-Prime

We're all seeing all sorts of articles about the current credit crisis. But I have yet to see many that really analyze the roots of the problem.

The root of the problem is government interference in markets.

Now, when the government intervenes, it screws things up.

The sub-prime crisis is to a large degree the logical follow-up to the Community Reinvestment Act of 1977, which basically said that if banks wanted preferential credit conditions with the Fed (refinancing rates) - critical to remaining competitive - then they must make loans to borrowers that did not, under normal conditions, qualify for a mortgage according to the conditions that banking prudence would require.

Basically, the banks are tested to see if they are, in effect, cherry-picking their customers and lending only to the wealthy: if this was so, they were found in non-compliance, which affected their deposit requirements, which, as we all know, is the fundamental leverage the Fed has over the banks.

This meant that the banks were, by law, required to make loans to customers that would not normally have qualified, or, more exactly, who would have qualified only for rather expensive loans, either through a risk premium (front-loading) or higher interest rates. This is the birth of the sub-primes. The banks fought against this, back when, but lost to the activists and their Democrat supporters.

The CRA was tightened in 1995 under Clinton to ensure that the banks "properly" serviced their community, i.e. their geographic area, and didn't redline distressed economic districts to avoid making bad loans. How did they check this?

Why, the Home Mortgage Disclosure Act, which gathered the data that activists (hi, ACORN, that's you) then used to argue that the banks were, in fact, discriminating against minorities and lower-income communities. This dated from 1975, which preceded the CRA from 1977/1995.

The problem that you see here is simple: the banks haven't been making, strictly speaking, straight-forward mortgages, based on purely the numbers, since the late 1970s. This underscores how political pressure distorts the market: it created the sub-prime market as such. Previously, the banks didn't make the loans without proper risk premiums: they were then required by law to make the loans without the proper risk premiums, and in doing so, created the hole that became the sub-prime swamp.

To re-iterate: a significant part, the basis, of the current financial crisis was an intervention, politically motivated, to abrogate financial common-sense and the rules of economics. The banks didn't create subprimes: the CRA did. The banks, interested in keeping their refinancing costs down as much as possible, gave loans to people who didn't qualify, resulting, by the late 1990s, with banks having substantial portfolios of sub-prime loans.

Because the government wanted them to. Not just wanted: it required them to. Why?

Because liberal lobby groups felt it was unfair that poor people and minorities weren't able to buy a house at the same rate that rich people and WASPs were able to. They pushed through the laws, against the advice of the banks.

Where things really started going wrong was when the banks, interested in cleaning their books of the subprime loans - and they were interested because these loans were risky, but without the proper risk premium - found that new financial instruments allowed them to bundle the loans and get them off their balance sheets. You can't blame the banks for this: they were carrying only partially covered risks without any chance of reducing their liability otherwise.

Once the risk became uncoupled, the banks were happy to make the loans, especially with what I call Stupid Money. Investors who thought they were acquiring low-risk investments (gee, thanks, S&P, Moody, etc), when, in fact, they were acquiring structured investments with significant risks that were downplayed in order to sell the damn things.

There's more to be said about the risk side of business, and stay tuned for that.

The place to put the blame for the current financial crisis and the sub-prime mess is with politically motivated intervention in free markets. For the goal of preventing red-lining of districts and minorities as being poor risks - which they are, sorry - the liberal intervention required banks to amass significant portfolios of sub-prime mortgages, poor performers without the proper risk premium.

That is why you keep government out of markets. They only end up screwing things up royally.

Exactly My Point...

As faithful readers will know, I'm not a fan of the global warming scene.


Because the "experts" demand that we act based on model results. But they're not really even experts: they're politicals who have hijacked the movement to further their own means (yes, the Watermelons are back).

The climate modelers don't think that their models should be used for this purpose (link to original here):

We all seem to agree that our state-of-the-art models aren't satisfactory representations of climate on Earth--at least not to the degree required to make decisions with them. We also agree that people are concerned with climate change and eager to incorporate information about future changes in their decision making, and we're conscious of the need to relate our research agenda and findings to real-world demands. Finally, there's consensus that we cannot look at climate forecasts--in particular, probabilistic forecasts--the same way we view weather predictions, and none of us would sell climate-model output, either at face value or after statistical analysis, as a reliable representation of the complete range of possible futures.

These are the first words of truth that I have ever heard from the people actually involved in the modelling work: we've seen the duplicity and falsehood from Mann on the Hockey Stick, and increasingly we're finding that the original, primary data for temperatures is either heavily compromised or has been severely modified with no explanations or documentation, since it otherwise shows a rather different picture.

But it gets better (from the same source):

Do we believe that today's models can provide decision-relevant probabilities at a resolution of tens of square kilometers for the year 2060--or even 2020 for that matter? No. But that does not suggest we believe there is no value in climate modeling. Since the climate is changing, we can no longer comfortably base our decisions on past observations. Therefore, we must incorporate insights from our models as the best guide for the future. But to accept a naive realist interpretation of model behaviors cast as a Bayesian probability distribution is, as mathematician and philosopher Alfred Whitehead surmised, to mistake an abstract concept for concrete reality.

Until we can establish a reasonable level of internal consistency and empirical adequacy, declining to interpret model-based probabilities as decision-relevant probabilities isn't high skepticism, but scientific common sense.

In other words, the models run the danger of becoming self-fulfilling prophecies: to "incorporate insights" means nothing less than to bias the models to a set result. This is, bluntly, unprofessional. But the basic thrust of this is correct: too often is an abstract concept mistaken to be concrete reality: you can see this best in the dogmatic belief in model results as being an accurate representation of the future.

As someone with 20 years' experience as an industrial forecaster, who regularly forecasts out to 2040, and in some cases 2150, I can only underline this: a forecast is a picture of a possible future, based on what is known today, and can only be done professionally when the forecaster knows his own biases and removes them from the forecast. You do this by rigorously testing the statistics and carefully analyzing the interdependencies of your model for reality: to "incorporate insights" is to introduce biases into the models that is, at the end of the day, wishful thinking (wishful thinking here understood as "how can I get research grants").

Now, companies, those with business plans, use forecasts to determine where they should be investing and developing business. The critical use of a forecast is to constantly review these decisions and to change them when conditions change. The problem I have with the global warming fanatics is that they don't want to do this: there is no incrementalism to the process, but rather the incessant and constant demand to drink the Kool-Aide, forever committing to the process. That is, bluntly, really bad economics, and something that none of the folks involved bother to address (and waving the chimera of eco-jobs doesn't count: the economic dislocations that are called for are massive and cannot be compensated for: the global warming folks want the majority of people to be poor and have their consumption habits firmly under control).

And finally:

Yet demands from policy makers for scientific-looking probability distributions for regional climate changes are mounting, and while there are a number of ways to provide them, all, in my opinion, are equally unverifiable. Therefore, while it is seductive to attempt to corner our ignorance with the seeming certainty of 95-percent confidence intervals, the comfort it gives is likely to be an illusion.

The problem is that the climatology has been, to a large degree, hijacked by "policy makers" with the willing collusion of many involved, not the least due to the promise of major research money and, to a lesser but also critical degree, the desire to be the leveraging force behind policy making: climatology, or better what has usurped the science, is eager to be primary amongst those making the calls and deciding, politically and economically, how the planet is run.

Why? Because no one runs the planet now. For some that idea is an abomination: for others, like me, it's the right and proper order of things that there is no right and proper order. As one of the commentors ut supra said (non-quoted here): the Earth is an uncontrolled experiment.

They think that they know better how it will turn out.

What galling hubris...

Samstag, März 15, 2008

Understanding How The Stock Market Works...

Hat tip to Sense of Events: I expanded on it slightly...

Once upon a time in a jungle village, a man appeared and announced to the villagers that he would buy monkeys for $10 each.

The villagers seeing that there were many monkeys around, went out to the forest, and started catching them.

The man bought thousands at $10 and as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching monkeys again.

Soon the supply diminished even further and people started going back to their farms. The offer increased to $25 each and the supply of monkeys became so small that it was an effort to even see a monkey, let alone catch it!

The man now announced that he would buy monkeys at $50 ! However, since he had to go to the city on some business, his assistant would now buy on behalf of him. In the absence of the man, the assistant told the villagers. 'Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 and when the man returns from the city, you can sell them to him for $50 each.'

The villagers rounded up with all their savings and bought all the monkeys. Then they never saw the man nor his assistant again, and in their desperation tried selling the monkey to each other, with some buying in the hope that the man or his assistant would reappear. Others tried keeping the monkeys but saw them die; others just gave up and let the monkeys free. Others went out and started killing monkeys out of rage that they had lost so much.

Now you have a better understanding of how the stock market works.

Donnerstag, März 13, 2008

A Voice Of Reason...

Václav Klaus is one of the most dangerous challenges to the hysteria of global warming: he's an economist.

He recently made some comments that are worth repeating here.

Key quotes:

Future dangers will not come from the same source. The ideology will be different. Its essence will, nevertheless, be identical – the attractive, pathetic, at first sight noble idea that transcends the individual in the name of the common good, and the enormous self-confidence on the side of its proponents about their right to sacrifice the man and his freedom in order to make this idea reality.

While the "science" - in quotes because no one actually publishes their model as such, just the results, and as someone who has been forecasting industrial activity for more than 20 years, I have to see the models (and sorry, peer review here is a joke if all the peers have the same financial interests - of global warming eludes me, the politics of it does not.

I've mentioned the watermelons before: green on the outside, red inside.

And what drives those behind the scenes?

The insurmountable problem as I see it lies in the political populism of its exponents and in their unwillingness to listen to arguments. They – in spite of their public roles – maximize their own private utility function where utility is not any public good but their own private good – power, prestige, carrier, income, etc. It is difficult to motivate them differently.

Bingo. They're not in it for the science: it's a way to power.

And it's all about control:

I am afraid there are people who want to stop the economic growth, the rise in the standard of living (though not their own) and the ability of man to use the expanding wealth, science and technology for solving the actual pressing problems of mankind, especially of the developing countries.


What I see in Europe (and in the U.S. and other countries as well) is a powerful combination of irresponsibility, of wishful thinking, of implicit believing in some form of Malthusianism, of cynical approach of those who themselves are sufficiently well-off, together with the strong belief in the possibility of changing the economic nature of things through a radical political project.

One might think that history doesn't repeat itself: what we are seeing is the rebirth of the idea that you can plan out the economy and manipulate it to meet your political needs (which is what the massive reductions in CO2 output would imply: you can't do this via market means, hence the government will intervene and, where necessary, require the changes: this is a planned economy on the installment plan...).

The climate alarmists believe in their own omnipotency, in knowing better than millions of rationally behaving men and women what is right or wrong, in their own ability to assembly all relevant data into their Central Climate Change Regulatory Office (CCCRO) equipped with huge supercomputers, in the possibility to give adequate instructions to hundreds of millions of individuals and institutions and in the non-existence of an incentive problem (and the resulting compliance or non-compliance of those who are supposed to follow these instructions).

We have to restart the discussion about the very nature of government and about the relationship between the individual and society. Now it concerns the whole mankind, not just the citizens of one particular country. To discuss this means to look at the canonically structured theoretical discussion about socialism (or communism) and to learn the uncompromising lesson from the inevitable collapse of communism 18 years ago. It is not about climatology. It is about freedom.


Of course, the global warming hysterics don't care about your freedom: let's save the world! Everyone living today must make great sacrifices for the greater good of tomorrow, so that our grandchildren may live in perfection.

Those who do not understand history are condemned to repeat it.

Mittwoch, März 12, 2008

David Mamet Grows Up...and What Does Star Trek Have To Do With It?

One of the sites I peruse briefly almost every day is my old favorite free rag, the Village Voice. As a native New Yorker, this remains, for me, the best channel back to the petty politics and absurd priorities of borough meetings of the greatest city on Earth.

David Mamet seems to have finally grown up. He usually blogs over at the Huffington Post, that gaggle of left-wing opportunists.

But in this article in the Village Voice he describes how he has finally grown up. Of course, he doesn't say that, but rather:

I took the liberal view for many decades, but I believe I have changed my mind.

And he's got reasons:

And, I wondered, how could I have spent decades thinking that I thought everything was always wrong at the same time that I thought I thought that people were basically good at heart? Which was it? I began to question what I actually thought and found that I do not think that people are basically good at heart; indeed, that view of human nature has both prompted and informed my writing for the last 40 years. I think that people, in circumstances of stress, can behave like swine, and that this, indeed, is not only a fit subject, but the only subject, of drama.

I'd observed that lust, greed, envy, sloth, and their pals are giving the world a good run for its money, but that nonetheless, people in general seem to get from day to day; and that we in the United States get from day to day under rather wonderful and privileged circumstances—that we are not and never have been the villains that some of the world and some of our citizens make us out to be, but that we are a confection of normal (greedy, lustful, duplicitous, corrupt, inspired—in short, human) individuals living under a spectacularly effective compact called the Constitution, and lucky to get it.

For the Constitution, rather than suggesting that all behave in a godlike manner, recognizes that, to the contrary, people are swine and will take any opportunity to subvert any agreement in order to pursue what they consider to be their proper interests.

To that end, the Constitution separates the power of the state into those three branches which are for most of us (I include myself) the only thing we remember from 12 years of schooling.

The Constitution, written by men with some experience of actual government, assumes that the chief executive will work to be king, the Parliament will scheme to sell off the silverware, and the judiciary will consider itself Olympian and do everything it can to much improve (destroy) the work of the other two branches. So the Constitution pits them against each other, in the attempt not to achieve stasis, but rather to allow for the constant corrections necessary to prevent one branch from getting too much power for too long.

By Jove, I think he's got it:

...a free-market understanding of the world meshes more perfectly with my experience than that idealistic vision I called liberalism.

Hey, everyone should be, at some point in their lives, a liberal. It's a good thing. It's a warm and fuzzy feeling, and it's nice to think that people are fundamentally good everywhere and at all times, and by gosh, we need the government to run things for us.

But it is also good to grow up and realize that this is the real world, that you can't have that pie-in-the-sky or, more importantly, that if you give people a utopia, they will do their best to ruin it. They will spend their time finding out how to exploit the system: if you want a utopia, find another set of sentient beings.

Over the last several weeks I've been watching Star Trek: The Next Generation with my wife. What has struck me more and more with each episode is that the Federation is an impossible political system, and those that hold the Federation in contempt for those aspects that the Federation finds so hugely important are generally the best characters.

There are those who characterize the Federation as being fascist; those who see the Federation as being imperialistic, in the Marxist sense; or that it is, actually, a kind of Marxist utopia. Fundamentally, though, if the Federation actually existed, it would more likely be deeply corrupt and decadent, which may or may not be appealing to the reader.

The point I'm trying to make is that just as Star Trek's Federation is a non-viable form of government that requires a different species to actually work, so is liberalism: it's a nice story. But just like escapist literature, it's not reality.

So let's quote William Shatner, the indomitable Captain James Tiberius Kirk, the epitome of the imperialist aspect of Star Trek, on Saturday Night Live:

You know before I answer any more questions, there's something I wanted to say. Having received all your letters over the years, and some of you have come hundreds of miles to be here, I'd just like to say, get a life. Will you, people? I mean for crying out loud, it's just a TV show. I mean look at you. You've turned an enjoyable little job that I did as lark into a colossal waste of time. I - I mean, how old are you people? What have you done with yourselves? You (points to member of studio audience) must be almost 30, have you ever kissed a girl?

So, kudos to David Mamet for getting out of his parents' basement and starting to live in the Real World.

How many liberals have stayed that way when they actually have to meet a payroll?

Only those who were rich to begin with or for whom money has no meaning.

Mittwoch, März 05, 2008

Commodity Prices, Missing Investments and Illusions...

Martin Wolf is one of the reasons I read the FT.

Today he comments on commodity prices, and I think his take is, as usual, very good, but doesn't take the story far enough.

Inflation has many definitions, but let us center on two of them.

First, inflation is fundamentally defined as too much money chasing too few goods.

Second, inflation is fundamentally defined as money supply outstripping productivity growth.

All central banks and economic policy makers walk a rather narrow road. On the one hand, everyone wants economic growth: it is only through growth that the pie becomes bigger and allows flexibility in making consumption decisions, consumption here in the broadest sense. Without growth, economic policy becomes strictly a zero-sum game, and in reality a negative-sum game, where the best you can hope for is to be least effected by shrinkage.

On the other hand, central banks and economic policy makers don't want price increases merely for the sake of price increases, which creates the illusion of growth: the "real" growth of the economy doesn't happen if prices and only prices go up.

As an aside: there are some lovely language conundrums in the economics field: on the one hand, you have real investments, which are investments in real things, as opposed to virtual things, like financial instruments. Economists like to understand what drives real growth, which is, however, a theoretical construct of nominal growth and price developments, hence turning the normal concept of real on its head. People in the real world aren't that interested in knowing the "real" rate of wage growth, but much more the nominal one, since that is what "really" ends up in their bank accounts (I almost said pay envelopes, that dates me...). Hence there is real (as in real estate) and real (as in deflated figures), but one is really real, while the other one is only real to economists... you just gotta love the English language. Those who truly master English as a language can be extraordinarily precise when writing, while I always tell my students and colleagues, none of whom are native English speakers, that English is a simple language to learn and a difficult one to master. They never believe me until I get some of their writing to edit. Then they do...

Back to the subject at hand: we have, here, a complex story of supply and demand. Martin Wolf is correct in saying that increased international demand for commodities in the face of wealthier markets outside of industrialized nations cannot explain the strong increases in commodity prices fully, but it does explain them to a certain extent. One thing that Martin Wolf doesn't touch upon is the increasing monopolization of commodity producers, but that is largely driven by the increasing prices and at least to date not the primary cause.

What drives commodity prices? As always, they are fundamentally driven by the fact that commodities are scarce goods. But this is nothing new: commodities are inputs into the industrial process, where goods are made to be sold. Here is where technology has made and continues to make a difference in the use of commodities, with the relative intensity, for instance, of steel in industrial goods falling fairly dramatically over the last 30 years or so. Go look up the figures yourself: the same is true for virtually all commodities. This was, has been, is and will be the core of industrial success: it's called material productivity, and is a fairly ignored area of economic analysis outside of the manufacturing sector. There it is usually analyzed by non-economists whose sole interest is in improving the bottom line: make something using 5% less steel, for instance, and you've improved your profitability (or you can drop your prices to increase market share, ceteris paribus).

Now, material productivity is dependent on three things: engineering, design and investments. Can you see now where I am heading with this?

Engineering can tell you what you can actually do with raw and partially finished metals and other commodity inputs. Steel has a certain tensile strength and, hard to believe for non-engineers, it has a specific elasticity. Play around with the chemical components of your everyday steel and you can increase, for instance, the drawing elasticity of steel, allowing bonnets and doors of cars to be made with thinner gauges of steel than would be otherwise possible, resulting in weight savings (better mileage) and lowered costs.

Design takes this engineering knowledge and creates the products that people buy. The factories make them.

But to take advantage of such developments you invariably need to invest. Invest in your people, in new machinery, in new intellectual property, be it own or other patents, all leading to investing in new technologies that lead to significant improvements in both material and labor productivity (both together are called total factor productivity).

So, if your eyes have not glazed over at this point, what does this mean?

Martin Wolf concentrates, in his article, on what strong price increases in commodities mean to the central banks, who are the actors specifically charged with addressing the problem of inflation (which basically means working out how, in lieu of being able to dictate prices, companies in the real world can be persuaded to keep prices down): this task has been significantly made more difficult for those making the decisions of what to do by strong commodity price increases that are themselves part of the problem.

He makes three good points:

1) Central banks cannot turn the clock back and return to people purchasing power that they have lost to higher costs.

2) Central banks cannot run after each and every price increase, as economic policy based on this would lead to significant instability.

3) Central banks may ignore the trend development of commodity price increases at the risk of their mortal souls, such that they have, as this is where they face ruin.

The Fed is currently doing the obverse of this second point, which is counter-productive. Inflation expectations - which will invariably feed long-term interest rates - are on a strong upswing in the US, as the actions that the Fed takes are not having the impact that is desired, but rather the opposite, which is an extremely dangerous development.

You see, an enormous amount of economic activity is based on what I would term illusions. But not the illusions of magicians or charlatans, but rather agreed-upon illusions, agreements on how to do things that enable things to get done.

Money itself is an illusion; it's not, in and of itself, actually worth anything, but rather the value of a currency is what you can buy with it. Illusions here are, however, based in reality, but reality itself, of course, is made up of illusions that we call perceptions.

As long as everyone accepts the illusion, things work. There is no sense in trying to call these illusions to be anything but what they are: they are consensual agreements that make the world go around.

The danger is when these illusions break or become distorted. This is, after all, what happens in bubbles: people believe, even at increasingly high prices, that the objects that drive the bubble will be worth even more within a reasonable period of time with a fairly high level of certainty. If people believe that prices will fall over time, deflation occurs.

The problem we are now facing is two-fold: one is a crisis of illusion, the other is a crisis of management.

The crisis of illusion is fairly straight-forward and has been laid out for you briefly.

The crisis of management is a crisis of what to do.

Now back to investments. It is my opinion that most industrialized nations have been underinvesting for several decades at this point, both in terms of industrial investment and in terms of investment in infrastructure. The former is what companies are responsible for, the latter is what governments are responsible for.

Let's look at investment in machinery and equipment: generally speaking, corporate investments here have been to improve labor productivity, although quite a bit is involved in the technological imperative. Investments, however, largely come out of profits, either directly or indirectly via financing. Here is where the problem has started.

Within the manufacturing sector, engineers and the like no longer, largely, make the decisions of what the company should or should not do. That has become the realm of lawyers and bookkeepers, aka management. As a matter of fact, any company still run by engineers is a take-over candidate, because they - the lawyers and bookkeepers - can take it apart and sell the parts for more than what the whole is worth. This is also partially true for the services industry as well.

Investments are needed for future profits, but those profits are unknown, and it makes more financial sense, from a lawyer's or accountant's point of view, to maximize profits now at the cost of potential profits later. Hence dividends are paid and stock is repurchased to increase the value of existing stock (usually a significant amount of which is held by management). This drives up stock prices and increases the theoretical value of the company, allowing it to leverage what sort of money it can call up to do ... whatever with.

What has happened is that the connection between profits of a company and its investments has been at least partially severed, as lawyers and accountants turn manufacturing companies into financial institutions. Sometimes they still make things, but Enron has shown the madness that this path can lead to.

This development has further risks: with stock prices becoming the key metric for success, the pressure is not to make good products, but rather to obtain the highest possible rate of return (once the lawyers and accountants have driven out the engineers from running the company). Manufacturing has a fairly pedestrian rate of return, generally speaking, while financial companies, willing to take on risks, will have a higher rate of return. This in turn places the pressures on manufacturers to realize high rates of return, a vicious spiral of increasing risks and expectations of high rates of return without risks.

This isn't possible: high rates of return are always associated with high levels of risk. This is basic financial economics 101 (or really, really should be!).

The fact that this rule, this law, is so blatantly - as in the examples of subprimes, Enron and other tales of capitalistic greed and stupidity - ignored is, in my opinion, the result of the fact that management is dominated by lawyers and accountants. They are the ones whose professional careers center around "what am I allowed to do" and "how can I finance what I want to do", rather than what is more important for any industrial company, which is "how can I build what my customers need at the lowest cost for the most money".

That is the core of the problem of missing investments: if you want to stay on the curve ahead of any inflation, you need to have material productivity improvements that are in excess of commodity price increases; you also need labor productivity increases that are in excess of labor costs.

Anything else leads to a reduction in profitability. That's not my opinion: that is how the numbers work.

Hence the missing investments: the investment in new technologies, new manufacturing methods, but more fundamentally in basic science that leads us to these engineering improvements. No industrialized country is investing enough in both material and labor productivity, since that means sacrificing profits that the lawyers and accountants insist be used for other purposes.

Why? Lawyers and accountants are chasing an illusion that they never learned, or may have learned but have chosen to ignore: that high rates of return need not be associated with high levels of risk. The problem is that most risk is not visible. The dot-com startups were extraordinarily profitable, but also extremely risky, but the relative capital needed to do a start-up was relatively small and hence, for the venture capitalists, not much risk that they would lose their entire investment sums entrusted to them by their investors. That's only a relative risk, though: any start-up is a highly risky undertaking.

Sometimes you have to be an expert to see where the risks are, and while lawyers and accountants are experts in their field, they are not experts in all fields: the hubris, the false pride of both professions, that they don't need to understand a business, just understand the balance sheet, has been extremely dangerous. They tend to grab consultants to explain the business to them, who are in turn themselves ... lawyers and accountants, resulting in the deaf leading the blind, oblivious to reality.

Hence commodity price increases should be the driving force for technological innovation, rather than the threat to the bottom line that leads to price increases and inflation: while I recognize that there is a lag involved, a good company anticipates such developments. Or at least they would if they still employed economists in their strategic planning, but that is a topic for a later post. The drive for higher returns has led to missing investments, ignoring economic development for short-term financial gain and actually worsening the long-term outlook.

What needs to be done?

Oddly enough, this is where government can actually play a positive role: finance basic science. The basic science here must be aimed at solving real-world engineering problems to improve total factor productivity, and not based on what scientists want to study. It is the job of government to make the political decisions. Austria, for instance, has one of the very few well functioning government investment plan for education: they made the decision 30 years ago to create academic chairs in engineering (diesel engines) and Austria is now one of the foremost world-wide providers of diesel technology. They are now creating academic chairs in nanotechnology.

That is proper government investment in the sciences.

What else can be done?

First of all, the government should concentrate on getting its infrastructure in place, which is one of the best ways of spending government money. The Japanese have shown how it shouldn't be done, but their general direction wasn't wrong.

Second, I wish I could be as simple as Shakespeare was and expand on his famous saying from Henry VI, Act IV, Scene II, spoken by Dick the Butcher:

The first thing we do, let's kill all the lawyers.

to be

The first thing we do, let's kill all the lawyers and bean-counters.

But that is not sensible in any sense of the term, and indeed the character speaking the lines wants to kill them in order to create chaos and anarchy.

But the role of lawyers and accountants really does need to be put into perspective, instead of having reached its level of dominance in both the corporate world and elected officials.

But that, unfortunately, may prove to be ... illusive.

Dienstag, März 04, 2008

And Now For Something Totally Different...

This is great: it's why non-native speakers have enormous troubles trying to figure out which English language accent is the "right" one:

Hat tip to American Digest via Sense of Events...

Ecuador, Venezuela, and Why the Columbians Are In The Right...

So, the newest crisis.

Columbia, basically in hot pursuit, went into Ecuador and killed the senior leadership of the FARC, the pseudo-leftist Columbian guerrillas. The basic facts are here and don't need to be repeated.

Why is Venezuela pissed? Because the FARC folks are big fans of Chavez (and vice-versa as well: apparently the first connection developed as Chavez was jailed during his abortive coup attempt) and this is a fairly strong body blow to Chavez' attempt to destabilize Columbia.

Why is Ecuador pissed? Because the Colombians didn't really go in hot pursuit, but rather killed the senior leadership of FARC in their sleep.

But there are two more fundamental problems that haven't been talked about.

Apparently the Colombians have found that FARC received no less the $300mn from Chavez and his cronies over the last year, for one.

Second, what was FARC doing with a military base in Ecuador?

You can't play the game both ways: either you take sovereignty really seriously and don't let anyone use your territory for guerrilla operations against your neighbor, or you can't get upset if there is, indeed, hot pursuit and the bad guys get killed.

Both Ecuador and Venezuela have sinned big time against the concept of sovereignty by financing a "revolutionary" movement and giving them sanctuary.

Columbia was more than justified in going in and getting terrorists that have killed, robbed, raped and kidnapped Columbians in an apparently never-ending conflict that started out as a leftist uprising against an authoritarian government but quickly mutated into something completely different. FARC, after a number of years of poor success in trying to gain the support of the indigent and rural population, turned to crime to support their "revolution", realizing that being Robin Hood in a country of drug lords was not a paying proposition.

Since then, FARC has largely alienated local populations with their extortion and kidnapping activities. They worked out a logistics and support network that used the fairly rugged terrain between the three countries to hide in and have the ability to easily move across borders with ease and impunity.

Ecuador is a nation heading into failure. A constitutionally weak presidency, dependent upon its Congress, has weakened further and virtually no President has ended his term as a deadlocked Congress instead tries for new elections to give it the needed consensus. There is no such thing, however, and politics remains ... volatile is perhaps the best word.

So why does Ecuador allow FARC to operate within its borders? I'm not expert - far from it here - but it's a combination of left-wing opportunistic politicians in Ecuador as the indigenous population gains political power (of the populist kind) and a simple failure of Ecuador to do anything about FARC, as this would entail military action that it is not prepared for or prepared to finance. Given that 70% of the population is under the poverty line and that Ecuador remains in dire economic shape, this is understandable.

But it is irresponsible.

Reviewing this, it appears that Ecuador was on the verge of a deal with FARC to give it safe havens in Ecuador in exchange for political grandstanding on the part of Ecuadorian Interior Minister Larrea, who would be able to claim the fame of getting various captives free.

Now, what about Chavez and Colombia? Well, given the fact that he is heavily financing FARC, duh. Leftist kleptocrats work well together.

He just wants power: anyone who doesn't see this is blind. Nothing but a populist riding the largess of oil profits to buy popularity, one of the banes of modern South American politics.

But he does support his left-wing friends, and the more dead the better: otherwise FARC would wither and die away, as they are nothing more than a kleptocracy...

Colombia, given the violations of its sovereignty by Chavez' funding FARC, and given the apparent willingness of Ecuador to acquiesce to being a sanctuary, is fully within its rights of going after FARC.

And more kudos to Colombia. Y'all finally grew a pair...

Montag, März 03, 2008

KC-X, EADS and Implications...


EADS won the tanker competition, as reported here.

Boeing was clearly expected to be the winners here, and I mean that they were expected to be an absolute shoe-in, as Bill Sweetman opines here.

Why did Boeing lose?

Fundamentally, EADS offered a better airplane: the plane that Boeing offered is the freighter version of the 767, which is at the end of its production life. Normally, that is in and of itself not so bad, given that you acquire a highly mature aircraft with all the bugs worked out, while the EADS offer is much newer than the 767. Newer generally means better productivity.

EADS delivers the airframe, basically blank, and Northop-Grumman installs all the military equipment. This is where EADS failed earlier, as they tried to also force their refueling system as well (drogue and pod, rather than the flying boom that the US vastly prefers).

Now, neither I nor you, dear reader, know exactly what drove the deal at the end of the day: Boeing had argued that a smaller capacity aircraft could be more flexible than a larger one, but given the fact that the number of aircraft to be acquired was the same, that doesn't hold up well.

Now, what are the implications?

If the 767 had been chosen, it would have continued to be manufactured: this, in all likelihood, means the end of the 767 production. This means that Boeing can wind production down and transfer its people to other areas, such as the 787 and future planes.

Now that EADS has gotten the contract, they will have to assemble the plane in the US (part of the deal), along with Northrop/Grumman, their partner here. This means new plant in Alabama, where the planes will be put together. Further, EADS has not had great success with the A330, but rather than ceasing to make the plane, it will instead invest fairly heavily in order to produce the 179 planes of the contract in the US. This means that it will bind resources for the foreseeable future.

Now, EADS has a severe problem with the weak dollar: this may well open EADS to the possibility of using increasing number of US suppliers without much of a political backlash within Europe. They have already called for their suppliers to co-locate, meaning that for the life of the program, the US has gained a technology center for this kind of product where there wasn't one before, in a state that can use it.

The loser, of course, is Boeing: the contract is one of the biggest military contracts for the foreseeable future, for US $35 -$40 bn. That is not peanuts, and I can well imagine that there is enormous pressure on Boeing internally to protest the decision.

Given the size of the contract and the political significance - EADS and Boeing are bitter rivals in civilian aerospace and Boeing quite rightly severely criticizes the subsidies that EADS gets - of the decision, this will be a problem for EADS in the coming months.

So what are the implications?

First of all, I think that Boeing blew it: they did not offer, at the end of the day, the machines that could compete. The 767 was too old a design to compete against the significantly newer A330 for that what the military specified. But Boeing needs to view this positively: they can now wind down the 767 and transfer productive assets to other projects that moves Boeing forward. The KC-X is followed by the KC-Y program to replace the larger KC-10 fuelers, and while Boeing will face an uphill battle here, it is one that they can readily win by making the better airplane (think mil spec 747).

Second, this is a big win for the US aerospace industry: EADS will be coming to the US and in many ways has to. The weak dollar has made their products very, very weak on world markets and they have severe productivity and profitability challenges that will force them to move large-volume business out of Europe. The A320 is due to be assembled in China in the near future and the A330 may well move entirely to the US to take advantage of better US productivity and profitability.

Third, this is the point where EADS no longer has a leg to stand on in terms of its subsidy policies. Up to now, EADS has argued before the WTO - incorrectly, in my opinion - that the government subsidies that it receives only serve to balance out the military business of Boeing. Now that EADS is in exactly the same business, it cannot continue to use that argument seriously: this means that EADS will be forced to forgo frankly unfair subsidies and that EADS and Boeing will, in the future, operate on a much more level playing field.

This is good for both industries. Just as Boeing has internationalized with the 787, so EADS must internationalize with the winning of the KC-X contract. This should reduce the rabid nationalism of EADS, which has been a real hindrance to proper management and profitability.

So, at the end of the day, Boeing blew it, and EADS may have screwed themselves: while they won the contract, they will have to change how they do business. Boeing has been handled a massive hammer to pound on EADS at the WTO by none other than EADS itself...