Dienstag, September 29, 2009

The True Obama...

Interesting, this. Hat tip to Neo-NeoCon.

On April 3 of this year, i.e. well after the election and inauguration, one of President Obama's former colleagues has this to say about him.

His speech is completely inconsistent with his political record. As a member of the Senate he had the most left wing voting record of anyone there. More so than people like Hillary Clinton. And that is, of course, the way he moves

Obama worked as a community organizer and was in many cases very constructive. He organized public/private partnerships to help the homeless and downtrodden.

But, the difficulty you get, for someone who has only worked in that situation, is that he believes the creation of private wealth is something the government cannot influence or destroy. He has many fancy redistribution schemes, in addition to his health plan and new labor laws, which are all wealth killers.

He is about to engage in a series of proposals to redistribute wealth that we do not have.


His mind is pretty good, but it is a clever "means-ends" mind. He has never written a scholarly article in his entire life.


His positions are not close to the middle, and so he sees no reason to compromise with Republicans unless and until they can mount a veto threat in the Senate. He is very, very dogmatic about his substantive positions. He knows what he believes and he knows why he believes it, and it is extremely difficult for people on the outside to change his mind.

The fundamental mistake of his entire world view is that he treats contracts as devices for exploitation and not as devices for mutual gain, and he assumes that redistribution can take place without any negative impact upon production.

If you live in that kind of a fairy land, which I think he does, every one of his major social and economic initiatives are going to misfire. And, if they succeed, God forbid, in getting through, they are going to intensify the downturn that we have already experienced. He is the wrong guy for the job based on his intellectual format. The question is whether you can force him back.


He is a man on the left who will, if necessary, throw bones to the center. He is not a man from the center. Some of the appointments of his may sound centrist.

Given this, I think my assessment that President Obama is a Chicago Politician, the kind that runs the machine and uses it for political gain, is closer to the mark than most are willing to admit. Uncompromising except when forced; intensely self-centered and dogmatic in his beliefs, with his intellectual capability oriented to getting things done, how to achieve an end with what means he has at his disposal. Everything, for him, is politics: there is nothing outside of politics, of reaching your goal.

That said, this makes him both vulnerable and dangerous: vulnerable because of his inability to compromise, dangerous because of his dogma. We may be faced with a President unable to make needed compromises internationally, while at the same time unable to change policies that lead to disaster because they would mean that his dogmatic beliefs would be called into jeopardy.

Dangerous times indeed.

More Gas on the Fire...

The fire being the continuing increase in sub-prime defaults - now up to 41% of total sub-prime lending - and the gasoline being the commitment of the US government to hoping that the problem will simply go away.

Read this and fear the default of the FHA.

It's not so much a question of if, but more a question of when: given the very considerable number of subprimes that are heading towards official default - but aren't quite there yet - there is going to be a huge amount of housing that has to come on to the market to cover losses. Dump properties on the market and prices will continue to fall.

Leveraged out at 50:1, with 25% of all new mortgages covered by the FHA (which is probably the only reason that they were given!), and with defaults in most recent loans climbing rapidly, and given the mere 3.5% downpayment requirement that the FHA states, this is the creation of a perfect storm.

Right now, between the FHA, the Fannies and the VA, the US government now guarantees repayment on something like 80% of all US mortgages.

Wonderful: what that really means is that the US government is betting that prices will recover, and recover soon so that their portfolio can be moved on the open market ASAP.

What if, however, prices fail to recover?

Then the US taxpayer is left holding the debt, as it guarantees repayment.

If anything, this is a massive win for the mortgage industry, the builders of homes and the service industries associated. They can continue business as normal, as the government is guaranteeing that their cash flow will proceed uninterrupted, regardless of what happens.

Does the US taxpayer even know that they are heading for another perfect storm of default and debt?

The irresponsibility of the Obama Administration is increasingly apparent if you bother to take a look: in order to avoid having to admit that a keystone of American politics - that people who can't afford houses should buy nonetheless - is, fundamentally, toxic to the entire system.

They remain stuck on stupid.

Montag, September 28, 2009

Once Again...

P.J. O'Rourke is one of my literary favorites, a counterpart, as it were, to Hunter Thompson, but one with a smattering of economics (which Thompson would probably have taken out and shot rather than have actually bothered to read), albeit not much more than that.

Recently he wrote this for the Weekly Standard:

The Road to Woodstock is "by" Michael Lang, one of the two original promoters, "with" Holly George-Warren who is coeditor of The Rolling Stone Encyclopedia of Rock and Roll and thus, presumably, knows the alphabet. I have no idea how much of the book Lang wrote, but he doesn't seem to have read it. He is described therein by a pair of ex-business partners as having "a face that is, by turns, evil, wanton, fey, impish, and innocent." This is more than I would let ex-business partners of mine say about me in my book.

And yet, if you reverse the order of the adjectives, you get the progress of the sixties, perfectly delineated.


The progress of the sixties went from innocent to impish to fey to wanton and finally evil.

Just like progressivism of today. It's past the innocent and impish and definitely on its way through fey to wanton: except the evil to show up towards 2011/2012 as it demonizes whoever dares run against President Obama.

Oh, The Hypocrisy...

I know, I know.

Pointing out the liberals are hypocritical is like pointing out that the Internet is full of wackos...or that New Coke was pretty bad. Something like that...

But this deserves comment.

It's a Doonesbury cartoon, which oddly enough I continue to read, since it can be ... illuminating about many things.

In this case, it's Gary Trudeau's reaction to people comparing the Obama Administration's critics pointing out that the government takeover of so many aspects of the economy and some ...aspects of the ... dedication of Obama followers to President Obama (such as teaching children to sing his praises...) does indeed resemble some aspects of European fascist thought and program from the 1930s.

He ridicules the comparison, which, to be honest, is fair enough: there are gaping holes in the argument of those who would make the comparison.

But the question then arises: was this a repeat column from, say, 2003? After all, it was the liberals and their ilk who routinely demonized President Bush and compared him directly to Hitler; hence this is a repeat, right?


It's an excellent example of how hypocritical liberalism and the left in the United States has become. We are seeing the beginning not of the liberal crackup - that happened under Reagan - but much more the progressive crackup. This administration will help the destruction of what passes for left thought outside of academia as his policies fail and are repudiated: academia will remain a bastion of the leftists, as there is no hope there for actual intellectual discussion and debate. We'll simply have to wait it out until academics either retire or their departments are made superfluous because no one really wants to study the feminist deconstruction of 17th century Tuscan poetry without some serious grant money being involved. Which, because the economy has tanked, is drying up.

Good riddance. I'd be more than happy to entertain discussions with liberals if they were to at least recognize how far gone they are, that this sort of hypocrisy increasingly disqualifies them from meaningful discussion.

Freitag, September 25, 2009



You don't understand the title?

Yet Another Wonk Who Doesn't Understand Economics.

Michael Lind is "policy director" of the economic growth program at the "New America Foundation", which looks to be a rather wonky collection of Democratic Party operatives (or at least close friends).

He wrote this for the FT.


Mr. Lind's fundamental problem is that he doesn't understand why people are hired and where job growth occurs when it isn't being financed by your taxes.

His view is simplistic at best and downright dangerous at worst.


Because he doesn't understand that you have to have a productive core economy that is actually producing things.

Not services: things.

He calls for health care to provide the jobs needed for future US growth. That and education and government.

He writes:

What is driving this growth? The US healthcare industry is plagued by inefficiency and rent-seeking by private insurers, pharmaceutical companies, hospitals, physicians and lawyers. But even when costs are brought into line with those of other countries, the US healthcare system is likely to increase its share of the economy. One reason is the ageing of the population. Another is the fact that societies, like individuals, choose to purchase more healthcare as they grow more affluent. Health is a good that makes possible all other goods.

That is not the road to prosperity, that is the road to poverty.

Ye gods. Where does Mr. Lind think the affluence comes from that allows people to purchase more healthcare as they grow more affluent? Society isn't "like" individuals: it is made up of those individuals, and not everyone needs to or must buy the same healthcare as others; Health is not the good that makes possible all other goods: health is not a good at all. Health is a situation, a status, but not a good, neither in the classic "pick me up and feel me" or in the more general sense.

To repeat: not a good at all. It is, at best, a status, something that is innate, a resource that must be maintained, but it is not a good: health cannot be produced (we all get sick and die, regardless of what we invest in healthcare) and it cannot be stored up; it cannot be inventoried, and it is not a standardized good at all. Sure, we all know the saying "health is everything", but that is meant to mean that without health, you are so miserable (or dead) that the rest isn't so important to you when you are not healthy. But you not being healthy doesn't change the price of tea in China, so to speak: for the economy, your failure to be able to work means someone else does the job, or the job doesn't get done. Hence: health is not a good, not in the economic sense of the word. You consume healthcare services when you are not healthy until you get well or die; at some point, we all die. It's a service that you consume, including all the pharmaceuticals and equipment that your health care practitioner gives you or uses to diagnose you: it's not a good that is manufactured.

What Mr. Lind and so many do not understand is that without a successful and functioning industrial sector, creating products that meet consumer needs (understood in the broadest sense of "consumer", as much industrial output is input into other industrial production), you cannot have all the niceties of services that Mr. Lind and others think will drive future economic growth.

Now, that doesn't mean that the service economy isn't going to come along: it just means that if you are going to have a growing economy, someone, somewhere, has to be adding value to products or performing vital services that create growth. Services aren't simply services: the only services industries that have long-term futures are those that provide services to industry, services to construction, and services to other services that actually add value to those other services.

And by adding value I don't mean some sort of touchy-feely "that was valuable", but rather actual dollar/yen/euro values. Real value-added.

Put bluntly, neither health care, education and government add value in the classic economic sense: education comes closest, since done properly it raises skill levels and gets you higher wages (of course, US academics tend to deny that this is the reason for their existence, but that's another story entirely and has been covered here already...).

Health care doesn't create value in the economy: it adds value to life, it saves lives, but at the end of the day it is, in an economic sense, non-productive. Providing health care in and of itself doesn't create value, which is what is needed for sustainable development (i.e. development that pays for itself, as opposed to development that requires subsidies or tax supports to survive). Government is a clear drag on any economy, as it allocates resources that would otherwise be used for economic development or consumption: some of the services of government are useful (defense, police, regulation of trade, essential services such as garbage collection and etc), but many are either self-serving (administration of administration...) or luxuries (support for the arts, funding of woman's and minority studies, pork),

My point is that even a post-industrialist economy, an economy no longer singularly dependent on industrial activity, cannot nonetheless simply create long-term sustainable jobs by expanding government and expanding services that are dependent on someone else paying the bills. That way lies poverty: not at first, but somewhere down the road there will be too many people providing services that can't be paid for because of a lack of actual manufacturing or high value-added services jobs around.

It's a causal chain: before you distribute value, you have to create it. Before you can understand how demand is going to be met, you have to understand supply.

Mr. Lind and others who feel that you can solve unemployment by increasing employment in sectors that provide, at best, secondary value creation (i.e. dependent on primary value creation industries) without first ensuring that the primary value creation industries provide the necessary impetus.

Without the productive core, no economy gets richer: they invariably get poorer. Without the productive core, government "picks up the tab" by subsidizing consumption via food stamps and welfare, as well as jobs via subsidies and grants, but since government depends on taxes and bonds, without any "real" value added, government can't expand beyond a certain point without becoming a parasite on the economy in general.

Mr. Lind's ideas are typical of YAWWDUE: you can't count on jobs generated in non-productive areas when the productive areas aren't flourishing. His idea of a future economy where the dominant sector is healthcare is a future economy where no one can afford healthcare because the productive jobs are gone. Without them, you can't pay for the rest. He doesn't understand economics because he doesn't understand that by accepting the downgrade of productive jobs, the ones that actually create value and generate the wealth that President Obama and the Democratic Party wants to redistribute, he is effectively condemning everyone to less wealth and prosperity.

A rising tide raises all ships as long as it is on the supply side. Otherwise it is a flood, turning everything into ruin.

Mr Lind writes:

Healthcare, like education, is heavily subsidised by government when it is not provided by the public sector. Must its growth mean more public sector at the expense of the private? It makes more sense to think of the economy as a mosaic of sectors, most of which, like healthcare, are partly private and partly public. The proper question is whether healthcare, be it public, private or mixed, could crowd out other important sectors. We would not want its growth to damage investment and employment in manufacturing, agriculture, energy and infrastructure. Fortunately, at least in the US, employment can expand in all these areas as well as healthcare at the expense of the low-productivity fast food and recreation industries, with benefits for the quantity of production as well as the quality of life.

This underscores how this hasn't been thought through: he doesn't want the growth of healthcare to damage investment and employment in manufacturing, etc., but ignores the fact - and I don't think anyone can contradict this - that if healthcare is to be run effectively, it must be private and not public. He sees the economy as a zero-sum game, requiring, effectively, the destruction of the fast food and recreation industries so that we can all be healthier.

The problem here is that both fast food and recreation are actually productive industries, since they include, beyond the convenience of fast food, all recreation industries, things that people do with what they have left over after consumption and savings (i.e. movies, video games, etc): healthcare workers are, per definition, not primary creators of value, but rather providers of secondary services.

And when I say he doesn't understand economics, I mean simply this: economics is the study of the most productive allocation of scarce resources under given parameters. It's all about supply, demand and incomes. Those are the three core components of any economy, and ignoring where real value is added and where real value is consumed means that you don't understand economics.

Donnerstag, September 24, 2009

You Can't Have It Both Ways...Redux

Morning all.

Lately Democrats have been lamenting that words lead to deeds, that political name-calling leads to violence and that words have meaning. Hence they call for debate about their policies to be conducted without call to baser emotions, without emotional displays (yelling and chanting at Town Hall meetings), and that they can't take seriously political opponents who chose to bring over a million people together to protest taxes, yet can't prevent signs from appearing that equate President Obama with Hitler.

Fair enough.

Of course, this must then also apply to international relations: one must therefore accept that rhetoric implies action, that political name-calling leads to violence, and that words have meaning.

And why, then, do the Democrats not take leaders of Iran at their word when they call for the destruction of Israel? Why do they discount the reports that Iran is developing nuclear weapons and delivery systems?

Can't have it both ways. Either or. But not both.

Just sayin', you know?

Mittwoch, September 23, 2009

Academia and Economics...

In this case, not academic economics, but rather a comment to an article online here.

I chose not to go into academia because I knew I could earn more directly by going into commercial economics, where we produce products that non-economists use in order to avoid hiring their own in-house economists. In other words, I decided to work for a living and earn my salary honestly.

Back when I first started my undergraduate studies (BA in Philosophy with a large minor in Psychology, Duquesne University) I started off as an English literature student, as I enjoyed doing textual/philological analysis of texts. It's what got me into phenomenological hermeneutics as well.

The link takes you to a heart-felt and earnest dismay of the decline of academic disciplines that have no direct bottom line, such as English literature, but the same can be said for philosophy, broadly considered (by those with little imagination) to be one of the penultimate worthless degrees in the history of the planet. As Q says: Au contraire, mon capitáin!  A philosophy degree, used properly, gives you unparalleled argumentation skills and can give you quite an edge up over the "ordinary" number-crunching economist.

But is the same true of English literature? The few that I know who have successfully completed such a degree make a living from writing, and largely writing well, albeit not literature, but press releases, journalistic pieces and, yes, industrial analysis.

But let's get back to the fundamental issue: the economics of academia, as it were, and the reason for the decline in English literature majors.

Professor Chace looks at it this way:

What are the causes for this decline? There are several, but at the root is the failure of departments of English across the country to champion, with passion, the books they teach and to make a strong case to undergraduates that the knowledge of those books and the tradition in which they exist is a human good in and of itself. What departments have done instead is dismember the curriculum, drift away from the notion that historical chronology is important, and substitute for the books themselves a scattered array of secondary considerations (identity studies, abstruse theory, sexuality, film and popular culture). In so doing, they have distanced themselves from the young people interested in good books.

This is in and of itself a good critique, that instead of teaching literature, departments have frittered themselves into oblivion by becoming extraordinarily self-indulgent and, most damagingly, by becoming dominated by politics. Why are young people interested in good books (besides the tactile enjoyment, obviously)?

Because literature studies, at their best, are ways of understanding that most mysterious of beasts, our fellow man.

At their worst, they obfuscate and deny our natures, and as Prof. Chace clearly points out, they are doing that quite nicely.


In an educational collapse of this magnitude, other forces must also be at play. The first of these is the surging growth of public higher education and the relatively slower growth of private colleges and universities.

Here Prof. Chace laments the obsession of public students with coarse mammon: he does, however, fail to consider how things are to be paid for. Public institutions are so ... practically oriented, aiming at enabling kids to leave with marketable skills, rather than becoming...

Well, what exactly, outside of additional academics?

Studying English taught us how to write and think better, and to make articulate many of the inchoate impulses and confusions of our post-adolescent minds. We began to see, as we had not before, how such books could shape and refine our thinking. We began to understand why generations of people coming before us had kept them in libraries and bookstores and in classes such as ours. There was, we got to know, a tradition, a historical culture, that had been assembled around these books. Shakespeare had indeed made a difference—to people before us, now to us, and forever to the language of English-speaking people.

Finding pleasure in such reading, and indeed in majoring in English, was a declaration at the time that education was not at all about getting a job or securing one's future. In comparison with the pre-professional ambitions that dominate the lives of American undergraduates today, the psychological condition of students of the time was defined by self-reflection, innocence, and a casual irresponsibility about what was coming next.

We must remember that Prof. Chace belongs to that generation "lost in space", as it were, that privileged and indulgent generation, born in the late 1940s and early 1950s, who could, due to prosperity, do whatever they largely damn well pleased and yet survive, more often than not rather comfortably.

That's right, the Baby Boomers: the generation that had "a casual irresponsibility about what was coming next." That, Ladies and Gentlemen, could possibly be the best explanation of modern America ever written.

...there are additional reasons for the drop in numbers of students concentrating in English and other subjects in the literary humanities. History, geography, and demography do not explain it all. Other forces, both external and internal, have been at work. The literary humanities and, in particular, English are in trouble for reasons beyond their control and for reasons of their own making. First, an obvious external cause: money. With the cost of a college degree surging upward during the last quarter century—tuition itself increasing far beyond any measure of inflation—and with consequent growth in loan debt after graduation, parents have become anxious about the relative earning power of a humanities degree. Their college-age children doubtless share such anxiety. When college costs were lower, anxiety could be kept at bay. (Berkeley in the early '60s cost me about $100 a year, about $700 in today's dollars.) Alexander W. Astin's research tells us that in the mid-1960s, more than 80 percent of entering college freshmen reported that nothing was more important than "developing a meaningful philosophy of life." Astin, director of the Higher Education Research Institute at UCLA, reports that "being very well off financially" was only an afterthought, one that fewer than 45 percent of those freshmen thought to be an essential goal. As the years went on, however, and as tuition shot up, the two traded places; by 1977, financial goals had surged past philosophical ones, and by the year 2001 more than 70 percent of undergraduate students had their eyes trained on financial realities, while only 40 percent were still wrestling with meaningful philosophies.

Here we have the core problem: university costs have exploded such that no one outside of financial elites can afford the life of luxury that an English lit major appears to require. If you can indulge yourself for a modest fee, then there are plenty who will do so; if it costs serious money, we should be surprised that the field then becomes the realm of the wealthy dissolute?

And it's their own damn fault. Those are his words, not mine.

But the key reason why universities have priced themselves into the stratosphere is simple: because costs have exploded, with those departments that produce decent income via external research and the like covering the costs of other departments who pay their professors salaries that have no relationship to the value thus provided. Such salaries have exploded in order to make it attractive to graduate students to study, say, feminist-marxist sociology; the utility of such departments is, at best, rather marginal, and more normally are an indulgence of the academic world. Let me be particularly blunt: a humanities professor, tenured, should be not paid anywhere near what an economics professor, what a business administration professor, what a hard sciences professor earns: to do so is to give such people the idea that their self-indulgent studies are actually worth something (otherwise, why would I be paid so much?), effectively blocking a desperately needed critical assessment of one's own value to society.

Off-campus, the consumer's point of view about future earnings and economic security was a mirror image of on-campus thinking in the offices of deans, provosts, and presidents. I was in those offices, day in and day out, for 20 years, and can report that such officials are forever considering how to exploit available resources against ever-growing operating costs. As those costs grow, they create a paradox: the only way to bring in more money, over and above tuition income, is to employ more and more people to attract philanthropic donors and to assure the continuing flow of research dollars from governmental and other sources. Every administrator is complicit in the expanding number of necessary non-faculty employees—development officers, technical support staff, research assistants, lawyers attuned to federal regulations—and human resource personnel to handle the ever-growing numbers of just such new employees. I agree with historian Lynn Hunt's description of the situation: "The university staff as a whole is getting bigger, but the relative presence of faculty, secretaries, and janitors is actually declining." The faculty decline is, in particular, in the humanities, which bring in almost no outside income. Economists, chemists, biologists, psychologists, computer scientists, and almost everyone in the medical sciences win sponsored research, grants, and federal dollars. By and large, humanists don't, and so they find themselves as direct employees of the institution, consuming money in salaries, pensions, and operating needs—not external money but institutional money.

This just makes my point. Humanists do not, strictly speaking, generate income: but then, if so, are they then paid so well?

The English department has one sturdy lifeline, however: it is responsible for teaching composition. While this duty is always advertised as an activity central to higher education, it is one devoid of dignity. Its instructors are among the lowest paid of any who hold forth in a classroom; most, though possessing doctoral degrees, are ineligible for tenure or promotion; their offices are often small and crowded; their scholarship is rarely considered worthy of comparison with "literary" scholarship. Their work, while crucial, is demeaned.

This is the perversion of the field: you will have more prestige and most likely more money if you teach feminist deconstructionist literature of the 17th century than if you are the one who can teach what most academics despair of (an average middle-class kid entering college) how to write not only grammatically correct sentences, but rather the ability to clearly communicate complex ideas. It's hard work: that's why English literature academics don't like it.

What prodded me to write this is what Prof. Chace points out:

These, then, are some of the external causes of the decline of English: the rise of public education; the relative youth and instability (despite its apparent mature solidity) of English as a discipline; the impact of money; and the pressures upon departments within the modern university to attract financial resources rather than simply use them up. On all these scores, English has suffered. But the deeper explanation resides not in something that has happened to it, but in what it has done to itself.

Bingo: this is a self-inflicted wound. Is it fatal?

Perhaps so:

These older students reveal to them a desolate scene of high career hopes soon withered, much study, little money, and heavy indebtedness. In English, the average number of years spent earning a doctoral degree is almost 11. After passing that milestone, only half of new Ph.D.'s find teaching jobs, the number of new positions having declined over the last year by more than 20 percent; many of those jobs are part-time or come with no possibility of tenure. News like that, moving through student networks, can be matched against, at least until recently, the reputed earning power of recent graduates of business schools, law schools, and medical schools. The comparison is akin to what young people growing up in Rust Belt cities are forced to see: the work isn't here anymore; our technology is obsolete.

It all boils down to market demand and the adequacy of supply to meet that demand. I am firmly of the belief that market demand is there: in this case, it is a supply-side failure to understand the market and meets its needs. Eleven years to get a doctorate? Ye gods.

Prof. Chace has several ways that the profession - such that it can even now be called such - can be restored:

First, several of my colleagues around the country have called for a return to the aesthetic wellsprings of literature, the rock-solid fact, often neglected, that it can indeed amuse, delight, and educate. They urge the teaching of English, or French, or Russian literature, and the like, in terms of the intrinsic value of the works themselves, in all their range and multiplicity, as well-crafted and appealing artifacts of human wisdom. Second, we should redefine our own standards for granting tenure, placing more emphasis on the classroom and less on published research, and we should prepare to contest our decisions with administrators whose science-based model is not an appropriate means of evaluation. Released from the obligation to deliver research results in the form of little-read monographs and articles, humanists could then resolve to spend their time teaching what they love to students glad to learn. If they wanted to publish, they could do so—at almost no cost—on the Internet, and like-minded colleagues could rapidly share the results of such research and speculation. Most important, the luxury of reading could be welcomed back. I want to believe in what they say.
They can teach their students to write well, to use rhetoric. They should place their courses in composition and rhetoric at the forefront of their activities. They should announce that the teaching of composition is a skill their instructors have mastered and that students majoring in English will be certified, upon graduation, as possessing rigorously tested competence in prose expression. Those students will thus carry with them, into employment interviews or into further educational training, a proficiency everywhere respected but too often lacking among college graduates.

So, let us reiterate what the problems are, from an economics perspective.

First: demand exists, albeit largely unknown (as are many markets). Go ask successful engineers and scientists, and you will find that one of the key to their success is the ability to clearly and succinctly communicate what they are doing. The greatest failures are those who have the ideas and the work, but fail to communicate. Demand exists in all aspects of the student body: my beginnings in English literature, leading me to philosophy and phenomenological hermeneutics, gave me the skills I now have of editing texts written by non-English speaking professionals to communicate what they are actually trying to say and of writing my own work (I write around 60 pages a month for clients, also largely non-English language speaking). Without those skills, I'd be just another number-cruncher (albeit a good one...).

Second: this article underscores that the problem in the market is a failure of the supply side to understand their markets and meet their needs. If anything, Prof. Chace points out how the supply side almost actively denies that there even is the real existing demand, instead demanding that subsidies be paid simply because it's what the "specialists" demand. The failure has been that subsidies are indeed paid. Without these subsidies - which Prof. Chace clearly points out are now clearly in danger of being eliminated - the supply side collapses. Demand is not being met now: when the supply side collapses, effectively going bankrupt, then the market will go unserviced. Prof. Chace's recommendations are first-rate: turn unqualified labor into skilled labor in order to meet the demands of the market place. Why the supply side fails to meet these demands is, to pardon the expression, an academic exercise.

Third, nothing is exempt from economics. Nothing. Somewhere, somehow, somebody has to pay the bills. Someone has to balance the books and make the payroll. Ignoring this fundamental truth is the reason for the abysmal state of the academy.

Dienstag, September 22, 2009

The Left, Opression, and Righteousness...

This is a good read on Al Jazeera.

I have Al Jazeera on satellite, and have watched it occasionally. Mr. Kaplan's take on it is fairly accurate, in my opinion, and it is useful to watch to get alternative opinions, but would be disastrous to use as your only source of information.

But Kaplan's point isn't merely that the ideological bent of Al Jazeera - as he puts it, "pro-Palestinian and anti-Bush ...  breezy, pacifist-trending internationalism."

It's much more than this is increasingly what the developing classes outside of the west actually believe.

This ... ideology, for lack of a better word, is, at best, a mish-mash of wishful thinking, resentment and a natural human tendency to feel that horrible things shouldn't be happening around the world. It is, of course, at best naive and at worst deliberately manipulated, reflecting not reality, but rather presenting a fertile field for deliberate staging of atrocities for propaganda purposes. It is, fundamentally for the West, dangerous: not dangerous in the sense that it speaks uncomfortable truth to power (if it were to do that, it would not be able to function, as it is dependent on the largess of dictators for financing and fails completely to understand that there are vastly more grounds to castigate traditional societies in the developing world than there is to castigate the developed world for failing to make the world perfect for the developing world.

Human rights are not a zero-sum game: you cannot "excuse" the repression of society in Libya, Syria, Saudi Arabia (heck, the whole Arab world) by claiming that they are the result of past Western repressions (especially since the countries that laid the current borders of the Arab world were the French and British, not the Americans). There is a passage in the Bible that applies here (Matthew 7: 1-5, here the King James version:

Judge not, that ye be not judged.
For with what judgment ye judge, ye shall be judged: and with what measure ye mete, it shall be measured to you again.
And why beholdest thou the mote that is in thy brother's eye, but considerest not the beam that is in thine own eye?
Or how wilt thou say to thy brother, Let me pull out the mote out of thine eye; and, behold, a beam is in thine own eye?
Thou hypocrite, first cast out the beam out of thine own eye; and then shalt thou see clearly to cast out the mote out of thy brother's eye.

This is the demand for objectivity, for taking care of your own problems before looking at those of others.

But that's not the only point that Kaplan makes:

Unfortunately, the BBC and CNN don't have so much a different viewpoint from Al Jazeera's, as a similar philosophical outlook that is more weakly and dully presented. Then there is Fox, with its jingoistic, meatloaf provincialism straight out of an earlier, black-and-white era. Could Fox cover the world as Al Jazeera does, but from a different, American-nationalist perspective? No, because what makes Fox so provincial is its utter lack of interest in the outside world in the first place, except where that world directly and obviously affects American power. What use does Fox have for Niger River rebels or dispossessed Indian farmers? Thus, we are left with the insidious despotism of Al Jazeera: and it is despotism, because we have really no other serious news channel to turn to.

George Orwell intimated in 1984 that purity can be a form of coercion, and in that respect, I find Al Jazeera's moral rectitude disturbing. Because its cause is that of the weak and the oppressed, it sees itself as always in the right, regardless of the complexity of the issues, and therein lies its power of oppression. But I will continue watching Al Jazeera wherever I can, because I find it so riveting compared with other news channels. And if my politics crawl to the left as a result, that will be yet more evidence of just how insidious Al Jazeera's influence is.


Insidious despotism indeed. Al Jazeera's lack of objectivity - and this lack of objectivity means, at the end of the day, that Al Jazeera will always remain a propaganda tool and not an objective news reporter - and the resulting moral rectitude, its moral superiority, is dangerous. Believing that one is always in the right means that there is no alternative, it is intolerance and a morally justified denial of objectivity. This is righteousness perverted and prostituted into an insidious political tool, seductive in its failed morality (failed because it fails to rightfully ask questions, demanding instead obedience to the meme of Palestinian martyrdom and a vague transnational progressivism that hides the true nature of the beast).

Down that path lies madness.

And it is the path of the Left in the west: the intolerant and oppressive Left that hypocritically castigates Western society as being the cause of all problems. That way lies madness: it leads to the replacement of civil society with the perpetual class warfare that Orwell prophesied.

A Shining Example...Followup

Ah, those who finance the Democratic Party are such a fine group of upright pillars of the economy, outstanding in their fields of endeavours and such excellent folks.

Except when they're not.

Hassan Nemazee is back in the news. He's been indicted for defrauding Bank of American, HSBC and Citigroup out of more than $290 mn in "loan proceeds."

He falsified documents and cooked the books to show that he had hundreds of million in collateral, when indeed he did not.

What did he use the money for?

To finance his contributions to the Democratic Party and its minions, to the tune of over $100k/year.

So, what exactly is the crime?

It's a subtle one: if the loans had been made without collateral (if they had been made at all), then the banks he loaned money from would have charged significantly higher rates because of the increased risk. By faking the collateral, he was able to take out what was effectively a very high-risk loan as if it were a low-risk loan. Classic white-collar crime.

That's clever, but it's still fraud.

Of course, that's how you can describe the Democratic Party today: clever, but still a fraud.

Your reputation is kept by the company you keep, Democrats: Nemazee and Acorn are but small symbols of the deep corruption of the Democratic Party. Watch for President Obama to pardon him at a convenient time when no one is watching.

Montag, September 21, 2009

It Makes No Difference How Often One Repeats A Lie...

...it never becomes the truth.

This is today's FT reminded me of that.

The fundamental problem of the "fact-finding" of the UN report in question is that it was largely cut-and-paste from NGOs with significant axes to grind, profiting as they do from the continued marginalization of the Palestinians by their Arab brethren.

Ms. Khalaf's argumentation is tendentious at best and ignores the fundamental problem that such "works" show: only Israel is pointed to.

Ms. Khalad argues thusly (and I'm not going to repeat everything: go read it in its entirety):

Condemnation by a United Nations panel of the conduct of both Hamas and Israel during the Gaza war should have acted as a wake-up call for both the leaders and people of the Jewish state.

In more than 500 pages, the fact-finding mission outlined war crimes and possibly crimes against humanity in a conflict where each side has become dangerously immune to the suffering of the other.

Yet the damning assessment of Israel's behaviour does not appear to have shaken the general consensus - in government, in society and in much of the media - that whatever the military did in Gaza in its three-week offensive in December and January, its actions were justified.

First of all, this is not the general consensus: rather, the general consensus in Israel is that taking action against Hamas was justified, and that by hiding behind and amongst civilians, that Hamas is the one who should be up on trial for war crimes.

Now, instead of pledging to investigate the military's conduct as the UN probe recommends, Israel has cried bias, insisting the UN Human Rights Council, which organised the fact-finding mission, was a partial body influenced by hostile nations. Benjamin Netanyahu, Israel's prime minister, has plainly asked world leaders to reject the findings, warning they amounted to a blow against fighting terrorism.

Sigh. Israel has investigated its military's conduct, and indeed has started legal actions against those soldiers who failed to scrupulously obey the rules of war as defined. Further, her article fails to address Israel's point: the document is biased. Claiming that the bias argument doesn't work anymore is admitting that the report is indeed biased, but that that doesn't matter.

The bias argument might have worked in the past and helped dismiss a whole slew of other reports - most of them reaching very much the same conclusions as the UN council. But it will prove a little harder to discredit a panel headed by Richard Goldstone, a friend of Israel, who is a former South African judge. "One report is biased, two reports are biased, but not everyone can be biased," says a human rights activist who investigated Gaza violations.

Not everyone is biased: however, the NGOs quoted in the report are biased. Some take Saudi money; others are staffed by rather reprehensible folks, and the history of the Israeli-Arab conflict is filled with purported eye-witnesses of atrocities by the Israelis that never saw what they claimed; who fervently believe that falsehoods and outright lies in the name of destroying Israel are not only fine and dandy, but indeed not a sin, as it is in the service of Holy War against infidels; who know exactly, through their Soviet-era training, how to twist events and make propaganda their most effective tool.

And Richard Goldstone, while Jewish, is scarcely a friend of Israel: he is on the Board of Directors of Human Rights Watch, which contributed to the report and who accepts funding from Saudi Arabia, and is one of the leading proponents, with numerous honors, of "international justice", whatever that means (and I know what it is *supposed* to mean, but seriously: without representative international government and international laws that specifically protect minorities from political, ethnic and religious discrimination, international justice remains, at best, chimerical and elusive, and invariably, in the real world, becomes less than a farce, resembling nothing more than legalized political repression).

Israel's foreign ministry has mounted a diplomatic offensive against the UN report and it appears concerned about the legal implications in European countries that pursue complaints by individuals or judges against people suspected of war crimes. Officers who were involved in the Gaza war might think twice before travelling to some capitals.

This is the goal, as it has always been: to demonize Israel on the world court of public opinion, to call into question the right of Israel to exist as a state, to deny the citizens of Israel the same rights others have. This is a perversion of justice, not a call for one.

Most important, at a time when Israel and the Palestinians are supposed to be working on reviving peace talks, a failure thoroughly and genuinely to investigate the tragedy in Gaza perpetuates a culture of impunity and promises more bloodshed.

As Navi Pillay, UN human rights commissioner, said this year after another UN probe into the Gaza invasion: "While these violations are of deep concern . . the nearly total impunity that persists for such violations . . is of grave concern, and constitutes a root cause for their persistence."

Translated: unless Israel admits to its sins (regardless of whether there were any), there will be more bloodshed; the fact that Israel fails to go along with our definition of atrocity and human rights violations (the existence of Israel as atrocity and violation of the rights of Palestinians) is the reason why Israel must be demonized...

The reason that Ms. Khalaf obviously and truly believes that Israel is the problem is that this is what has been repeated incessantly over the decades by the Arab propagandists. Repeating once again doesn't make it the truth.

Mittwoch, September 16, 2009

Bully Pulpit and Bullies...

Theodore Roosevelt called the office of the President a "bully pulpit". When he coined the phrase, the use of bully as an adjective (rather than a noun) meant "superb" or "wonderful", which has become archaic.

What he meant was that the office of the President of the United States meant that people would listen to what he had to say, regardless of what he did have to say.

Unfortunately, the Democratic Majority in the House of Representatives is behaving like they have the bully pulpit, but this time using the noun meaning of the word.

Joe Wilson, Republican Representative from South Carolina, let the President know what he thought of President Obama's speech to the joint session recently, bluntly calling out "You Lie!". He has apologized, the President accepted the apology.

Normally, amongst adults, that would be the end of it.

Instead, we see this. The Democrats see this rebuke - the first ever of its kind in the history of the Congress - this way:

The resolution is not about the substance of an issue but about the conduct we expect of one another in the course of doing our business.

Oh really. Where then were the resolutions when President Bush was called, by Senator Harry Ried, a liar? When President Bush was publicly booed by Democrats in his Address To State of The Nation speech ( in 2005: video here), where were these resolutions? Where was the apology for failing to conduct themselves in the manner that they "expect of one another"?


Why did the House take this move?

Well, the Democrats in the House want Joe Wilson to come on to the floor and apologize to them. They want to put him in his place, publicly humiliate him and make sure that no one ever, ever dares to do something like this again.

In other words, they are bullying him. In this case, the House resolution is aimed at coercing Joe Wilson to act in a way that he normally would refuse to do. This is the form of bullying known as relational or social aggression. The Resolution was designed to humiliate Joe Wilson publicly.

Typical Chicago politics tactics, these...wonderful how the Democratic Party, purported Champion of the Working Man and Defender of Minorities, preaching tolerance, is extraordinarily intolerant and more than happy to use their power to bully minorities around...

Montag, September 14, 2009

After All, It Was Just A Small Break-In...

What brought Nixon down wasn't the bungled burglary at the Watergate, but rather the cover-up. What started as a very, very small footnote in a police blotter simply didn't die, couldn't die, wouldn't die. But largely because there was someone on the inside - Deep Throat, aka William Mark Felt, Senior - who made sure that crimes weren't covered up.

Richard Fernandez over at Belmont Club has what may well be shaping up to be the Obama's Administration's Watergate scandal, as can be seen here:

Which leads to the suspicion that the incident, while tiny in itself, is the tip of some iceberg. What's under the rock? What really makes the Obama administration so puzzling is their extraordinary sensitivity to ostensibly unimportant things.

The incident in question is why two Black Panthers, captured on camera actively intimidating voters, were not prosecuted for what is a serious crime.

The reason? Because if an investigation is started into voting irregularities, one of the key Democratic support groups, ACORN, may also be investigated for voter fraud.

Why is the Obama Administration so panicked?

Because the Democratic Party's success in the last decade has, to a yet undetermined degree, been based on careful and deliberate voter fraud, executed by purportedly independent actors (ACORN and others) and hence believably deniable. Catch them on this, and the Democratic Party is severely damaged, since this would be a direct attack at the fundament of American democracy. This is why the Obama Administration is being so extraordinarily sensitive to something ostensibly unimportant.

Because it's not unimportant and the likelihood that the proverbial smoking gun will be discovered increases with the number of people involved and the degree to which something unimportant is indeed treated with great sensitivity.

If there is no fire here, then transparency and openness can clear it up very quickly and efficiently. But closing down the case, despite the clear violation of voter rights involved, drew attention and has started the ball rolling. Watch for Congress to get involved and actively help the Obama Administration obfuscate the problem...

The key? Get the FBI involved. Mark Felt effectively brought down Nixon. However, voter fraud is under the jurisdiction of the Department of Justice...who is blocking the inquiry. Perhaps that is enough to get the FBI involved.

In any case: too many unanswered questions.

Causality, Inevitability, & I'd Rather Have Been Wrong...

There is now a commission to investigate the subprime crisis.

The chances of it actually coming up with the real causes - which I covered here in February 2009 (and earlier) - are fairly slim, but they aren't non-existent. After all, according to this, Peter Wallison, who did point out the slippery path we were all going down, is part of the commission.

Let's briefly review so that we can keep the thread clear: the government, in its infinite wisdom, decided that as a matter of policy home ownership was such a neat and dandy thing that mortgages should be issued to people who can't and couldn't afford them, and to ensure that money would be available, allowed these mortgages to be securitized, i.e. packaged up as a lie (that the mortgages were AAA quality) and sold to people who thought it was a great idea to own part of something that they did not understand anything about. People being greedy (especially foreigners) and believing the rating agencies, money was thrown at the industry to the point where the built-in faults and problems brought the whole house of cards down.

Again: this has nothing to do with rapacious bankers forcing mortgages upon the unwilling and greedy brokers, but rather everything to do with the government setting up the game in a way that, in the long run, no one could make money at it. Well intentioned senators and representatives voted to make it easier for people to buy houses, the President (Clinton) happily signed it into law, and the Democratic Party staffed the banks involved (Fannie Mae and Freddie Mac) with people whose primary interest was not obeying regulations and conducting business in a responsible way, but rather who were more interested in their bonuses, so much in fact that they were more than willing to falsify the books in order to do so.

I'd rather have been wrong about how the government screwed things up. I'd rather have been wrong about how it doesn't look like anyone has recognized this.

Let's hope that the commission - Financial Crisis Inquiry Commission - will actually be bipartisan and take down the clowns and fools like Barney Frank and Chris Dodd who got us into this problem and gets the facts out. It's the only way to actually save the system that is supposed to work, rather than saving the system that has, to date, really only served to make millionaires out of Democratic politicians as they punched their way to Fat Cat City.

I'd love to be wrong here. But knowing DC, the likelihood right now of that happening is about as likely as the Democrats lose control of both the House and the Senate in 2010.

In other words, increasingly daily.

And a special thanks to the reader from Australia who was my 25000th viewer. Thanks!

Freitag, September 11, 2009

Understanding The Economy...And The Deadly Sin of Economics

This reminded me of the problems in my profession. And why economists really need to get out of academia.

Central to all modern economics is the bookkeeping of the economy. This is codified in what is called NIPA, for National Income and Product Accounts. This defines how GDP is defined and how it should be calculated. Basically, it calculates what GDP is, where it came from, how it is used, and where did it flow. This defines what I like to call the economic tripod: demand, supply and income.

The failing of modern economics is the obsession with one leg of the tripod, that of demand, to the point where most economists, when asked where GDP comes from, more often than not don't understand the question. Yet it is of fundamental importance: GDP, as the Gross Domestic Product of the economy, measures the value added to the economy during a time period. Only value added is calculated in order to avoid double-counting when a product of industry A is used in industry B: the inputs to industry B are subtracted from its end product to avoid counting the output of industry A as part of industry B.

The obsession with the demand side of the economy comes because, basically, it is the easiest to understand. We all know that demand drives general economic growth, and simply being able to apportion this to different categories allows for some elegance and aids in understanding why the economy grows the way that it does.

But it's not the only part of the equation, so to speak.

When trying to generate additional economic growth, which the Keynesian economists see as the panacea for turning economic downswings back upwards and generate full employment, the demand-side economists simply throw money at consumption to equal out the weakness of the markets. This works in the short-term when everything else is equal (ceteris paribus, that beloved phrase of economists everywhere), but fails to address the problem of full employment in the face of structural changes to the economy (which Keynes failed to anticipate entirely, concentrating instead on cyclical problems).

The supply side of the economy, in stark contrast, is where the jobs are actually created: the supply side provides the jobs and it is where structural changes to the economy are starkly apparent. The demand side of the economy ignores these problems entirely, and that is one of the failures of Keynesian policies, which if anything make structural changes more drawn-out and painful than they need to be, as artificially expanded demand for dying industries cannot sustain them and leads to misallocation of capital, which is - or should be - the deadliest of economic sins.

Understanding the supply side of the economy is not really all that more difficult than understanding the demand side: after all, it is the same thing. The sum of demand equals the sum of supply in an economy in equilibrium, with the single difference between the two being income from overseas sources (note: not net exports, but rather money transfers). But it also means understanding that the economy is made up of vastly different businesses working under significantly different conditions and serving specific markets, and that's where it simply becomes very complicated. Not impossible to understand, just complicated. The distribution of the supply side covers everything from agriculture to personal services (at one point one of the classification schedules included, in order, dating services, wedding services and funeral parlors one after the other, showing that even economists can have a sense of humor) and includes something called "imputed earnings of private households" which includes all the services that stay-at-home moms and dads provide (at extremely low wages...).

Understanding what drives each and every one of the the some 500 different industries that make up the supply side of the economy, of course, is a completely different thing than understanding what drives overall demand, which is why the demand side of economics is so popular (and also explains why those who really understand how the economy actually works are supply-side folks, like Alan Greenspan, who spent most of his career before the Fed running supply side models).

The third leg of the tripod is income: this is the most ignored of the three legs, since it appears to be simple accounting at the aggregate level, with earnings and taxes and the like. Generally speaking, it measures the flows of the economy, i.e. ties supply and demand together via people's incomes, since, after all, supply and demand have to be paid for by someone.

However, if you start to take a serious look at incomes, income distribution rears its pointy little head and the fundamental lack of decent data makes it difficult to do serious analysis of who is earning what and at what point in time.

Nonetheless, it is the third leg of the economy.

That is why when looking at things like the $787 bn spending program, it's never enough to figure out how it is going to effect demand. You also have to take a look at how supply and income are being affected, which is where the real hard work in economics lies. Giving people money to buy things distorts demand; cutting their taxes doesn't, since it also creates incentives. One-time stimulus packages can plaster over a small pothole for a while, but giving people a tax break allows them to rebuild the street.

But anyone who only understands the demand side of the economy can't see that they are seeing only one-third of the picture, and unless all three sides are seen and understood - and that is where the work becomes really hard - mistakes will be made, just like a tripod which has only one solid and strong leg will be only as strong as its weakest leg, not the strongest.

If one really wants to address the problems of any economy, let alone that of the US, then the models used need to fully take into account all three sides. While some pay some lip service, they do not really cover all three legs of the tripod. Not because they don't have the technical means to do so: it's because the economics profession lacks the generalists that can see all three and understand them.

It's not something that can be acquired in a couple of semesters, either: it literally takes years, and few are willing to make that commitment, given the obsession of economists, especially academics, with specialization. To paraphrase Robert Anson Heinlein, specialization is for ants: we need the generalist who understands that the economy has three sides and that government policy is made by viewing only one of those sides, and indeed, especially in the case of recent government actions, that something undertaken for the purported support of one side undermines the other two sides, essentially misallocating capital.

Which is one of the deadly sins in economics.

Donnerstag, September 10, 2009

History Repeats Once Again...Redux

This has been commented on extensively, I won't do a direct fisking.

Suffice to say history repeats itself once again. This time it's the 1930s, and pundits everywhere thought the sheer efficiency of fascist and communist economies - which, yes, put people back to work and in the case of the Soviets, created heavy industry in a country that had none - meant that classic capitalism was, to coin a phrase, doomed to the garbage heap of history and that as a result, democracy would not, could not, dare not survive.

Friedman is wrong.

He is headed down that same slippery slope as Krugman, the slope where ideology and personal preferences blind and twist thought and reality. Krugman, who deserved the Nobel for his economics work, deserves at the same time to be stripped of it for constantly cherry-picking data for ideological arguments in violation of any normal sense of integrity (and this isn't me speaking: the New York Times ombudsman basically states this as well).

Let's go back, briefly, to the Greeks, who correctly recognized that the best form of government is a truly selfless and benevolent dictator, who can command things to be so for the common good and for the benefits of all. But let us also remember the Greeks who pointed out that this person simply didn't exist and that the only real form of government that ensures that despotism, corruption and incompetence be held to a minimum is democracy.

What Friedman and Krugman suffer from is delusions of superiority, that their political goals are both just and reasonable, and hence any opponent is injust and unreasonable. It is an attitude that has poisoned political dialogue in the US to the point where there is, right now, no sense in even talking: the Democratic Party is the party of "my way or the highway", and if one takes a measured and honest look at how dominant parties deal with minority parties in the US, the Democratic Party does not come away well. There is no "bipartisanship" when that means "I need a Republican to vote along with me so that I can use him as an excuse when things go wrong, claiming it wasn't just me who screwed things up".

That's not bipartisanship: that's scapegoating. It's taken the Republican Party a while to realize how they've been abused this way, but they are capable of learning from their errors (of course, it'd have been better not to have lost the Senate whilst learning this, but sometimes it does take a 2x4 to the head to get things through what can be admittedly thick skulls) and are increasingly reluctant to become the Democratic Party's scapegoats by giving up principles, since they've learned that they will be made the scapegoats regardless of how they behave.

Getting back to Friedman: if you want to compete with China, he is saying, we need to emulate them in being able to make decisions quickly for what he considers to be "the industries of the future".

We can do that right now: it doesn't take government intervention to drive investments if private investors are convinced that they can make profits by doing so.

Aye,and there is the rub: we know the laws of physics and the laws of economics better than the Chinese (who famously under the orders of Mao tried to make steel in backyard furnaces in contradiction of the laws of phsyics, producing junk and destroying millions of tons of scrap metals in the process) and while we'd all love to have batteries that charge in 10 minutes that power cars for thousands of miles, that is a chimera.

The Chinese are producing electrical scooters (small motorcycles) right now: they are, however, inefficient, expensive and a dead-end track, since the fundamental question of where to produce the needed electricity hasn't been answered, given that batteries are a energy storage mechanism with high investment costs and low utility in comparison with petroleum fuels.

I will quote Friedman once:

The only way for us to match them is by legislating a rising carbon price along with efficiency and renewable standards that will stimulate massive private investment in clean-tech. Hard to do with a one-party democracy.

In other words, Mr. Friedman wants to manipulate markets to generate investments, and to do so proposes that energy be taxed.

Mr. Friedman, a small word of advice: manipulating markets to generate consumer and investment behavior is what got us into this mess in the first place. It's the LAST thing that we need now: the first thing we need is less market manipulation and the freedom for investors to spend their money where it makes the most sense economically, not where it makes the most sense ideologically.

That is the real problem we are facing today: a government and pundits who truly believe that they know better than the economy does, with all its warts and problems.

The fundamental complaint of Friedman and his fellow travelers is nothing but a repeat of the laments of pundits and politicians of the past, who mistakenly believed that either fascism or socialism, both variants of collectivism, were truly and permanently superior to the individualistic democratic system.

Friedman fails to see that collectivist societies invariably fail. China doesn't have enormous economic growth because of collectivism, but rather because the government there is desperately trying to ride the wave of individualist economic activity, dreading the day when the Chinese people start to understand that the rule of law, rather than the rule of party bosses, is fundamental for long-term growth and that the Party is corrupt, incompetent and blind. Dreading the day when it becomes important that Chinese intellectual property be respected.

In many ways China has had a free ride on intellectual property issues: they deny it is a problem and fail to enforce the few laws they have, while gladly supporting companies to steal intellectual property to beggar their competitors. This isn't sour grapes: these are serious problems that have never been properly addressed, as the Chinese government refuses to discuss this.

Friedman has chosen to believe the Potemkin facade of China. He is failing as a journalist, playing the role that Walter Duranty played, whitewashing the atrocities and human rights violations of the Soviets and winning a Pulitzer prize whilst doing so.

I think the correct term is "useful idiot".  Shame on the New York Times - who has never admitted that Duranty was a useful idiot and wrote fantasy bits - and shame on Friedman.

But history doesn't always repeat: fool me once, shame on you. Fool me twice, shame on me.

This time it's time not to be fooled.

Mittwoch, September 09, 2009

Welcome To The Club...

Some of my readers may be surprised to hear that I'm not a classic, traditional conservative.

Of course I'm not. I grew up in the 1960s and am a trailing-edge baby boomer. My family is virtually completely liberal and I dare say I'm the only registered Republican in the family.

How did I end up this way?

Because I spent time in Germany - heck, I'm still there - and have seen what the liberal future held: it's not pretty, since they can't pay for their social plans and utopian dreams.

Add to that the utter corruption of the party and its relationship to unions - which have abandoned all pretenses of representing the rank and file, who they actively despise - and there is little to find good in the Democratic Party since the era of the Kennedys. If even then.

It's not so much that I became conservative: it's just that I refuse to accept the pablum that passes for liberal thought in the US, where devout and ernest wishing that things are different replaces serious thought and, above all, concrete plans that can actually exist in reality. Liberalism, for all its glory and history, simply doesn't add up at the end of the day.

Camille Paglia, a post-feminist lesbian writer of some ability, is slowly realizing this as well.

You can read it here:

Why has the Democratic Party become so arrogantly detached from ordinary Americans? Though they claim to speak for the poor and dispossessed, Democrats have increasingly become the party of an upper-middle-class professional elite, top-heavy with journalists, academics and lawyers (one reason for the hypocritical absence of tort reform in the healthcare bills). Weirdly, given their worship of highly individualistic, secularized self-actualization, such professionals are as a whole amazingly credulous these days about big-government solutions to every social problem. They see no danger in expanding government authority and intrusive, wasteful bureaucracy. This is, I submit, a stunning turn away from the anti-authority and anti-establishment principles of authentic 1960s leftism.

Those in charge of the Democratic Party despise ordinary Americans, despise that they live lives unencumbered and above all that they live the lives of the "Kleinbourgeoisie", the "small citizen" whose interests are material and decidedly low-brow, interested in nothing much more than a nice house, happy family, a nice car that's fun to drive, and maybe that power boat for the lake. No real political interests, he just wants to be left alone and live without feeling like taxes are driving him to distraction.

And independent thought of their supportors? Perish the thought. Toe the party line, act like you care, become obsessed with the irrelevant (that worship of individualistic, secularized self-actualization) and ignore the fact that the Democratic Party has become thoroughly compromised and corrupt.

It is, to coin a phrase (and yes, I know that it's not new), the liberal crackup.

But affluent middle-class Democrats now seem to be complacently servile toward authority and automatically believe everything party leaders tell them. Why? Is it because the new professional class is a glossy product of generically institutionalized learning? Independent thought and logical analysis of argument are no longer taught. Elite education in the U.S. has become a frenetic assembly line of competitive college application to schools where ideological brainwashing is so pandemic that it's invisible. The top schools, from the Ivy League on down, promote "critical thinking," which sounds good but is in fact just a style of rote regurgitation of hackneyed approved terms ("racism, sexism, homophobia") when confronted with any social issue. The Democratic brain has been marinating so long in those clichés that it's positively pickled.

I would submit that if you want to become a tenured professor, you probably can't be an active, declared Republican. The incoherent rage of academia to any non-compliant thinking is well known: it has become, largely, the refuge of folks who make careers out of not thinking things through, failing at best to understand that feeling good thoughts and believing earnestly can replace sober and structured thought.

The revolutionaries of days long gone have become extremely reactionary and fail to see that they have become a caricature of those who they once opposed.

Welcome to the Club, Camilia. You're not alone...

Montag, September 07, 2009

If You're Going To Say Economics Is Dead, Then Get Your Facts Right...

I sometimes peruse what is going on over at the Edge, which sometimes has some interesting stuff to read.

Not this time: now it's just being silly.

Douglas Rushkoff has simply reinvented reality to fit his needs, rather than to actually have done the research.

What annoyed me enough to write this was this:

The economy in which we operate is not a natural system, but a set of rules developed in the Late Middle Ages in order to prevent the unchecked rise of a merchant class that was creating and exchanging value with impunity. This was what we might today call a peer-to-peer economy, and did not depend on central employers or even central currency.

People brought grain in from the fields, had it weighed at a grain store, and left with a receipt — usually stamped into a thin piece of foil. The foil could be torn into smaller pieces and used as currency in town. Each piece represented a specific amount of grain. The money was quite literally earned into existence — and the total amount in circulation reflected the abundance of the crop.

Ummm: coinage, coins codified by a central authority using non-commodity means, dates back not to the Renaissance, but rather back to Egyptians and Sumerians, who developed standardized bars of gold and silver, with the first usage of stampage (marking the standardized bars of gold and silver) by the Lydians in 650 BC. That's over 2600 years ago: the Ancient Greeks were the society to adopt coinage with competing city-states, with standardized coinage developed by both Athens and Sparta. Paper currency was already in use in China in the 600s and the first generally circulating notes date from the Song Dynasty in 960. Fiat money, which is not backed by gold or other precious metals (except perhaps nominally) was an invention of the Romans.

This is not rocket science: this is 30 seconds of effort with Wikipedia. Really: go to Wikipedia and search on "History of Money" to find that Mr. Rushkoff's basic premise has nothing to do with reality.

In other words, the idyllic age that Rushkoff fantasizes about is just that: a fantasy world.

It never existed. Why should it? Who was running his magic "grain store" and why would anyone accept a thing piece of foil that could be torn into pieces? Why not just make the money yourself and not bother with working?

The title of Mr. Rushkoff's rambling and erroneous work is "Economics Is Not A Natural Science".

Well, duh: no one ever, ever said it was. Economics is, has always been, and will always be a social science. Only a learned outsider who fails to try to understand what he is writing about in order to preserve some ideologically pre-determined conclusion could even contemplate the idea that economists or others would claim the economics is a natural science.

Let's go further down this road:

That's why it's so amazing to me that scientists, and people calling themselves scientists, would propose to study the market as if it were some natural system — like the weather, or a coral reef.

It's not. It's a product not of nature but of engineering. And to treat the market as nature, as some product of purely evolutionary forces, is to deny ourselves access to its ongoing redesign. It's as if we woke up in a world where just one operating system was running on all our computers and, worse, we didn't realize that any other operating system ever did or could ever exist. We would simply accept Windows as a given circumstance, and look for ways to adjust our society to its needs rather than the other way around.

It is up to our most rigorous thinkers and writers not to base their work on widely accepted but largely artificial constructs. It is their job to differentiate between the map and the territory — to recognize when a series of false assumptions is corrupting their observations and conclusions.

What he fails to realize is that the study of markets start exactly there: the market place. Back when I did economics at the Albert-Ludwigs Universität zu Freiburg in Germany, we'd talk about how pricing worked at the daily market to the sides of the Freiburg Munster. Farmers come from the countryside (on the north side of the Munster, the south side was for vendors selling non-local produce) and set up their stands, setting their prices. You could time how long it took for prices to adjust: the farmers would first set a price that they wanted to get and then by simple process of looking around to see what others set their prices at, would either decide to lower or even occasionally raise their prices. The one farmer who came in with an extra big load of carrots would drop their price to clear them out: others would either match that price in order to be able to sell at all, or wouldn't, counting on later arrivals who would pay the normal price when that farmer ran out of carrots quickly as people bought not one kilo but two.

The thing is: it wasn't a product of engineering. It was the product of how humans interact with little or no interference. Sure, the market was established by the local government, set basic rules - weights had to be proper and the like - and no collusion was permitted between farmers to artificially set prices high and keep them that way despite a drop in demand at that price point.

But to call that a product of engineering is to reduce human interaction at all levels into a product of engineering, be it social engineering or otherwise: rather, the study of markets, the study of how scarce supply meets never-ending demand, is most certainly something that has evolved over time, just as human societies have evolved over time. It's tantamount to saying that people can only behave the way that their societies allow them to behave, reducing humans to mere products of their society, incapable of thinking and acting for themselves.

This is not a false assumption: if anything, Mr. Rushkoff's work is based on false assumptions, the most blatant and obvious one being the idea that money was a spontaneous invention of someone over at the "grain store" and that the modern role of money - fiat or otherwise -  was somehow the result of that terrible period of time, the Renaissance, where kings decided that they didn't want anyone making money besides themselves.

Perhaps more history would be appropriate for Mr. Rushkoff: cathedrals didn't get built because some towns had money.

Many towns became so prosperous that they invested in long-term projects, like cathedrals. The "Age of Cathedrals" of this pre-Renaissance period was not funded by the Vatican, but by the bottom-up activity of vibrant local economies.

Oh please: a reality that beggars the imagination. Cathedrals were built because the Church decided it was to be so: it wasn't funded by the Vatican because it was the duty of Christians to build a cathedral, more often than not impoverishing the workers of a region by tying up vast expenditures of time, energy and material into houses of worship, where workers provided their labor as part of their tithing. The "vibrant local economies" were run by local nobility, who, if they had abandoned serfdom, taxed their workers punishingly for the privilege of not being murdered and raped by the neighboring nobility or other bands of marauding thieves.

Feudal lords, early kings, and the aristocracy were not participating in this wealth creation. Their families hadn't created value in centuries, and they needed a mechanism through which to maintain their own stature in the face of a rising middle class. The two ideas they came up with are still with us today in essentially the same form, and have become so embedded in commerce that we mistake them for pre-existing laws of economic activity.

The feudal lords and kings were not participating in wealth creation because they controlled it: they kept the middle class under control because of the heresies involved in the non-noble having capital and doing things with it that the lords and kings did not control.

The first innovation was to centralize currency. What better way for the already rich to maintain their wealth than to make money scarce? Monarchs forcibly made abundant local currencies illegal, and required people to exchange value through artificially scarce central currencies, instead. Not only was centrally issued money easier to tax, but it gave central banks an easy way to extract value through debasement (removing gold content). The bias of scarce currency, however, was towards hording. Those with access to the treasury could accrue wealth by lending or investing passively in value creation by others. Prosperity on the periphery quickly diminished as value was drawn toward the center. Within a few decades of the establishment of central currency in France came local poverty, an end to subsistence farming, and the plague. (The economy we now celebrate as the happy result of these Renaissance innovations only took effect after Europe had lost half of its population.)


The second great innovation was the chartered monopoly, through which kings could grant exclusive control over a sector or region to a favored company in return for an investment in the enterprise. This gave rise to monopoly markets, such as the British East India Trading Company's exclusive right to trade in the American Colonies. Colonists who grew cotton were not permitted to sell it to other people or, worse, fabricate clothes. These activities would have generated value from the bottom up, in a way that could not have been extracted by a central authority. Instead, colonists were required to sell cotton to the Company, at fixed prices, who shipped it back to England where it was fabricated into clothes by another chartered monopoly, and then shipped to back to America for sale to the colonists. It was not more efficient; it was simply more extractive.

Sigh. Once again: neither of these is new, neither is innovative, but rather both have a long, long heritage that most certainly predates the fantasy past of Mr. Rushkoff.

Whether it's being done in honest ignorance, blind obedience, or cynical exploitation of the market, the result is the same: our ability to envision new solutions to the latest challenges is stunted by a dependence on market-driven and market-compatible answers. Instead, we are encouraged to apply the rules of genetics, neuroscience, or systems theory to the economy, and to do so in a dangerously determinist fashion.

In their ongoing effort to define and the defend the functioning of the market through science and systems theory, some of today's brightest thinkers have, perhaps inadvertently, promoted a mythology about commerce, culture, and competition. And it is a mythology as false, dangerous, and ultimately deadly as any religion.

The reason that we are "dependent" on market-driven and market-compatible answers is that markets work. Nothing else does. That is an empirical fact, about as hard a fact as is possible in the field of economics, underscored by the deaths of millions under alternatives (both fascism and communism) and the utter and complete collapse of any other system that has ever been tried.

That's not a myth. That is the cold, hard empirical reality. The one pushing a mythology is Mr. Rushkoff, and that mythology is that humans are by their very nature cooperative and can, once the evil construct of economics is removed, live in abundance and plenty.

That's a fundamentally romantic view of the world: the dismal science that is called economics doesn*t allow romantic notions:

These theories fail not because the math or science underlying them is false, but rather because it is being inappropriately applied. Yet too many theorists keep buying into them, desperate for some logical flourish through which the premise of scarcity can somehow fit in, and business audiences won. In the process, they ignore the genuinely relevant question: whether the economic model, the game rules set in place half a millennium ago by kings with armies, can continue to hold back the genuine market activity of people enabled by computers.

Sigh. Here we have Mr. Rushkoff spending all his time lambasting economics and the economics paradigms of our time, and then he inadvertently destroys his own thesis: that new markets are somehow different.

What is his "genuine" market activity?

People are beginning to create and exchange value again, and they are coming to realize the market they have taken for granted is not a condition of nature. This is the threat — and no amount of theoretical recontextualization is going to change that — or successfully prevent it.
Sorry: want to repeat that?

What he is talking about is nothing less than the fact - which no student of cliometry would have failed to have noticed - that markets change: take someone from the 19th century and put him into the 21st century market place and he will not understand what is being traded and how. He will, however, understand that the marketplace works.

We ended up with an economy based in scarcity and competition rather than abundance and collaboration; an economy that requires growth and eschews sustainable business models. It may or may not better reflect the laws of nature — and that it is a conversation we really should have — but it is certainly not the result of entirely natural set of principles in action. It is a system designed by certain people at a certain moment in history, with very specific interests.

I'd be interested in such a conversation: most calling for "sustainable business models" have no idea what these mean (statism and stagnation, for one, as growth is more often than not driven by innovation and productivity gains, rather than by mere material usage).

Abundance and collaboration is what exists in the Romantic concept of nature, and the past that Mr. Rushkoff here envisions is that of the noble savage. The problem? They never existed, and human history has been one of scarcity, deprivation and the general misery of peasants whose lords tax them and take their daughters, as any student of Chinese or Japanese history can tell you (let alone European history). Scarcity and competition is no the result of some deliberate conspiracy to keep you poor and ignorant, but rather, as ecologists should really know, the fact that resources are scarce and that human needs are endless.

It doesn't take a genius or a scientist to understand how the rules of the economic game as it is currently played reflect neither human values nor the laws of physics. The market cannot expand infinitely like the redshifts in Hubble's universe. How many other species attempt to store up enough fat during their productive years so that they can simply "retire" on their horded resources? How could a metric like the GNP accurately reflect the health of the real economy when toxic spills and disease epidemics alike actually count as short-term booms?

Sorry: other species don't store up fat in order to retire on horded resources, they do it in order not to starve to death. If you don't, you die. Simple.

Mr. Rushkoff also trots out the favorite of those who failed to understand national bookkeeping: that GDP - Mr, Rushkoff, GNP hasn't been in use for at least a decade as the mainstream indicator of economic development, since it fails to take into account financial flows - is somehow is supposed to reflect the health of the real economy. It doesn't and never has: it is merely the value added to the economy. While I know it is tempting (and most who couldn't list the components of how it is calculated misuse it this way) it's still wrong and shows, for us economists, the degree to which those who say economics is dead can't even get their facts right.

The net (whether we're talking Web 2.0, Wikipedia, social networks or laptops) offers people the opportunity to build economies based on different rules — commerce that exists outside the economic map we have mistaken for the territory of human interaction.

Oy vey is mir. The economies that Mr. Rushkoff is talking about don't exist except as part and parcel of what he is criticizing: he is talking of jump-starting new markets on the back of existing infrastructure as if the latter was simply there and didn't need to be paid for.

We can startup and even scale companies with little or no money, making the banks and investment capital on which business once depended obsolete. That's the real reason for the so-called economic crisis: there is less of a market for the debt on which the top-heavy game is based. We can develop local and complementary currencies, barter networks, and other exchange systems independently of a central bank, and carry out secure transactions with our cell phones.

Yikes! Companies with no money that pay no payrolls and create money out of nothing. Ummm: wasn't that what was the dot.com problem? Banks and investment capital are presto chango obsolete. "Complementary currencies" - whatever that is supposed to mean, I daresay some sort of alternative currency that requires you to consume what you invested, rather than to conserve capital and take in a return - barter, other exchange systems that are magically self-organizing and do not require a central authority. And with secure transactions with our cell phones.

Never mind that the cell phone system has to be paid for, that without enforcement fraud and abuse will necessarily appear and dominate (given human nature, but then again, that is something the romantics never figures out), ruining the system.

In doing so, we become capable of imagining a marketplace based in something other than scarcity — a requirement if we're ever going to find a way to employ an abundant energy supply. It's not that we don't have the technological means to source renewable energy; it's that we don't have a market concept capable of contending with abundance. As Buckminster Fuller would remind us: these are not problems of nature, they are problems of design.

The problem with designing society is that everyone who has tried has failed, miserably so. That is not a good track record, Mr. Rushkoff, and the last person I would want to give design competency to is someone who has made both what must be seen as embarrassing errors of commission and a failure to understand what economics really is all about, someone who is both a Romantic and a Social Utopianist.

We must stop perpetuating the fiction that existence itself is dictated by the immutable laws of economics. These so-called laws are, in actuality, the economic mechanisms of 13th Century monarchs. Some of us analyzing digital culture and its impact on business must reveal economics as the artificial construction it really is. Although it may be subjected to the scientific method and mathematical scrutiny, it is not a natural science; it is game theory, with a set of underlying assumptions that have little to do with anything resembling genetics, neurology, evolution, or natural systems.

As I've pointed out, the laws of economics weren't established by some conspiracy of 13th century monarchs. The laws of economics, the ones that deserve to be called such, are the laws of supply and demand. Economics is not an artificial construct: it has evolved naturally and continues to do so: what must be revealed, instead, is the abject lack of understanding of what economics really is amongst those who would dislodge it. Economics has never claimed to be a natural science: it is, perhaps, the most rigorous and mathematically obsessed of the human science, but really never has claimed to be anything but.

The scientific tradition exposed the unpopular astronomical fact that the earth was not at the center of the universe. This stance challenged the social order, and its proponents were met with less than a welcoming reception. Today, science has a similar opportunity: to expose the fallacies underlying our economic model instead of producing short-term strategies for mitigating the effects of inventions and discoveries that threaten this inherited market hallucination.

I fear the only hallucination here is that of Mr. Rushkoff: his Romantic notions of the noble savage is one.

The economic model has broken, for good. It's time to stop pretending it describes our world.


What has broken is the idea that governments can functionally interfere in markets and that they can manipulate the economy to do what the politicians want it to do. The economy, the markets, behaved as they should: governments manipulated markets to make housing cheap, and those who demanded that risk play no role in lending money are reaping their just rewards.

What is broken is the progressive, romantic notions of the world that people like Mr. Rushkoff earnestly believe. Economics describes the world: it's just not the world that Mr. Rushkoff thinks exists.

My apologies to Mr. Rushkoff in advance for changing some of the order of his work for my commentary here.