Donnerstag, Februar 26, 2009

Insanity...or Corporate Responsibility Gone Seriously Wrong

This is more than a little curious.

You've got a UK finance group that wants to invest your money in an "ethical way". To quote from their web site here:

When choosing companies to invest in, most fund providers just analyse the financial performance of a company. We are the only UK fund manager to also analyse social, ethical, environmental and other company management issues (eg 'fat cat' pay) across all the funds we manage.

Now, that's just fine and dandy: if you want to include that in your investment portfolio for political reasons, fine.

But that is not what the group is now doing. Instead, they are starting what must be considered a political campaign against oil sands.

If I were an investor, I'd be pulling my money out of that group ASAP: instead of investing your money, they're taking 50 thousand pounds sterling and are financing the research aimed at providing the rationale to block development of Canadian oil sands. Overall, they're taking 500 000 pounds sterling to "fight toxic fuels".

That is insanity: this is "corporate responsibility" gone completely, stonk raving mad. This is an investment company that is going political with other's money.

It's one thing to invest in solar and wind, to finance "good" things. It's another thing entirely when your actions are designed to stop business activity, and it is especially appalling to do it far from where the negative impact will be felt.

And it is in direct contradiction to this statement, found here:

Our firmly embedded responsible lending policy reflects our belief that as customers and members, it's your money first and foremost, and you have a right to expect good stewardship.

The Bank's financial position is strong, which is reflected in our credit ratings. We also have one of the highest liquidity ratios in the marketplace – that is, our assets are relatively easy to convert into cash should we need to. On top of this the Bank is well capitalised, i.e. we have a good cushion of reserves.

The Bank maintains a prudent approach to lending, and its underwriting and arrears management processes are subject to regular review and improvements. The Bank's loan books are high quality with low Loan to Value ratios, which provide significant protection against future falls in property values.

The choice to fund a politically-motivated campaign against "toxic fuels" doesn't reflect good stewardship in these challenging times. It reflects, if anything, appalling stewardship that places politically motivated ecological activism above good banking practices.

Sonntag, Februar 22, 2009

Miscommunication, politics and wonder...

First of all, a hat tip to Neo-NeoCon.

Second of all, the relevant link here.

The title of this post is miscommunication, politics and wonder.

Miscommunication: not merely the accidental, but also the deliberate. The last election was marked by a curiously uncritical press that failed to communicate the fact that President Obama, while intellectual and educated, is fundamentally a product of the Chicago political machine (this has been covered on this blog before) and fundamentally beholden to a Democratic Party that is fundamentally reactionary, populated by radicals from the 190s and 1970s that continue to believe in something completely and totally discredited, i.e. some sort of utopianism based on a fundamental ignorance of economics. The miscommunication was also deliberate: if the Republican Party had decided to go after President Obama's fundamental lack of actual detail for his panaceas, the shallowness of now-President Obama might have appeared for everyone to see.

Yes, I am saying that President Obama is a shallow man. How can you be both educated, intellectual and yet shallow? Simple: there's no depth to the man, no real person there. No one knows what President Obama really believes or says: his track record in Congress and in the Illinois Senate was exemplary in the use of "present" to avoid taking positions. We have elected a President without knowing where he really stands: this is what I mean by him being shallow. Intellectuals, highly educated ones especially, have a tendency to avoid making decisions because there are too many implications, too many possible resolutions, preferring to postpone any actual decision until it is either no longer necessary because events have overtaken the necessity of decision, making it moot, or to wait until a decision is forced by events.

Intellectually, this is an elegant solution to the danger of having to defend decisions and face the derision of your peers. Politically speaking, it is a catastrophe, since it is nothing less than indecision writ large: faced with an indecisive opponent, other political players will re-write the rules of the game to ensure that they win.

But, you say, President Obama is a product of that rought-and-tumble, hard-knuckled world of Chicago politics, where indecision is punished and power politics are rewarded.

Yes: the operative word is product. President Obama isn't a Chicago politician, but rather the perfect foil, the perfect passive player in the system to ensure that the system can be gained. He beat his opponents for his Senate seat by taking them to court, rather than being the better candidate; he ran unopposed.

The problem now is that he's no longer in Chicago, or, more exactly, the real world is not Chicago.

The world economy is in turmoil, and President Obama is doing his level best to make things better. That is what is being communicated via the press, and this is another case of miscommunication, where the IBD article above comes into play.

What the world markets and the US public need to hear is how adults are in charge. Instead, we here and see how President Obama's administration is turning into a right and proper catastrophe, with major posts unfilled and others filled with those sullied by banal and mundane human failings, but also with more than a taint of disdain for the rule of law. His major accomplishment is to have made things worse, rather than better: his perfect storm of Democratic control of both houses is being ripped apart by the irresponsibility of the "stimulus" bill and its apparent basis, that it is better to do something than nothing.

Now that's a specious argument: how about doing something effective for the economy as a whole, rather than obviously rewarding the party faithful? This is where President Obama is a product of the Chicago system: he is doing what is expected of him.

What about wonder?

I wonder at the the naivete of the voting public not to have realized just who they voted for. The facts were not hidden, but out there, merely under-reported (again, the uncritical press is to blame here). The vote for President Obama, for many, was a vote against Bush, against the past, for hope and for change.

I wonder at the sense of wonder now being expressed as to how things could be so totally screwed up.

Because it's no wonder at all. We have elected a President who, despite being intellectual and educated, is fundamentally shallow and out of his depth; we have installed the least competent and trustworthy Congress in decades (if not longer), re-electing politicians whose irresponsibility is legion; we have given the control of government, at a time of economic crisis, to those whose fundamental political theory shows an almost complete ignorance of real-world economics.

The cause of the economic crisis is manifold and ultimately the stuff of historians yet unborn. Solving the problem is of political priority, and yet we have the least qualified people in charge.

Oy vey.

Freitag, Februar 20, 2009

Speaking Truth To Power ...

The Left, particularly in the US, is enamored of its role in "speaking truth to power", which it views as a dangerous and heroic role. It's the role of the lone truth-seeker standing up to the tyrant and speaking truth to the power of the tyrant, regardless of the consequences (as if there were any in our day and age: that is what makes the claim so patently absurd).

The modern sense of the phrase came from that humorless lot, the Quakers, as can be seen here. Nice folks, the Quakers, but naive in the extreme (to put it mildly: the result of Quakers talking to tyrants never went well for the Quakers).

I ran across another history of that phrase here. You gotta go to page 9 to find the following (all credit to Michael Hendry):

In Sicily Dionysius, the tyrant of Syracuse, . . . was enjoying peace and
leisure. He began writing poetry with great enthusiasm, sending for the
famous poets, spending his time with them and showering honours on them,
and using them as supervisors and reviewers of his poetry. His generosity
led to flattery on the part of these grateful critics, and removed from reality
by it he bragged more of his poetry than of his military successes. One of
the poets at his court was Philoxenus, the composer of dithyrambs, who had
a high reputation for his own style of composition, and at the drinking-party
when the tyrant's wretched poems were read he was asked his opinion of
them; he gave a rather frank reply, and the tyrant took offence, faulted him
for slandering him out of envy, and told his attendants to take him off at
once to the quarries. Next day his friends begged him to pardon Philoxenus,
so he made it up to him and invited the same company to the drinking
party. As the drinking progressed, Dionysius again began to brag of his
poetry and cited some lines which he regarded as particularly successful;
but when he asked Philoxenus what he thought of them, his only response
was to summon the attendants and tell them to take him off to the quarries.
At the time Dionysius smiled at the wittiness of the reply and put up with
his frankness: laughter took the edge off fault-finding; but soon after when
the friends of each party asked Dionysius to excuse his untimely frankness,
Philoxenus made the strange offer that his answer would preserve both the
truth and Dionysius' reputation; and he kept his promise, because when the
tyrant cited some lines which described lamentable events and asked what
he thought of him, Philoxenus said, 'Tragic', using the ambiguity to
preserve truth together with the tyrant's reputation: Dionysius took
'tragic' to mean 'lamentable and full of pathos', and knowing that good
poets excelled in such writing accepted it as praise from Philoxenus; but the
rest of the company picked up the true meaning and saw that the term
'tragic' had been used only to brand a failure.

In other words, "speaking truth to power" is a joke, based on the ambiguity of the word "tragic" when dealing with tragedy. To quote Michael Hendry, who comments on this ancient joke:

'Tragic' is perhaps not the best translation of Philoxenus' ambiguous adjective,
though Dionysius was apparently writing tragedies. The Greek
word (οἰκτρά) is more general: 'pitiful' or 'pathetic'. The pun would work
just as well today: "Your tragedy / elegy is absolutely pitiful, totally
pathetic, I couldn't stop crying!" (What should you say if someone you do
not wish to offend writes a lame attempt at comedy or satire and asks you to
judge it? "Truly ludicrous! I couldn't stop laughing!")

In other words, the left has gotten it wrong again (quelle horreur!): speaking truth to power only works when the "truth" is so carefully hidden that it cannot appear to anyone less erudite than the speaker.

The use of the phrase is, for me, bankrupt: anyone in the modern West claiming to "speak truth to power" is merely trying to cover their partisan, usually vicious attacks with a panacea of bravery, when in fact many, if not most, using that phrase don't have the least to fear of speaking their "truth": if anything, it is rewarded with self-serving accolades from the peer group...

Speaking truth to power? That'll be the day from the left. They have become so reactionary that they can be considered, at best, regressives, not progressives.

Causality and Inevitability...

I'll come out and say it: the CRA didn't cause the subprime crisis, which generated the world-wide recession.

But it did make it inevitable.

What's the difference?

To understand why the CRA didn't cause - cause in the sense of having a clear causal chain from 1977 to today - the subprime crisis, go here. While I don't agree entirely with what Ellen Seidman writes there, she does make a decent case for the relative innocence of the CRA, strictly speaking, for direct responsibility for the subprime crisis. What don't I agree with? The creation of the subprimes as such was a very, very bad idea, one that I've covered on this blog before.

In short, the CRA created a situation where

But let's go here where Phil Gramm looks at the problem.

I believe that a strong case can be made that the financial crisis stemmed from a confluence of two factors. The first was the unintended consequences of a monetary policy, developed to combat inventory cycle recessions in the last half of the 20th century, that was not well suited to the speculative bubble recession of 2001. The second was the politicization of mortgage lending.

This second aspect is what terrifies the Democrats: it just didn't happen on their watch, it was their policy. Frank Raines, Chris Dodd and Barney Frank, to name just the major players, pushed Fannie Mae/Freddie Mac into backing mortgages for political reasons. This is the true scandal of our current recession.

The 2001 recession was brought on when a speculative bubble in the equity market burst, causing investment to collapse. But unlike previous postwar recessions, consumption and the housing industry remained strong at the trough of the recession. Critics of Federal Reserve Chairman Alan Greenspan say he held interest rates too low for too long, and in the process overstimulated the economy. That criticism does not capture what went wrong, however. The consequences of the Fed's monetary policy lay elsewhere.

In the inventory-cycle recessions experienced in the last half of the 20th century, involuntary build up of inventories produced retrenchment in the production chain. Workers were laid off and investment and consumption, including the housing sector, slumped.

In the 2001 recession, however, consumption and home building remained strong as investment collapsed. The Fed's sharp, prolonged reduction in interest rates stimulated a housing market that was already booming -- triggering six years of double-digit increases in housing prices during a period when the general inflation rate was low.

So, yes, the Fed - and Greenspan - deserve some blame: money was (and remains) very cheap and readily available. The easy availability of money for the average company means that they can invest for relatively little cost; the problem with cheap money is that it also reduces the risk threshhold, because of the relative lack of cost involved. This is what helped trigger the housing boom: a lack of proper risk controls.

Buyers bought houses they couldn't afford, believing they could refinance in the future and benefit from the ongoing appreciation. Lenders assumed that even if everything else went wrong, properties could still be sold for more than they cost and the loan could be repaid. This mentality permeated the market from the originator to the holder of securitized mortgages, from the rating agency to the financial regulator.

This is what caused the boom: the irrational belief that housing prices would always go up, driven in part by the suppresed realization that a drop in housing prices would cause the house of cards to collapse. Everyone had an interest in keeping the spiral going, which is something that the rating agencies should have caught: while they did their mechanistic jobs providing ratings for things no one understood, the qualitative risks were ignored and even denied.

Meanwhile, mortgage lending was becoming increasingly politicized. Community Reinvestment Act (CRA) requirements led regulators to foster looser underwriting and encouraged the making of more and more marginal loans. Looser underwriting standards spread beyond subprime to the whole housing market.

This is for me the critical point: the CRA didn't cause marginal loans, but it did make them necessary and inevitable:

As Mr. Greenspan testified last October at a hearing of the House Committee on Oversight and Government Reform, "It's instructive to go back to the early stages of the subprime market, which has essentially emerged out of CRA." It was not just that CRA and federal housing policy pressured lenders to make risky loans -- but that they gave lenders the excuse and the regulatory cover.

Bingo: now you can understand why the CRA made the financial crisis inevitable. It gave those issuing subprime mortgages the excuse to do so, and the moment that Fannie and Freddie took over the guarantees, the issuing institute was risk-free.

Countrywide Financial Corp. cloaked itself in righteousness and silenced any troubled regulator by being the first mortgage lender to sign a HUD "Declaration of Fair Lending Principles and Practices." Given privileged status by Fannie Mae as a reward for "the most flexible underwriting criteria," it became the world's largest mortgage lender -- until it became the first major casualty of the financial crisis.

To reiterate: the CRA didn't cause the financial crisis: it made it possible. The politicization of loan-making is, if anything, the prime cause of the exploitation of the CRA by mortgage institutes who were interested in one thing only, the one thing that the CRA approved and wanted: increasing the number of subprime loans.

The 1992 Housing Bill set quotas or "targets" that Fannie and Freddie were to achieve in meeting the housing needs of low- and moderate-income Americans. In 1995 HUD raised the primary quota for low- and moderate-income housing loans from the 30% set by Congress in 1992 to 40% in 1996 and to 42% in 1997.

This is where the direct culpability of Congress comes into play. This is where the politicization starts: raising the primary quota made no economic sense, but was done as a matter of policy under Clinton. This is where the rot starts.

By the time the housing market collapsed, Fannie and Freddie faced three quotas. The first was for mortgages to individuals with below-average income, set at 56% of their overall mortgage holdings. The second targeted families with incomes at or below 60% of area median income, set at 27% of their holdings. The third targeted geographic areas deemed to be underserved, set at 35%.

The first quota is absurd: 56% of mortgages were, by law, aimed at people with less than 50% of income. This is, simply, madness: it means that Fannie and Freddie were condemned to taking on the risks.The math also doesn't add up: of the Fannie/Freddie holdings, 56% were reserved to individuals below average income, 27% for those below the 60% area median income, and 35% underserved: this adds up 118%, which requires double-counting to work.

The results? In 1994, 4.5% of the mortgage market was subprime and 31% of those subprime loans were securitized. By 2006, 20.1% of the entire mortgage market was subprime and 81% of those loans were securitized. The Congressional Budget Office now estimates that GSE losses will cost $240 billion in fiscal year 2009. If this crisis proves nothing else, it proves you cannot help people by lending them more money than they can pay back.

This is the law of unintended consequences writ about as big as you can get. The CRA, which when properly interpreted aimed at improving loans to the lowest decile - 10% - expanded and expanded and expanded until it ran up against system limits.

Blinded by the experience of the postwar period, where aggregate housing prices had never declined on an annual basis, and using the last 20 years as a measure of the norm, rating agencies and regulators viewed securitized mortgages, even subprime and undocumented Alt-A mortgages, as embodying little risk. It was not that regulators were not empowered; it was that they were not alarmed.

This is the massive failure, the abject and fundamental failure of the rating agencies. This is where the fundamental failure of the anglo-saxon rating agencies is apparent: you cannot use the past to rate the future. Loans aren't made in the past: you have to look forward. The regulators failed in their jobs because they didn't understand the fundamentally risky nature of the subprimes: on the other hand, how could they have, given the outstanding ratings given by the rating agencies?

With near universal approval of regulators world-wide, these securities were injected into the arteries of the world's financial system. When the bubble burst, the financial system lost the indispensable ingredients of confidence and trust. We all know the rest of the story.

When the bubble burst, it showed the failure of the rating agencies: the ratings were worthless. Given the incredible importance of these, this is one of the major secondary causes of the crisis.

The principal alternative to the politicization of mortgage lending and bad monetary policy as causes of the financial crisis is deregulation. How deregulation caused the crisis has never been specifically explained. Nevertheless, two laws are most often blamed: the Gramm-Leach-Bliley (GLB) Act of 1999 and the Commodity Futures Modernization Act of 2000.

GLB repealed part of the Great Depression era Glass-Steagall Act, and allowed banks, securities companies and insurance companies to affiliate under a Financial Services Holding Company. It seems clear that if GLB was the problem, the crisis would have been expected to have originated in Europe where they never had Glass-Steagall requirements to begin with. Also, the financial firms that failed in this crisis, like Lehman, were the least diversified and the ones that survived, like J.P. Morgan, were the most diversified.

This is the key lesson: to quote Heinlein, specialization is for ants.

Moreover, GLB didn't deregulate anything. It established the Federal Reserve as a superregulator, overseeing all Financial Services Holding Companies. All activities of financial institutions continued to be regulated on a functional basis by the regulators that had regulated those activities prior to GLB.

When no evidence was ever presented to link GLB to the financial crisis -- and when former President Bill Clinton gave a spirited defense of this law, which he signed -- proponents of the deregulation thesis turned to the Commodity Futures Modernization Act (CFMA), and specifically to credit default swaps.

Yet it is amazing how well the market for credit default swaps has functioned during the financial crisis. That market has never lost liquidity and the default rate has been low, given the general state of the underlying assets. In any case, the CFMA did not deregulate credit default swaps. All swaps were given legal certainty by clarifying that swaps were not futures, but remained subject to regulation just as before based on who issued the swap and the nature of the underlying contracts.

While I was - and remain - a fan of Glass-Steagall because it regulates the banks to keep them out of the business of flogging their own products, inherently risky and at best opportune (and at worst downright criminally fraudulent), Gramm is right (even if a tad self-serving, given that he helped write the bill).

In reality the financial "deregulation" of the last two decades has been greatly exaggerated. As the housing crisis mounted, financial regulators had more power, larger budgets and more personnel than ever. And yet, with the notable exception of Mr. Greenspan's warning about the risk posed by the massive mortgage holdings of Fannie and Freddie, regulators seemed unalarmed as the crisis grew. There is absolutely no evidence that if financial regulators had had more resources or more authority that anything would have been different.

Correct: the problem wasn't one of deregulation, but rather one of the regulators believing in the ruddy health of Potemkin villages and the assurances of the local mayors - the rating agencies - that everything was fine.

Since politicization of the mortgage market was a primary cause of this crisis, we should be especially careful to prevent the politicization of the banks that have been given taxpayer assistance. Did Citi really change its view on mortgage cram-downs or was it pressured? How much pressure was really applied to force Bank of America to go through with the Merrill acquisition?

Good luck on that one: knowing Congress, they will try to white-wash their incompetence and venality by politicizing the banks: after all, it's probably the only way to continue a cover-up of Congress' abject failure to do what it is supposed to do.

Restrictions on executive compensation are good fun for politicians, but they are just one step removed from politicians telling banks who to lend to and for what. We have been down that road before, and we know where it leads.

Do we really? I dare say that there is an entire generation of Democratic Congressmen who are just champing at the bit to find out where that road leads and are more than happy to discount the warning signs as remnants of older days.

Finally, it should give us pause in responding to the financial crisis of today to realize that this crisis itself was in part an unintended consequence of the monetary policy we employed to deal with the previous recession. Surely, unintended consequences are a real danger when the monetary base has been bloated by a doubling of the Federal Reserve's balance sheet, and the federal deficit seems destined to exceed $1.7 trillion.

This goes to the core of the problem: causality and inevitability.

While causality, either in its legal form or any other form, is a slippery beast at best (if you're honest: if you're not, then you can "prove" anything) and more than difficult to lay out, inevitability is easier, especially because you don't have to be specific.

In this case, it was inevitable that bad things would happen when lax money met politic influence in mortgage lending. Add to that the complicity of those who were supposed to be providing objective assessments - and who were, in reality, colluding with their clients to make as much money as possible while not appearing to be selling their ratings to the highest bidder - and we enter the realm of Rumsfeldian "known unknowns": any good, honest economist could have told you that political interference, cheap money and bad information leads to poor allocation of scarce resources.

The problem today is that no one listens to good, honest economists. The snake-oil sellers, the lawyers and the accountants, the sophists of the markets, are much more attractive, much more entertaining and much easier to understand.

Mittwoch, Februar 18, 2009

A follow-up...and liberal condescension

This was in today's WSJ.

Read the whole thing.

The key quote is:

Thus, if patriotism is the last refuge of a scoundrel, snobbery is the last refuge of the liberal-arts major. The striver may wind up with the bigger house, better car and nicer vacations, but the very meretriciousness of these aspirations confirms the liberal arts major's belief in the striver's inferior taste and barren inner life. Conspicuous consumption advertises not the wealth but the cluelessness of the consumer who acquires to flaunt. It has been supplanted by conspicuous disdain for conspicuous consumption. The Toyota Prius is a testament to its driver's virtue, not a mark of his prosperity. Its distinctive homeliness has made it a hit, at a time when Honda has cancelled production of the hybrid version of the Accord: it turned out nobody wanted to buy a hybrid that was indistinguishable from an iceberg-melting V-6.

This is exactly the snobbery that we saw buried in the last post: a sort of post-modern snobbery, as it were. It is the core of the anti-globalist sentiment that we saw in yesterday's article: the cluelessness of the consumer and how it is necessary to stop them.


...the new bourgeois bohemians have figured out a way to have their pesto and eat it, too. They can have nice homes, cars, clothes and vacations—as long as all those consumption items are ones that the Babbitts wouldn't buy, wouldn't like, and whose appeal they'd find mystifying. The Bobo can pay for his socially correct lifestyle by working in a socially correct career—in Silicon Valley, a public-interest law firm, a startup involved with the internet or renewable energy; anything where work "becomes a vocation, a calling, a métier," according to Mr. Brooks.

We see here all the basic elements, employed for the past 28 years, of liberal condescension. Every issue of The New Yorker, Vanity Fair or Rolling Stone makes clear that the policy positions of George W. Bush, Republicans and conservatives in general are wicked and stupid. The real problem, however, is that everything about these people—where they reside, what they believe, how they live, work, recreate, talk and think—is in irredeemably bad taste. To embark on a conversation with one of them, based on straight-faced openness to the possibility of learning something interesting or important, would be like choosing to vacation in Wichita instead of Tuscany.

By the same token, whatever the correct assessment of Sarah Palin's abilities and limitations, it's impossible to imagine that it would have taken her 20 years of close contact with the Rev. Jeremiah Wright to notice that he sincerely believes a number of toxic, lunatic ideas. The thread connecting all of these—that 9/11 was a minor incident compared to the terrorism undertaken by the U.S., that AIDS was inflicted on Americans through deliberate government policies, that Louis Farrakhan is one of the greatest leaders of the 20th century—is that America is a wicked, contemptible place, and there is no such thing as an excessive criticism of it. Barack Obama's degrees from Columbia and Harvard law school may be proof of intellectual agility, but they do not guarantee good sense. For this, as William Buckley suggested 45 years ago, we are better advised to rely on graduates of the University of Idaho, or even the opinions of stewardesses.

This last is the key: liberalism has come to mean condescension and an arrogance that is at times overwhelming in its vehemence.

Intellect is no guarantee of good sense, let alone commons sense.

And Buckley was right: it would be better to be governed by the first 2000 names out of the Boston telephone book than by the 2000 professors of Harvard.

Dienstag, Februar 17, 2009

Gucci Capitalism, Cliches and Reality...

This is one of the more absurd articles I've seen recently, and I seriously question the thesis that underlies it. Unfortunately, it's only in German, but I'll give it the college try here to make it understandable. The author, one Noreena Hertz, is considered a "leading expert on economic globalisation", according to Wikipedia, but all I see here are cliches and wishful thinking, and no serious analysis. It appears in today's Handelsblatt, the German equivalent of the Wall Street Journal (very rough equivalent).

I'm not going to translate everything - lord, that'd be tedious - but rather just a few bits here and there. I won't take anything out of context (I hope), but rather I'd like to show how this kind of wooly-headed thinking is just plain wrong. The article is titled "Leaving Gucci-Capitalism" (Abschied vom Gucci-Kapitalismus). Consider this a semi-fisking: I'm not going to point out everything, just exactly how naive, cliche-ridden and how distant from reality this article is, reflecting, if anything, a kind of "new" pseudo-criticism of capitalism.

A warning: this is long. I had to make it long so that you can see what sort of absurdities are really being talked about by a "leading expert".

First the German, then my translation, both in italics, then my comments thereto. Ellipsis (...) point to where I left text out because it wasn't, in my opinion, important.

Manch einer behauptet, dass die akute globale Finanzkrise, diese Depression, die London und New York gleichermaßen trifft, keinen Einfluss auf die Natur des Kapitalismus haben wird. Dass wir uns unseren Weg durch die Höhen und Tiefen der Wirtschaftsentwicklung schon immer gebahnt haben und dass der Kapitalismus auch aus dieser Krise unversehrt hervorgehen wird. Und dass der Kapitalismus in fünf Jahren im Grunde ebenso aussehen wird wie vor sechs Monaten.

Ich verstehe diese Vorsicht, etwas Neues zu prognostizieren, dieses Zögern, einen Abgesang auf den Kapitalismus anzustimmen. Aber ich stimme dem nicht zu. Ich glaube, jetzt sind alle Bedingungen für ein merklich anderes Wirtschaftsmodell vorhanden, das aus dem Blutbad entstehen könnte, welches diese Krise angerichtet hat.

Some maintain that the acute global financial crisis, this depression that has hit London and New York equally, has no effect on the nature of capitalsm, that we have been through ups and downs of economic development and will continue to do so,, and that capitalism as such will emerge from this crisis unaffected, looking in five years the same way it looked six months ago.

I understand the caution to forecast something new, the reluctance to agree that capitalism has had its day. But I cannot agree. I think that all the necessary prerequisites for a significantly different economic model are present and this new model will emerge from the bloodbath of the current crisis.

Well, first off: there's no bloodbath, literally or even to a large extent figuratively, that is the result of some sort of fundamental fault of capitalism: rather, as we should have understood by now (but I fear that this may not have trickled down into academia), the problem was and is the deliberate distortion of markets that made the crisis inevitable.


In dieser ersten Krise der Globalisierung zählt jedermann zu den Verlierern: Sie trifft die Angestellten, sie trifft die einfachen wie auch die qualifizierten Arbeiter. Sie geht in ihren Auswirkungen sehr tief, wird viele Menschen überall auf der Welt negativ beeinflussen. Sie ist zugleich so offensichtlich ein Ausdruck dessen, was passiert, wenn private Institutionen ihr Profitstreben über alles andere stellen, und ist dermaßen verknüpft mit den fehlerhaften Doktrinen der vergangenen 30 Jahre, dass ich glaube: Sie hat das Zeug dazu, einen radikalen Wandel des Kapitalismus auszulösen, einen radikalen Wandel der Beziehungen zwischen Regierungen, Geschäftswelt und der Gesellschaft. Und das ist eine Gelegenheit, die wir beim Schopfe packen müssen.

In this first crisis of globalization, everyone is a loser: employees, both skilled and unskilled. The effects are very deep and have negative effects everywhere. At the same time it is obvious that it is the result when private institutions raise their profit interests above everything else and is so directly tied to the errors of the doctrines of the last 30 years that I believe that this crisis has the potential to release a radical change in capitalism, a radical change in the relationships between government, business and society. And that it is an opportunity that we should grasp.

First and foremost: this is not the first crisis of "globalization". I put that word in quotes because it's not new, not unusal, not even in the volume and economic impact that foreign trade has. Globalization has been going on since the early days of trade as the Silken Road bound Europe and Asia together and the early American natives traded shells from the Pacifc for turquiose from what would become Colorado and New Mexico. The impact of "globalization" drove the Dutch to dominate Asian trade for many decades, drove the British to ban Indian cotton goods in the 17th century and wage war against the Indian kingdoms; it drove the Spanish to export 1 mn gallons of wine from New Mexico to Spain per year in the 18th century until they were driven out by the encroaching Anglo-Saxons. Fortunes have been made and lost galore in the history of foreign trade, and the skilled watchmakers of Germany fought against the "American" method of making watches with interchangeable parts in the 19th century; history is filled with examples of how trade breaks and makes fortunes and livelihoods. There is even a branch of history that concerns itself with quantitative change: cliometry (and yes, there is a journal dedicated to this: Cliometrica).

Second: the obsession with the idea that private companies put their profits above everything else. This is, at best, a straw man argument that is based on a fundamental lack of experience with actually working for any kind of for-profit company. None that I have ever worked for have profits as their main goal: rather, profits enable them (the owners of such companies) to do what they want to do. I've seen lucrative offers for buy-outs turned down because they knew that the potential buyers wanted to acquire them to put them out of business (to remove a competitor); I've seen less-profitable activities preferred because it led to long-term sustained growth. To attribute "profits above all" to private companies is a cliche, and a poor one at that.

Ich habe die vergangene Epoche des Kapitalismus den Gucci-Kapitalismus genannt. Gucci-Kapitalismus war eine Ideologie, die Mitte der 80er-Jahre entstand. Ein Wunschkind von Ronald Reagan und Margaret Thatcher. Milton Friedman war der Pate und Bernhard Madoff der Junge auf dem Plakat. Eine Ära, deren fundamentale Annahmen waren, dass Märkte sich selber regulieren sollten, die Regierungen sie sich selbst überlassen sollten und die Menschen nicht mehr und nicht weniger seien als rationale Nutzenmaximierer.

I have called the past epoch of capitalism "Gucci-Capitalism". Gucci-Capitalism is an ideology that developed in the 1980s, the love child of Ronald Reagan and Margaret Thatcher. Milton Friedman was the godfather and Bernhard Madoff the poster-child. An era whose fundamental expectation was that markets regulate themselves, that governments should let them do that, and that people are nothing more and nothing less than rational maximizers of utility.

First of all: the polemics. Gucci, of course, are rather expensive luxury goods that tend to be rather obvious and represents the nouveau-riche rather than appealing to established money, the epitome of conspicious consumption. While Friedman definitely would play the role of Godfather here gladly, Bernie Madoff is tossed in there to deliberatly distort what both Reagan and Thatcher recognized.

Second: facts do not make an ideology. The fundamental fact, the one that Friedman recognized and who both Reagan and Thatcher realized, is that markets are the most efficient way of distributing scarce goods. Nothing more, nothing less: the implication is that markets which are distorted and manipulated by government are inefficient, as history has long shown. People do maximize their utility when making purchases on markets: this has been the function of markets from day one.

Es war eine Ära, in der sich die Machtbalance zwischen Unternehmen und Gesellschaft zunehmend zugunsten der Wirtschaft verschob. Zum Teil lag das daran, dass die Unternehmen so groß geworden waren. Vor dem Ausbruch der Krise stellten Unternehmen ein Drittel der weltweit 100 größten Wirtschaftseinheiten, also nationale Volkswirtschaften eingeschlossen.

It was an era in which the balance of power between corporations and society was tilted towards business. This was partially because businesses were so large. Before the start of the crisis, corporations were one-third of the 100 largest business units, i.e. including national economies.

First of all, the differentiation of sectors of society into some sort of balance of power between them is specious: it assumes that corporations must be under societal control - for their power to be somehow "balanced" so that the corporations may not do as they wish - quelle horreur - but rather submit to some sort of corporate governance that requires them to become political (by requiring them to fulfill roles best left to the body politic: sponsoring left-wing think tanks, for instance, to avoid an often rather crude blackmailing of corporations by vocal minority leaders with a penchance to political grandstanding. Yes, Revered Jackson, I mean you).

Zum Teil lag es daran, dass die These, Wirtschaft sei gut und der Einfluss des Staates sei schlecht, immer mehr Anhänger fand. Und zu einem Teil ging es auch darauf zurück, dass in diesem bequemen Netzwerk von typischerweise weißen, älteren Herrschaften die Rollen in den Regierungen, in Unternehmen und Aufsichtsgremien munter rotierten. Diese Art des Umgangs war eher dazu angetan, miteinander Golf zu spielen, als sich gegenseitig auf die Finger zu schauen.

This was also partially so because the thesis that business is good and the influence of the state is bad continued to find believers. It was also partially so because the comfortable network of typically white, older managers shared office in government, corporations and oversight offices. This way of dealing with each other was appropriate for the golf course, but not for oversight.

And her counterpointing thesis is that business is bad and the state is somehow inherently good? Her claim of racial purity in management is laughable at best and pathetically ignorant at worst.

Diese Periode bestärkte den fast religiös anmutenden Glauben in die Kraft der Märkte nicht nur als effizienten Verteilungsmechanismus für Güter und Ressourcen, sondern auch als Garant von Gleichheit, Gerechtigkeit und sogar Freiheit. Und das, obwohl sich der Eindruck verdichtete, dass die Realität dem nicht standhielt und dass sich in all jenen Ländern, die dem Gucci-Kapitalismus frönten, eine immer tiefere Kluft zwischen der Wirtschaft und der sozialen Gerechtigkeit auftat.

This period amplified the almost religious belief in the power of markets, not only as efficient distribution mechanisms for goods and resources, but also as guarantee for equality, justice and even freedom, despite the increasing impression that this construct did not co-exist with reality and that all countries that subscribed to Gucci-Capitalism saw an increasing chasm between business and social justice.

Here is a recently recurring meme from the left, designed to reduce and belittle the functioning of markets: that anyone who sees the power of markets does so religiously. The corrolary arguments - that markets act as a guarantee for equality, justice and freedom - are used as if that is what markets do: instead, she is trying to show how markets cannot reach her goals - not capitalism's goals - of equality, justice and freedom - whatever those words may mean (and believe me, they mean, for the left, nothing what you might think, but tend towards the opposite meaning instead). 


In dieser Zeit, über die wir hier reden, wurde nicht nur die Gesellschaft, sondern auch die Umwelt verwüstet. In den vergangenen drei Jahrzehnten haben wir mehr Stürme, mehr sintflutartige Regenfälle, mehr Hitzeperioden als je zuvor erlebt. Der Klimawandel hat das Leben vieler gekostet, er hat Wanderungsbewegungen von Hunderttausenden erzwungen, Hungerkatastrophen ebenso verursacht wie Kriege um Ressourcen.

During this time it was not only society ravaged, but the environment also pillaged. In the last three decades we've had more storms, more torrential downpours, more heat periods than ever before. Climate change has killed many, had led to mass exodus numbered in the hundreds of thousands, created catastrophic famines, as well as wars about resources.

This is what prodded me to write here. This is how the left views global warming: not as a problem to solve, but rather as a bludgeon to be used to denigrate capitalism. Please ignore the fact that she's completely and totally wrong on all of her points, as she has conveniently ignored the fact that if you go a tad further back, you find more extreme weather; further, you'd be hard-pressed to find a direct, causal link to climate change killing and leading to mass exodus, since these occur due to failed economies and political oppression (the Sudanese genocide isn't about global warming); famines today are invariably political, as we now see in Zimbabwe, and wars have always been fought over population pressures, not resources.

This is the typical wooly-headed thinking that takes a political enemy - in this case, capitalism - and blames all of the woes of the would upon it. Nice try: reality is a tad different.

Wenn wir nichts dagegen unternehmen, wird er noch viel mehr Unheil in weitaus größerem Ausmaß erzeugen. Dennoch dauerte es dank der Unternehmenslobby und der Bush-Administration an der Spitze des Gucci-Kapitalismus bis zum vergangenen Jahr, bevor es ein breites Eingeständnis dafür gab, dass der Klimawandel in vollem Gange ist und dass Mensch und Industrie dafür verantwortlich sind.

If we do not do anything against this, more catastrophes will come. However, thanks to the business lobbyists and the Bush administration at the head of Gucci-Capitalism it was only last year before a broad consensus war reached that climate change was in full gear and that humans and industry are responsible for that.

Oh my goodness gracious. The election of Obama "means" that everyone is now on board and that the ecological gravy train can start moving? How simplistic and naive: Obama was elected because he outspent the other guy seriously and enough people drank the Kool-Aid that Obama would actually do things differently. The election of Obama doesn't mean that there is a broad consensus on climate change: it merely means that Obama was elected. I see someone setting themselves up for major, major disappointment on this theme.


Es ist kein Wunder, dass in einer Zeit mit einem solchen Ethos die Regulatoren zu schwach und die Banker zu mächtig waren und die gegenseitige Kontrolle nicht funktionierte. Es ist auch kein Wunder, dass die herrschende Meinung aktiv vor allem von Bankern genährt wurde, von Hypothekenbrokern, von Kreditkartengesellschaften und von Werbetreibenden. Danach war nur derjenige erfolgreich, der ein größeres Haus besitzen oder die neueste Mode einkaufen konnte. Bei solchen Triebkräften in einer Gesellschaft war es nicht die Frage ob, sondern wann das ganze Kartenhaus einstürzt.

It's no wonder, then, that in a time with such ethics that regulators were too weak and bankers too powerful and that mutual control didn't work. It is also not a wonder that public opinion was fed primarily by the banks, by the mortgage brokers, by the credit card companies and advertisers. Accordingly, only successful people had a bigger house or could buy the newest clothes. Given such societal drivers, it was only a question of when the house of cards would collapse.

Again: what a cliche. The problem with the banks wasn't that the regulators were to weak: rather it was that the regulators - hi, Barney and Chris - had their own agenda and laws were passed that tied the hands of the bankers and forced them into risky loans: that's what the CRA did, and those loans were called subprimes. It's also a hoot to blame US consumer behavior not on the consumers, but rather banks and mortgage brokers: looking at it from an ethical standpoint, it is the consumer who is responsible for having taken on such debt.

Of course, that would go against the leftists meme of the consumer as being a malleable simpleton who is incapable of taking care of themselves. Apparently all the sinners have only the devil to blame.

Als das passierte, wurde auf einen Schlag für uns alle sichtbar, wie hohl das Gebilde war, wie wenig Fundament es besaß. Der Gucci-Kapitalismus beruht nicht auf realen Werten, er konzentrierte sich auf bedeutungslosen Konsum, seine Absicht war, das Geschäft zur wichtigsten Triebkraft der Gesellschaft zu machen - er blieb daher so oberflächlich wie sein Name.

As that happened, we could all then see how hollow the building was and how weak the foundations were. Gucci-Capitalism rested not on real values, it was limited to meaningless consumption, designed to make business the most important driving power behind society, but remained as superficial as its name.

Now we see the true colors coming out: capitalism doesn't have "real" values, and the luxury of western economies - inexpensive and high quality food, affordable housing - is meaningless consumption. What the left cannot stand is the idea that people consume what they want to, and if they can choose their Nintendo games over attending a revolutionary theatre play, that they will stay away from those "cultural" goods of the left in droves. The left cannot abide even the idea that their ideologies are, for the common man, bankrupt and completely uninteresting.

Sorry, too, that business is the driving force behind societal development: that's always the way it has been, and it's the reason that socialist society is such a dull and insipid place.


Ich glaube, dass die Voraussetzungen für einen neuen Kapitalismus da sind, der aus den Trümmern des alten hervorgehen wird: ein kooperativer Kapitalismus, mit den Werten von Kooperation, Zusammenarbeit und kollektiven Interessen in seinem Zentrum. Aus fünf Gründen halte ich dies für möglich.

I think that the prerequisites for a new capitalism are there, which can create, out of the ruins of the old capitalism, a new, cooperative capitalism, that combines the values of cooperation, working together and collective interests as its core values. There are five reasons why I see this possibility:

Cooperative capitalism?

Cooperative capitalism??????

What the hell does she think exists out there? No company works on its own, like some obnoxious robber baron, but rather is embedded in an entire network of cooperation and working together, with common goals. These are called business partners. Ye gods, the ignorance of how the real world works!

Erstens: Die Öffentlichkeit ist zornig über das, was vorgefallen ist im Zuge der Finanzkrise, und die Medien sind auf ihrer Seite. Anfangs richtete sich der Zorn allein gegen die Banker, gegen ihre Bezahlung, ihre Boni, ihre Verantwortungslosigkeit und die Haltung nach Ausbruch der Krise, die sehr dem Motto "Was zum Teufel schert mich das!" ähnelte.

First: the public is angry about what has happened in the financial crisis, and the media are on their side. First their anger was directed only against the bankers, their income, their bonuses, their irresponsibility and their behavior after the crisis started, which resembled "Why should I care".

Well, the public is angry, and will get even angrier when they realize it was wooly-headed fools like Chris Dodd and Barney Frank who got them into the clusterfuck we are currently in: however, the media is the last place to go to find that sort of story. Our dear lady here also apparently thinks that it'd be perfectly okay for highly qualified and trained folks not to earn much money - try managing a multi-billion dollar company on a small salary - and not expect them to then become corrupt: there is a reason why salaries are high. It reduces the incentive to start stealing, either directly or indirectly, since if you're caught, you lose forever the chance of continuing to earn large amounts of money. The people making the trades and making the deals are also not simply replaceable by someone off the street: the inexorable law of supply and demand controls that. 

And the bankers were as gobsmacked as everyone when the markets came tumbling down: no one saw this coming. That's not being irresponsible. No bankers said "why should I care" when they saw big chunks of their liabilities coming home directly to roost on their balances: if anything, the opposite. Again, reality intrudes: this is nothing more than a cliche.

Aber nun kehrt sich die Stimmung mehr gegen große Unternehmen allgemein, auch außerhalb des Finanzsektors. Sie richtet sich gegen Unternehmen, die ihren Managern Millionengehälter zahlen, während sie Mitarbeiter entlassen. Gegen Unternehmen, die immer noch signifikante Gewinne einfahren, aber unwillig sind, einen Teil davon an ihre Kunden weiterzugeben, denen es schlechtgeht. Gegen Investoren, die Unternehmen mit minimalem eigenem Kapitaleinsatz übernehmen, indem sie die betrieblichen Pensionsfonds zur Finanzierung ausschlachten. Wir sehen bereits zunehmende Proteste, auf den Straßen und im Internet, und in den nächsten Wochen werden sie anwachsen, wenn Unternehmensführer und Politiker nicht klar sagen, wo sie stehen.

Now sentiment is tunring against large corporations in general, even those outside of the financial sector. They are angry with companies who pay their managers millions while firing others; angry with companies who continue to make large profits but are unwilling to to give anything to their customers who aren't doing so well; angry at investors who buy companies with minimal equity in order to use pension funds to finance the acquisition. We are already seeing increasing protests on the street and on the internet, which will grow in the coming weeks, if companies and politicans do not say where they stand.

The only protests out on the street are from the professional anarchists and otherwise useless chattering classes, the parasites who can actually afford to be professional activists without actually creating any value to society.

Die naive Annahme des Gucci-Kapitalismus, Unternehmen seien inhärent gut oder es gebe notwendigerweise einen positiven Zusammenhang zwischen ihrer Profitabilität und dem, was gut ist für die Gesellschaft, hat sich als übermäßig simpel herausgestellt. Es war kein Zufall, dass Adam Smith neben seiner berühmten Abhandlung über den "Wohlstand der Nationen" auch eine über "Die Theorie der moralischen Empfindungen" geschrieben hat. Er, der Begründer einer Theorie der freien Marktwirtschaft, verstand ihre Grenzen und die Notwendigkeit, sie nicht sich selbst zu überlassen, sondern sie durch einen Schutzmechanismus, einen "Nachtwächter", zu ergänzen. Was bereits Adam Smith erkannt hat, wird der kooperative Kapitalismus ausformulieren und verwirklichen.

The naive assumption of Gucci-Capitalism, that companies are inherently good or there is some necessary positive relationship between their profitability and what is good for society, has now been shown to be overly simplistic. It was not an accident that Adam Smith, besides his famous essay on the Wealth of Nations, also wrote about the Theory of Moral Sentiment. Smith, the creator of the theory of free markets, understood their limits and the necessity of not leaving them to themselves, but rather providing a protective mechanism, a "night watchman". What Adam Smith recognized is what cooperative capitalism will formulate and make into reality.

Sigh. Where to begin?

First, the usual pseudomarxist theme of generating anger in lieu of arguments, of creating crises where there are none: not that we're not facing a crisis, it's just that the crisis we're facing is the result of abusing the system, and not the systematic crisis that the author is convinced the crisis is all about. Street protests? Again, GMAFB: the only ones that exist are ones manufactured by those who want to hijack the crisis for their own aims.

Second: the idea that capitalism views companies as inherently good is a cliche at best and a caricature of reality otherwise. Profits enable societies the luxury of things like state-sponsored universities and arts, it forms the basis for endowments and trust fund kiddies, yet here the idea that profits are good for society is denigrated. Typical.

And bringing in Adam Smith is a hoot: it's intellectual whitewashing, to try and claim the "founder" of capitalism for their own. It's so intellectually dishonest that it's almost surprising.

Der zweite Grund ist: Die Regierungen haben ein neues Mandat erhalten, um in die Wirtschaft einzugreifen, eines, wie es in den vergangenen drei Jahrzehnten nicht bestanden hat. In einer aktuellen Umfrage in den USA, dem Land, das traditionell jeder Art von Regierungseingriffen in Märkte und Unternehmen besonders feindlich gegenübersteht, war mehr als die Hälfte der Befragten der Ansicht, der freie Markt solle nicht sich selbst überlassen werden.

The second reason is: governments have received a new mandate to intervene in business, one that hasn't been around for the last three decades. In a current survey in the US, the country that traditionally rejects government intervention, more than 50% of those surveyed said that free markets shouldn't be left alone.

This is particularly absurd: the idea of a mandate based on public sentiment surveys. This has got to be one of the shallowest arguments that I have seen for a long time:  anyone remotely familiar with surveys knows how they can be manipulated to achieve whatever result is being paid for.

Das ist geradezu ein politisches Erdbeben. Wieder sind es die Banken, die seine Folgen zuerst zu spüren bekommen. Das geschieht in Form von Interventionen, die von direkten Verstaatlichungen bis zur Begrenzung der Managergehälter reichen. Ich erwarte allerdings kein Mikromanagement des Privatsektors durch die Regierung. Das würde ich auch nicht wünschen oder befürworten. Doch jedes Unternehmen, dessen Handeln so aufgefasst wird, als sei es gegen das Allgemeinwohl gerichtet, kann nun in die Schusslinie geraten.

That is a political earthquake. Again it is the banks that have felt this first. This is in the form of interventions that range from direct state control to the limitations being placed on manager incomes. I expect, however, that the government will not micromanage the private sector, which is something I would neither desire nor approve. However, any company whose actions are aimed against the general welfare can now be targeted.

If this is a political earthquake, it's around 0.1 on the Richter scale. The expectation that government control won't end in micromanagement is naive at best and foolish at worst: unless there is a clear and direct path to the removal of government intervention, all governments will intervene: it's how bureaucrats create career jumps and it's where they learn how corrupt they can become without being discovered.

Besonders gefährdet sind die Fast-Food-Industrie und die großen Pharmakonzerne. Da die Kosten des Gesundheitssystems steigen und die Staatsausgaben eingeschränkt werden müssen, wird der Druck auf Unternehmen aus diesen Branchen zunehmen. Sie werden dazu gedrängt werden, einerseits gegen den Trend zum Übergewicht und andererseits für erschwingliche Medikamente einzutreten. Im Gucci-Kapitalismus war es selten, dass Unternehmen zu sozialverantwortlichem Verhalten gedrängt wurden. Nun wird das zunehmen. Kein Wunder, dass die klügsten Unternehmen diese Tendenz vorwegnehmen und unaufgefordert versprechen, ihr Verhalten zu ändern.

The fast-food industry and the pharmaceutical sectros are in danger here. Since health systems cost are increasing and state expenses must be limited, pressure here is due to increase. They will be forced to do something against the trend to obesity on the one hand and to provide for inexpensive medications on the other hand. In Gucci-Capitalism it was rare that companies could be forced to have a social conscience. This will now increase. No wonder that the cleverest companies have recognized this and have offered to change their behavior without being forced to.

Sigh. The consumer again is the innocent victim of the mean nasty fast-food places that make food that makes people fat, and we all know that the evil pharmaceutical companies get their kicks out of making sick people pay through the nose for medications that we all know don't cost much to make.

GMAFB. Fast food doesn't cause obesity: modern life styles, lives of leisure, the ability to purchase massive amonts of calories for a pittance is what makes people fat. Fat used to be considered the true sign of wealth, but today those with the greatest weight problems are the lower classes, economically speaking. And do you really think that new medicines to treat diseases magically appear? Someone has to finance the literally thousands of dead ends researched before the right combinations are found that help: remove the profit motive, and meanigful pharmaceutical research will cease, leaving untold thousands to suffer instead of allowing companies to make enough money to finance their research.

These arguments blaming the fast food industry and the pharmaceutical industry for such problems are the sign of economic illiteracy, of someone who has no idea of where value is actually generated and that demand drives business, not the other way around.

Der dritte Grund: Die Zeit ist reif für einen neuen, auf Zusammenarbeit aufbauenden Kapitalismus, weil die Schattenseite der Globalisierung sichtbar geworden ist. Die Schnelligkeit und Heftigkeit, mit der die Finanzkrise ein Land nach dem anderen infiziert hat - Taiwan beispielsweise erwartet einen Fall seiner Wirtschaftsleistung um elf Prozent -, zeigt nur zu deutlich, dass wir in einer verbundenen Welt leben, in der wir gemeinsam stehen oder fallen.

The third reason: the time is ripe for a new capitalism, based on cooperation, because the shadow side of globalism is visible. The speed and impact that the financial crisis has hit country after country - Taiwan is now expecting a decline in economic performance of 11% - shows that we live in joined world, one in which we stand or fall together.

Again: cooperative capitalism, whatever that is supposed to mean. Interdepencies on world markets is new? Not to me, not to anyone trained formally in economics that actually paid attention to their international trade studies. Again, substandard.

Im Gucci-Kapitalismus hatte ich immer den Eindruck, dass der gemeinsame Absturz wahrscheinlicher war als der Aufstieg, weil nur Unternehmen international beschützt wurden. Die Welthandelsorganisation (WTO) sorgte für freien Warenverkehr, es gab Regeln und Vorschriften, Schiedsgerichte und Strafen, wenn ein Land dagegen verstieß. Doch es gab keinen vergleichbaren Mechanismus für globale Probleme: den Klimawandel, Verstöße gegen Arbeitnehmer- und Menschenrechte, gegen Gesundheits- und Sicherheitsvorschriften, oder als Reaktion auf die negativen Konsequenzen von Unternehmensverlagerungen.

In Gucci-Capitalism I always had the impression that a common fall was more likely than a common stand, because only companies were protected internationally. The World Trade Organization (WTO) took care of free trade, there were rules and regulations, courts and penalties when a country violated those rules. There were no similar organizations or mechanisms in place for global problems like climate change, violations of worker and human rights, against health and safety considerations, or as reaction to the negative consequences of corporate fusions.

Here we see a glimpse of the only acceptable future for the antiglobalists: world government where the unions of the industrialized West will determine what is best for the Indian or Chinese worker, but where in reality the only thing of importance is to prevent the rise of an Indian or Chinese middle class, bourgeois and probably only interested in buying a house, a nice place in the country for the weekends, a couple of cars, the dolce vita.


Der vierte Grund: Neue geopolitische Kräfte nehmen Gestalt an als Folge des Aufstiegs von China, Brasilien, Indien und der G20. Ich erwarte eine Phase des Aushandelns, in der politischer Einfluss gegen Zusammenarbeit getauscht wird. Beispielsweise wird es eine Begrenzung der CO2-Emissionen geben im Gegenzug zu einer stärkeren Vertretung der Schwellenländer in Institutionen wie dem Internationalen Währungsfonds (IWF) und der Weltbank.

The fourth reason: new geopolitical powers are forming as China, Brazil, India and the G20 increase their presence. I expect a new phase of trade in which political influence is exchanged for cooperation. For example, developing countries wil agree to a reduction in Co2 emissions in exchange for stronger presence in institutions like the IMF and the World Bank.

Interesting idea: blackmail as political tool. This will become a meme amongst the watermelon left to justify their policies: we have to do this to ensure that the others will even talk to us!

Aber es ist nicht alleine der neue Machtblock, der die intellektuelle Hegemonie des Gucci-Kapitalismus herausfordert. Man muss es im Zusammenhang mit einer neuen US-Regierung sehen, die eine breitere Vermögensverteilung will und dem Ideal des Multilateralismus verpflichtet ist, und mit der Tatsache, dass Kontinentaleuropa besonders hart von der globalen Rezession getroffen wird. Europa ist deshalb hoch motiviert, sich von einer Ideologie zu distanzieren, die nie so ganz zu seinen eigenen Werten passte. Nimmt man all das zusammen, sieht man: Alle Voraussetzungen für einen bedeutsamen ideologischen Wandel sind vorhanden.

This new power block alone will not challenge the intellectual hegemony of Gucci-Capitalism. One needs to see it in connection with a new US administration that wants a wider distribution of wealth and feels duty-bound to the ideals of multilateralism, along with the fact that continental Europe has been particularly hard hit by the recession. Europe is therefore particularly motivated to distance itself from an ideology that no longer conforms to its values. Take all of this together and you can see that all prerequisites are there for a meaningful ideological change.

There are no prerequisites in place for anything but a naked power grab.

Fünftens und letztens: Wir sehen nicht nur auf Regierungsebene Anzeichen einer stärkeren Zusammenarbeit. Die Annahme des Gucci-Kapitalismus, alle Menschen seien egoistisch, super-individualistisch und nur damit beschäftigt, ihren eigenen Reichtum zu maximieren, stellt sich mehr und mehr als eine fehlerhafte Hypothese der Mainstream-Ökonomen heraus. Es ist wahr, in den letzten beiden Jahrzehnten gab es eine wachsende Fixierung auf materielle Werte. Aber das war wohl mehr eine Frage der Einstellung als eine der menschlichen Natur. Soziologische Studien zeigen, dass Angehörige armer Gesellschaften eher miteinander teilen.

Fifth and last: we see indications of increasing cooperation on non-government levels. The assumption of Gucci-Capitalism, that all people are egoists, super-individualists and only interested in increasing their personal wealth is increasingly a mistaken hypothesis of main-stream economists. It is true that in the last two decades there has been an increasing fixation on materual values. But this is more a quesiton of attitude than a reflection of human nature. Sociological studies show, that members of a poor society are more likely to share things.

In other words, a world governed by NGOs. Another straw man is also presented here: the caricture of how "Gucci-Capitalism" see the individual. Sorry, this is a straw man argument, one that grows out of believing that businesses manipulate the poor masses and if only people saw how much better our cooperative ideas are instead of playing their Nintendos.

And sociological studies also show that nature abhors a vaccum, especially power vacuums, and that members of a poor society, when made rich, act the same as other newly rich people, usually badly.

Deswegen sind wir keineswegs alle reine Individualisten, auch wenn der Gucci-Kapitalismus die Tendenz zum Eigennutz befördert hat. Es ist sehr viel wahrscheinlicher, dass wir in den kommenden Jahren enger zusammenrücken wie in der Zeit der großen Weltwirtschaftskrise nach 1929 und im Zweiten Weltkrieg. Das dürfte eines der wichtigsten Kennzeichen dieser Ära werden. Dafür gibt es erste Anzeichen: etwa den kometenhaften Aufstieg der "Free Cycle"-Bewegung, deren Mitglieder lieber Dinge verschenken, als sie bei Ebay zu versteigern, oder die wachsende Bedeutung des Job-Sharings in Japan, mit dem die Beschäftigten auf eigene Initiative hin Massenentlassungen verhindern oder abmildern.

Hence we are in no way pure individualists, even when Gucci-Capitalism has promoted this tendency to egoism. It is very likely that in the coming days we will have to share more than during the days of the Great Depression after 1929 and during the Second World War. This will be the major sign of the new era. There are already signs of this, such as the rapid increase in the "Free Cycle" movement, where members prefer to give things away rather than sell them on eBay, or the increasing importance of job-sharing in Japan, where workers volunteer in order to prevent mass layoffs or reduce their effects.

Ignoring, of course, the fact that Japan is a higly homogenous society with great emphasis on social status and harmony, even to its detriment. Ignoring as well that giving things away instead of selling them, while an act of altruism, also points to a very high level of wealth. You don't give away things unless you can afford to: this is not the basis for functioning economy, unless you are unsucessfully trying to be funny.


Manager und Politiker müssen sich entscheiden. Entweder sie setzen sich ein für eine Agenda der Kooperation, die multilateral ausgelegt ist, mit globalen Institutionen, die unsere Umwelt und unsere Bürger schützen. Eine Agenda, die die Idee einer Politik erneuert, die auf die Menschheit insgesamt abzielt, auf Reiche und Arme gleichermaßen.

Managers and politicians must make decisions. They can chose an agenda of cooperation, multilateral, with global institutions to protect our citizens and the environment, an agenda that renews the idea of politics that are aimed at improving mankind as a whole, both rich and poor.

The alternative being: anothe straw man argument (see below). There is no reason to assume that there are only two ways out of our financial crisis, unless, of course, there is "your way" and then a caricature of anything else.

Dazu gehört, dass auch die Wirtschaft sich als eine Kraft begreift, die Innovationen und Fortschritt für die Welt schafft. Die sich zurückhält, wenn geschäftliche Ziele allgemeinen Interessen widersprechen, und sich einbringt, wenn kurzfristig das Geld zur Finanzierung von Innovationen fehlt.

This includes business that recognizes that it is a power for innovation and improvements for the world. Those that give way when societal interests take precedence over business interests and help out when short-term money for financing of innovations isn't available.

Hmmmm: and who makes the decisons? The only way that business will "make" such enlightned decisions is if those in control decide to do so, and that will only happen if laws require this and management is filled with do-gooders. That such businesses will increasingly be used for pet projects and not to earn money is incidental, but bears with it the core of destruction: at some point you go broke. In any case, it is a bad use of capital, a bad use of a scarce resource: here I thought greens and watermelons didn't want resources wasted. Right.

Die Alternative dazu wäre der Weg des nackten Selbstinteresses, des Kampfes jeder gegen jeden. Die Trader der Londoner City haben das auf lokaler Ebene vorgeführt. International war das Paradebeispiel dafür die Politik der 30er-Jahre: Statt in der Weltwirtschaftskrise zusammenzuarbeiten, haben die einzelnen Nationen versucht, jeweils dem anderen ihre Probleme zuzuschieben, und haben sich damit im Endeffekt selber geschwächt. Jeder, der heute Schutz für die heimischen Märkte fordert, sollte wissen, wohin das führt. Wenn China spürt, dass seine Exporte behindert werden, wird sich die Regierung dort beim gemeinsamen Klimaschutz zurückhalten. Wenn Großbritannien versucht, Jobs für Briten zu reservieren, dann wird die ohnehin leidende Exportindustrie keine Absatzmärkte mehr finden. Außerdem gibt es, wie die Geschichte lehrt, nur einen schmalen Grat zwischen wirtschaftlichem Nationalismus und Fremdenfeindlichkeit.

The alternative is the way of naked self-interest, the fight of each against every. The trade in London City have brought this around locally. Internationally the policies of the 1930s are a perfect example of these policies: instead of cooperating during the Great Depression, countries tried to make their problems someone else's problems, with the result that everyone was weakned. Anyone demanding protection of domestic markets knows where that ends. If China sees that its exports are being delayed, it will refuse to enact climate protection measures. If the UK tries to reserve jobs for Brits, then the export industries will find no markets for these companies. Further, there is, as we know from history, a thin line between economic nationalism and xenophobia.

Wow. Talk about straw men and cliches: vote for me and I'll set you free, if you don't do what I tell you, we'll all end up mercantalist, protectionist, and probabyl fascist to boot.

Wir stehen also vor einer kritischen, gefährlichen Grundsatzentscheidung. Es lohnt sich, für die richtige Richtung zu kämpfen, denn es hängt sehr viel daran. Meine Hoffnung ist, dass unsere Politiker genügend Einsicht haben - und wir, die Bevölkerung, genügend Elan -, um die drohende Katastrophe in eine Chance zu verwandeln: die Chance, gemeinsam ein besser überwachtes, ausgeglicheneres Wirtschaftssystem zu schaffen. Ein System, das an Fairness, sozialer Gerechtigkeit und Nachhaltigkeit ausgerichtet ist und die Moral zurückbringt in die Wirtschaft. Meine Hoffnung ist, dass wir zusammenarbeiten für eine bessere Zukunft, dass wir es ernst meinen, wenn wir sagen "Yes we can", und dass wir dabei das "Wir" betonen. Wir sollten die Open-Source-Version des Kapitalismus wählen, in der jeder Einzelne nur gewinnt, wenn alle zusammenarbeiten. Wir sollten uns an Coop orientieren, nicht an Gucci.

We stand in front of a critical, dangerous break. It is worthwhile to fight for the right direction, since so much depends on this. My hope is that our politicians have enough insight - and that we, the population, have enough elan - to change the catastrophe into opportunity: the opportunity to create a better controlled and more balanced economic system. A system that is oriented towards fairness, social justice and sustainability, one that brings morals back into business. My hope is that we can cooperate for a better future, that we really mean it when we say "Yes We Can", with emphasis on the "We". We should choose the open-source version of capitalism, in which everyone first wins when all cooperate. We need to orient ourselves on Coop, not on Gucci.

What really strikes me about this is the incipient fascism implicit here. You have the clear subjugation of business interests to the interests of the state, the elimination of autonomy in private business. The system proposed here would ignore the realities of business and expects economics to take care of themselves after the spirital re-awakening of the masses to their true calling; corporatism and class cooperation - cooperative economics! - are the key. This "new" economy is one where the government exerts strong directive influence, effectively controlling both allocation of resources and therefore the means of production; private property and initiative are allowed only when these are subservient to the state...

Articles like this - it was a full page in the Handelsblatt - drive me up a wall because there is no way to thoroughly fisk them in public. I've spent way too much time on this one already: suffice to say that the greatest danger of the current crisis is the resurrection of ideologies that deeply deserved to die and be tossed on the rubbish heap of history. This is one of them.

Freitag, Februar 13, 2009

Risks, Unintended Consequences and Death...

One of the things I do is thinking about risk management. There are multiple types of risks, both good and bad risks, and avoidable and unavoidable risks. There are the risks you know about and the risks that you don't have an inkling that they even exist. There are risks deliberately taken and risks that are thrust upon you by accident; there are risks that can be planned for and risks that cannot be anticipated; there are risks imposed on you by those who would destroy you, and risks imposed by those who want to do you good. There are necessary and required risks, and there are unnecessary risks; there are also responsible risks and irresponsible risks, based on those who impose them.

So, we also have risks brought about by unintended consequences. What are unintended consequences? Well, duh: these are consequences that weren't expected, planned for or anticipated. There are two ways of viewing these kinds of risks: one is to recognize them when they appear and deal with them, the other is to deny that they were the result of the actions taken and deny any causality until the point where it cannot be denied.

While all actions we take have unintended consequences - due to the complexity of the world we live in, fundamentally chaotic - there is a set of criteria that we have to think about when assessing unintended consequences: death.

Now, we all die. It's the empiric end of our existence, regardless of what your faith (or lack of it) may tell you. Death is, for the legal system and for society in general, the final stop, the end. Further, it can't be compensated for, except to others. Killing someone is, in all societies, considered to be the ultimate crime, the ultimate transgression, as it robs that person of his future. Societies make exceptions - death sentences for heinous crimes, war, police, and for some societies a way to fill the larder and dominate your enemies - but generally speaking, death is not something considered to be acceptable as the result of someone's actions, intended or not.

Actions taken that result in unintended consequences that lead to death are, if the result is reflexive, at best subjects for the Darwin Awards, and, if the effects impact others, cause for criminal prosecution. Do something that unintentionally causes death should lead to prosecution, not for murder pre-meditated per se, but for manslaughter or similar offenses.

You can further break this analysis down into greater detail, working out penalties and the like for different degrees of culpability and direct link to the actions. The farther away you get from the original action, the more difficult it is to prove a causal relationship and the more difficult it is to determine culpability.

This is basic legal thinking and nothing special.

Now, we have a case of unintended consequences that has killed at least 180 people and probably more than that. We're talking about a policy, as enacted by people intending good, that has lead to wide-scale destruction, leaving thousands devastated and billions in damage, as well as the dead.

Those who enacted this policy should have known better. Their policies were shown to be empirically foolish in the wake of experiences of just a few years ago where another country also applied these policies which led to the same result: death and wide-scale destruction. They had unintentional consequences that deliberately accepted risks that have now lead to deaths. As the vernacular puts it, the book should be thrown at them.

This is what I am talking about.

The Australian fires that have killed so many were avoidable and preventable, if the local elected officials had learned from the American experience in the West of the last several decades. Uncleared forests burn: it's nature's way of developing the ecosystem. You can't prevent them from happening, and if you keep on putting them out as early as possible, you create the environment for large-scale burning that becomes uncontrollable. There may have been arson involved, but this hasn't been settled yet. But this was a disaster waiting to happen.

Having pristine, untouched nature is a lovely thing. No doubt about it. The question then becomes: at what cost?

Deciding that the same rules that should apply for large-scale, remote forests should also apply to residential neighborhoods: catastrophe.

This is a risk - of naturally occurring fires finding enormous amounts of brush to burn - that was unintended by the decision makers involved, but was a direct and logical consequence of their local ordinances which prevented trimming of trees and brush from houses, under penalty of law.

The risk to the environment of trimming brush and controlled burns is minimal: what the environmentalists have done, in the name of "protecting nature", is to kill people though imposing deadly risks in the name of something that does not warrant accepting deadly risks. Their actions moved the average burnable level per hectare to between 35 and 50 tons: 8 tons is considered to be a fire hazard. No wonder the firefighters couldn't put out the fires: the heat levels generated by fires increases geometrically, not linear, resulting in the conditions that led to the firestorms seen in Australia.

Unintended consequences? Only to the ignorant. Ignorance of the law is no argument, and ignorance here has been deadly. But in this case it wasn't the ignorance of those killed which got them killed, but rather the ignorance of the councils that passed the ecological nonsense that raised an untouched environment to a good that is greater than a human life. That is unacceptable.

What makes this criminal is the fact that these councils ordered fire trails and fire breaks abandoned and returned to nature. What makes this criminal is that the effects of such decisions were known to be deadly: the US realized this after a decade of massive wilderness fires that destroyed literally millions of trees and devastated entire communities.

To quote from the link ut supra:

The Kinglake area was a nature-loving community of tree-changers, organic farmers and artists to the north of Melbourne. A council committed to reducing carbon emissions dominates the Nillumbik shire, a so-called "green wedge" area, where restrictions on removing vegetation around houses reportedly added to the dangers. In nearby St Andrews, where more than 20 people are believed to have died, surviving residents have spoken angrily of "greenies" who prevented them from cutting back trees near their property, including in one case, a tea tree that went "whoomp". ... Kinglake and Maryville, now crime scenes, are built among tall forests of messmate stringy bark trees which pose a special fire hazard, with peeling bark creating firebrands that carry fire five kilometres out. ...

Things are no better in NSW, although we don't quite have Victoria's perfect storm of winds and forest types. Near Dubbo two years ago, as a bushfire raged through the Goonoo Community Conservation Area, volunteer firefighters bulldozing a control line were obstructed by National Parks and Wildlife Service employees who had driven from Sydney to stop vegetation being damaged.

Now that is mind-boggling: stopping the bulldozers from clearing fire breaks because vegetation was being damaged by doing so.

Guess they'd rather have all the vegetation destroyed by burning instead of having some being bulldozed to prevent more devastation.

Can we even talk of unintended consequences here? Risks imposed on innocents by people whose dedication to things green trumped common-sense and scientific knowledge that would have prevented so many deaths.

Donnerstag, Februar 12, 2009

Democrats and Arguments...

This is something I've noticed as well.

The Democrats have, I think, lost the ability to make a cogent argument for their positions: what dominates is dogma and incantations, as well as "we won, now shut up".

It's not a cogent argument to simply state "the past ways were wrong" without explaining why; it's not a cogent argument to say "no one cares" when the act of questioning shows that people do care; it's not a cogent argument to say "we have to do something or the economy crashes" without making the case that the plan is actually designed to achieve what it claims. The arguments I've heard and seen aren't arguments: they're a wish list that lists what the Democrats fervently hope will happen. Claims that all economists - or even a consensus of economists, as if that were even remotely possible - support the plan are patently false. Arguing from authority is a logical fallacy, a rather basic one.

This is, at best, very poor politics. It is the sign that the party has, in fact, become deranged during the years of BDS (Bush Derangement Syndrome, the folks who start foaming at the mouth when Bush's name is mentioned or he appears on TV) and became emotionally distraught. The Democrats in Congress, during the first Bush administration, basically rolled over and abandoned virtually any pretext of serious opposition, scared to death that he would call them unpatriotic. He never did: it was their own bad conscience, the knowledge of their abject failure to protect the US looking forward during the Clinton administrations, that led them to that dark place in their souls where they know they did wrong, but can never, ever admit it. Bush kept them happy by proposing and approving spending packages that the Democrats could go along with, and ultimately the Republicans in the House and the Senate were seduced by the money to get into the hole they're in now. But you won't find anyone in the Republican Party whining and complaining how unfair things are: the party stopped digging and I think you will see how they will get themselves back to power: by reverting to being Reagan Republicans of small government and lowered taxes.

The Republicans recognize that in the last election they lost because they disappointed not only their base, but the general public as well by being seduced by earmarks and actually being bipartisan; this will be the ultimate lesson of the Obama and Democratic victory for the Republicans, that Democrats simply can't be trusted when it counts.

A political victory doesn't mean you have a mandate to do whatever you want: it means really that you're the one who is now responsible for what happens. This is what the Democratic Party, which is increasingly showing how intellectually shallow and immature it is, fails to understand: they think instead that when they're in charge, everyone has to do what they tell them to do. This is the sign of really bad management - and believe me, I've had more than my share of that - and invariably ends in failure to actually get anything done, let alone make truly fundamental changes.

It's reflected in what is contained in the Stimulus Bill: plenty of things that deserve debate and discussion. Instead of taking the bully pulpit and taking any real arguments to the public, Obama let Congress, riddled with special interest groups, go wild, unleashing its frustration over its relative unimportance and increasing self-imposed irrelevance in an orgy of spending and "getting what we deserve".

Now what the country needs, but what the Democrats think they deserve to get after 8 years of a President that they are convinced should never have been confirmed and never re-elected.

The problem now is that this stimulus bill binds the hands, as it were, of the President, as it commits too large a group of resources to do too little. The Obama Administration will be condemned to react to events, constrained by their commitments, rather than to be proactive and start doing things to help the economy to recover. Given their ideological blinders, though, and their fundamentally reactionary ideology, little else could be expected.

Mittwoch, Februar 11, 2009

Accounting Myths, Goodwill and Mark-To-Market

This was in the Wall Street Journal today. It brought back memories...

I first really ran across "goodwill" back when I was working in Washington, DC, around 1986/1987. I worked with a company - long since gone - that assessed the sale and purchase of radio and TV stations. I did the balance sheet analysis of the companies involved and forecast their profits based on fair value for the company, which, simply defined, was what the company could be sold for based on depreciated tangible assets plus what could be financed by using the 90% of the cash flow to finance the purchase over a 10 year period, based upon both demographic growth and market share. I also put together a database of the sales of such TV and radio stations over time - they're a matter of public record - going back some 20 years, which gave a great idea of what comparable stations had been sold for in comparable markets.

Now, a lot of the radio and TV stations were sold for considerably more than their "fair value". This was the excess value that the buyer perceived the radio or TV station was worth: if the station had depreciated tangible assets worth, say, $10mn and the cash flow was such that the fair value was $30mn, then the fair value was $40mn. If the station was sold for $60mn, that difference was "goodwill", meaning all the intangibles that were associated with the station, such as memorable call signs for the stations (for the European readers: each radio or TV station in the US has a 3 or 4 letter call sign associated with them, such as KDKA in Pittsburgh, one of the first radio stations around, or WNYC in New York: this latter, for instance, is easier to remember (and hence market!) than WAXQ or some other series of letters), long-term contracts with good radio or TV personalities, etc.

But we all knew that it was an accounting myth: there wasn't anything backing it. It was intangible, fleeting at best: employees could - and often did - leave, programming changed, and you could, via the database, track the sale and purchase of a number of radio stations and research why one station varied in value over the years. That is why the fair value concept made sense: it was tanglible, real and even forecasting balance sheets was a heck of a lot better than trying to estimate the goodwill involved.

For banks to be booking goodwill as part of their assets means that the banks were booking ... nothing. An intangible is and remains always that: fleeting, insubstantial, and in comparison to fixed assets, something that can't, really, be considered an asset at all. The two are simply not in the same ballpark.

So now it looks like many banks, mostly European, are actually vastly more heavily leveraged than one would otherwise think: the "goodwill" of a company isn't, however, an asset. It is an accounting myth, a nicety used to avoid telling clients that they actually spent considerably more than their newly purchased asset is actually worth (or, more exactly, a tool for sellers to pump up their selling price: in most cases, goodwill represented their actual profit of the sale). Overleveraged banks are the banks that fail, the ones that go bang with a boom and collapse, since they cannot cover their losses.

Readers here will have noticed that I am not a fan of Mark-To-Market. I understand why the bookkeepers love it: it puts a value on something that is otherwise hard to value. But it is, I am afraid, as much an accounting myth as goodwill is, and one that is as dangerous. Mark-to-Market gives the bookkeeper the ability to destroy and create capital that has nothing to do with the real values involved: the value of an asset must be valued as a book value until the point where the asset is disposed of. Anything else is folly.

Banking and bookeeping must become the rather tedious and dreary support businesses that they really are. The only real excitement in banking is investment banking of the old school, of working out deals and financing seriously large projects with qualified investors. An entire generation of financial services people have, through their accounting myths, led us to the perilous place we are now.

Thanks, guys and gals. A reversion to classic accounting - depreciating tangible assets and calculating the book value of investments, and ignoring the rest - would go a long, long way to solving most of the problems we are facing. Of course, it means abandoning the "value" created by accounting myths that have brought us here: there is no real, tangible value in intangibles. There never was, there never will be, and it is part of the problem.

Not part of the solution.

Dienstag, Februar 10, 2009

You Are Not Entitled To Your Own Facts, or, It Borders On Overt Political Corruption

I see a certain meme developing. It has been for some time.

One of the critical failures of the Global Warming movement has been its inability to control data. Critics have, time and time again, gone back to the data and done yeoman work in identifying where, for instance, Mann went wrong (inappropriate use of smoothing techniques), and how the urbanization of the US has, given the fixed nature of many measurement sites and their very poor maintenance, led to a warming bias in the original, unmodified data that points not to global warming, but rather to urbanization.

The Global Warming religionists haven't completed admitted it yet, but they are not entitled to their own facts. This is a fundamental, and their manipulation of the facts will prove to be their wrong-doing. It's a political thing, really: there is too much money involved for it not to be.

Now we see a second development showing up with the same basic meme: the US Census.

As an economist, Census data is about the closest thing we have to reality. Most don't realize this, but there is a fundamental rule with good economists and statisticians: Do Not Mess With The Census Data.

Seriously. There are too many things calculated from this data for there to be even a tinge of manipulation or fiddling about: it is the closet thing we as economists and statisticians have to reality.

So what does Obama do?

See this.

This is bordering on over political corruption: Obama and his administration want to take control of the 2010 Census. No President has ever done so. Ever.

Obama appointed a Republican, Judd Gregg, to be the Commerce Secretary, who normally runs the Census. Gregg has given the Democrats in the past a hard time on the Census. Rahm Emanuel will, basically, be in a decision-making position about how the Census will operate, and that means that the Democrats, in defiance of many working at Census, will want to try what the Clinton Administration tried to do: use survey and estimates to get the numbers, rather than actual counting.

This Is A Very Bad Idea.


Because this is how standard statistics are gathered: you ask a small group (statistical population) within a large group (statistical universe) and use a factor to get from the population to the universe. Good statisticians change that population every time they take a sampling; bad ones keep on using the same population. Good ones check their sample to ensure that it is representational; bad ones don't.

But what is used as the benchmark?

You got it: the Census.

Change the Census from universe to population, and all you have left is ... a sample. You no longer know your statistical universe. You can guess at it, but you cannot know it. Errors creep in, and your view of the world becomes biased in ways that you can never know, since you no longer have contact with reality.

This Is A Very Bad Idea.

Look, no one is entitled to their own facts. You can have differences of opinions about the facts, but no one may dare mess with the facts. To introduce politics - which to me seems quite clear, both back when Clinton tried to do it, and now - into the data is downright criminal.

To quote from the above link:

"The Census is supposed to be not only outside of politics, but transparent," said Rep. Darrell Issa, R-Calif., the ranking Republican on the House Oversight and Government Reform Committee. "This implies that President Obama intends on getting a count to his liking. It borders on overt political corruption."

Not good. Keep tuned, and watch what the Democrats and the Obama White House try to do with the Census. It was a bad idea under Clinton, and it's gonna be a worse one under Obama.