Patterns and Recognition...Patternicity

This jibes nicely with what I have posted here recently.

One of the epistemological questions facing us that has yet to be well resolved is anthropogenic global warming (AGW). I say that it has not been well resolved because the proponents lack proper arguments - arguing that it is consensus is not an arguement, sorry: it is a logical fallacy, an appeal to authority. The IPCC publications are rife with errors - the Mann Hockey Stick, or instance - and have been compromised with politics, effectively perverting any inquiry as to what is really going on. I've documented in previous posts here how both models and data have been compromised as well.

But why? Well, there is the obvious reason: politics.

But the article I link to here points to an alternative: something that author calls "patternicity". We in the economics field call it "chartism", but the principle is the same: believing that there is meaning to a pattern that in and of itself lacks meaning. It helps explain the psychological mechanism behind the belief that AGW is real and existent.

To quote the author (Michael Shermer):

... we did not evolve a Baloney Detection Network in the brain to distinguish between true and false patterns. We have no error-detection governor to modulate the pattern-recognition engine. (Thus the need for science with its self-correcting mechanisms of replication and peer review.)

This is an important, if banal, point: the problem that AGW proponents face is their fight against replication of methods and the corruption of the peer review system (peer review collapses when the editors of journals consistently reject as unscientific articles that challenge the orthodoxy).

One way of expressing this is pb>c, i.e. a belief will be held when the benefits of that belief are greater than the costs of holding that belief. I'd take that one step further: there is also a distinction between the personal benefits and the costs of the commons, i.e. costs that are carried by all: this is where the proponents of AGW stand. They benefit enormously privately - their funding continues - but there are no costs for them: the costs are born by the commons, and only indirectly by the average individual. Hence the enthusiasm for such dogma and liberties taken both with models and data (manipulations of both have been shown to automagically lead to the results that the researchers want, even if fed with white, pink and other noise variants).

Further:

Through a series of complex formulas that include additional stimuli (wind in the trees) and prior events (past experience with predators and wind), the authors conclude that "the inability of individuals—human or otherwise—to assign causal probabilities to all sets of events that occur around them will often force them to lump causal associations with non-causal ones. From here, the evolutionary rationale for superstition is clear: natural selection will favour strategies that make many incorrect causal associations in order to establish those that are essential for survival and reproduction."

The obsession that more than a few AGW proponents have with their prescribed corrections as being necessary for the survival of the human race now starts to make sense: they truly believe this, but on the level of superstition, not ratio.

And finally:

Such patternicities, then, mean that people believe weird things because of our evolved need to believe nonweird things.

Which goes, I think, to explain conspiracy theories and both religious and pseudo-scientific cults quite well.

The Politics of Guilt...

I think we can see a pattern developing here. Good old James Hansen put it bluntly here:

China has surpassed the United States as the biggest emitter of carbon dioxide into the atmosphere, Hansen said. However because of the long lifetime of the compound, the U.S. is over three times more responsible than any other country for the carbon dioxide now in the atmosphere, and will remain so for decades to come.

In other words, the US will continue to be the scapegoat for global warming, regardless of what the US does: we've already committed the original sin, and now it's time to pay.

This is nothing less than the attempt to tattoo a great big red letter "A" (for Anthropomorphic Warming) on the forehead of the US in the attempt to bully and blackmail as much money out of the US for something that, if it even exists, is so small in comparison to the natural causes of climate change that it is irrelevant.

Scare-mongering at its best: the politics not of reason, not of science (hah!), but rather the politics of guilt.

Never mind that we didn't do it...

Obama And The Apocalypse...and The Need To COP-Out

Wow. This is about as over-the-top as I have seen in a long time, and deserves a closer look.

Ian McEwan wrote it.

Who the heck is Ian McEwan? He's a writer, a novelist. And one of some reclaim, apparently.

But he's also symptomatic of the false expectations not only of the left, but of the greens as well.

The title of the essay, with subtitle, is:

The world's last chance

After years of living in fear of climate change, we are fast acquiring the weapons to defeat it. But the only one who can unite humanity for this life-or-death struggle is Barack Obama - and he must act now.

As the Germans say: Ach Du Lieber Himmel. Or more appropriately:WTF?

So the fisking begins:

'I refute it thus!" was Samuel Johnson's famous, beefy riposte one morning after church in 1763. As he spoke, according to his friend James Boswell, he kicked "with mighty force" a large stone "till he rebounded from it". The good doctor was contesting Bishop Berkeley's philosophical idealism, the view that the external, physical world does not exist and is the product of the mind. It was never much of a disproof, but we can sympathise with its sturdy common sense and physical display of Anglo-Saxon, if not Anglican, pragmatism.

Ah, that old chestnut, the difference between continental philosophy and rationalists of England. The difference between "reality" and perception, the stuff of philosophers. Nice start, but what's the point? That whilst Samuel Johnson is incapable of disproving what the good Bishop has spoken of, his common sense and pragmatism is something to be sympathized with. McEwan is setting the stage for what follows: it's not about reality, but rather one man's failure to disprove an assumption, however sympathetic the attempt might have been.

Still, we may have proved Berkeley partially correct; in an age of electronic media, where rumour, opinion and fact are tightly interleaved, and where politicians must sing to compete for our love, public affairs have the quality of a waking dream, a collective solipsism whose precise connection to the world of kickable stones is obscure, though we are certain that it exists.

Yep, the world of the left and the greens: there is no substance there, no clear delineation between facts, opinion and rumor - not because the author fails to make them, but rather because the public can't. Politics has become a waking dream, a collective solipsism - now there's a contradiction in terms! - which has no real connections to the "real" world. In other words, the right and marketable illusions trumps all else, especially reality and the cold, hard facts: the only problem is that this isn't reality. It's the world of the delusional left, the delusional greens, who have actively rejected reality and eschewed empiricism so as to create their waking dream, where intent excuses incompetence and adherence to the dogma that makes up the waking dream is a prerequisite. They know that there is a reality out there: they just don't want to deal with it.

The contest for the US presidency, like all elections, had the self-enclosed quality of a squash game, a chess match, a postmodern novel - and this one was far better than most. While the candidates appeared to address an external reality, they were bound by strictly ethereal requirements: to cast spells on large crowds while seeming ordinary, to trample their opponent into oblivion while seeming pleasant, to be inspirational yet sensible, to avoid offending a score of sensitive constituencies, and, an old wizard's touch, to promise the electorate various gifts without further borrowing or raising taxes.

Bread and circus, then for the body politic.Politics is a game, something to play with, not something real: an intellectual playground. Indicative of the appalling simplicity and, really, silliness of the left and greens: it's all about illusions and fooling the sheeple. What naivete.

And to win. As Barack Obama steps forward, the smoke machines and mirrors are packed away - or perhaps we can never, or should never, let them go. To those who believe that climate change in the context of global poverty is our most pressing problem, underpinning all others, requiring degrees of cooperation and rationality we might not even be capable of, the elevation of this slender, handsome man becomes the object of unreal expectation. Inevitably, after a long campaign of crowd pleasing, the question hangs in the air: is he merely the expert coiner of a stirring speech, or does he have the steel to turn intentions into results? At the very least, America finally has a president who, whatever his profession of faith, has a high regard for science (look at his sturdy views on intelligent design in Nature magazine of September 25) and has surrounded himself with scientific advisers of impeccable quality, and committed himself to the dreamy target of an 80% reduction below 1990 levels of CO2 emissions by 2050.

Here is the key, the reason I am fisking this: the demand that reality never intrude. The phrase tells it all: the commitment to a dreamy target. But there is at the same time the warning: the object of unreal expecations.

The issue of climate change is itself another near-virtual reality. Ever since 1979, when James Hansen's Ad Hoc Group on CO2 reported to President Carter, there have been symposia, denials, summits, documentaries, marches, legislation, trading schemes and, above all, resounding speeches high on ambition - in Europe we rather excel at these.

Again, the avoidance of reality, plus the idea that the issue of climate change is near-virtual, "another" reality. What Europe really excels at is the hypocrisy of making pledges that no one can keep without impoverishing millions. But that's another reality.

However, on the all-too-kickable stone we call the Earth, where results from thousands of measurements in oceans and on land masses are mapped against satellite data, the mean temperature has continued to rise. In 2006, and even more in 2007, the shrinking of the summer ice in the Arctic exceeded the gloomiest predictions. Data for the past year, during an economic downturn, show CO2 levels rising as fast as ever. It is doubtful whether there is yet a single recorded instance of a carbon-producing power station taken out of commission to make way for a clean energy installation.

Sigh. The data, the data, the data: see my last post here for how the data is being manipulated and changed. This is the most alarming problem: that the data is being manipulated to meet expectations.

The burning forests, the dissolving coral reefs, the extinction of species - we have numbed ourselves with these familiar litanies. During the past 30 years we have dealt with the issue, if at all, only in our minds. There are, of course, first signs of a new clean energy infrastructure - along certain stretches of the Danish coastline, on some German and Japanese rooftops, in certain deserts - but the effect so far is miniscule. We are still dreaming, still murmuring in our sleep as we grope for the levers that connect thoughts to actions.

Dreaming indeed: how bitter it must be for the dedicated, the prophets of the new religion, to be - quite rightly so - ignored and how grating it must be for those who live in a fantasy world for reality to so steadfastly reject their brayings.

Domestically, Obama will have a number of factors on his side, beyond good working majorities in both houses. There is at least agreement that there is a problem - anthropogenic climate change is a fact, an American fact. Doing nothing is simply too expensive. A good part of the Republican party accepts this, as do major corporations, and even oil companies. The deniers are, or should be, folding their tents - and what was to deny? A molecule of CO2 absorbs the longer wave length of light, trapping radiant heat from the earth. More CO2, more trapped warmth. If temperatures drift much beyond 2C above pre-industrial levels, the human and economic consequences could be catastrophic. Americans have already seen what happens when a warmer Atlantic Ocean lends its energy to the hurricane season.

Sigh. The usual litany of the dogma of the Grand Lie (it no longer qualifies as a Big Lie, but has become the Grand Lie of this generation of fools and simpletons): but the clarity of who is to blame is unusual. Here anthropogenic climate change - the tail wagging the dog - is an American "fact", something that the Americans have caused and hence own responsibility for. We see that the dream continues...

Other than that, it's the drivel that passes for science in their dream world.

Thus the matter is passing from virtue, from idealism and sombre invitations to self-denial, which government, markets and the electorate distrust, to self-interest and necessity, for which they all have respect. Oil production will soon decline, and alternatives must be found anyway; many oil-producing countries are grisly human constructs on which no one wants to depend; if the US does not invest in green technologies now, it will have to buy them later from its competitors; Germany has created a quarter of a million jobs in renewable energy; it is beginning to be apparent that there is a vast amount of money to be made retooling and supplying a whole civilisation with new energy sources.

Ah, now we see the chain: after failing to convince the powers-that-be of the dire straits of today, the emphasis shifts to the long-term persuasion of the public of the necessity of this change. The transition is from virtue, idealism and self-denial to self-interest and necessity. The problem is that too reach the point where self-interest takes over, reality must be denied and replaced with a dream world where everything is simplicity and the world is simply too dense to solve the problems. This isn't a dream world: it is delusional, one that once again denies the fundamental engineering problems that face solar, wind and other "renewable" energy sources.

The technologies are developing at speed, but the basic ideas have a simple allure. Consider just one form of solar energy. An alien landing on our planet and noticing how it was bathed in light would be amazed to learn that we believe ourselves to have an energy problem, that we ever should have thought of overheating or poisoning ourselves by burning fossil fuels or generating plutonium. Sunlight falls on us in a constant stream, a sweet rain of photons beyond counting. On average, by Nasa's calculation, 200 watts for every square metre of the Earth's surface. A single photon striking a semi-conductor releases an electron, and so electricity is born, right out of sunbeams. These are the photovoltaics that Einstein described and for which he won a Nobel prize. If you believed in God, you might say this free energy was his greatest gift. Let there be light! If you did not, you might wonder at how auspicious the laws of physics are. As is often pointed out, less than an hour's worth of all the sunlight falling on the Earth would satisfy the whole world's needs for a year. A fraction of our hot deserts could power our civilisation.

Well, sunshine, if that's the case, why hasn't it already been done? Could it be that ... reality intrudes just a tiny bit, that the 200 watts for every square metre is a hypothetical, and that the semi-conductor - more precisely, silicon, or is he advocating gallium-arsenic semiconductors here? - can't generate an electron for every photon (that'd be perfect efficiency, and simply doesn't exist in the real world, that nasty, cold and brutish place. Recognize again how "simple" everything is...

Millions of acres in the American south-western deserts have already been identified for suitable sites. Installations are beginning to appear, some of them funded by European companies taking advantage of state tax-breaks. In private and public labs, new technologies are being invented. How can a solar or wind plant generate power by night? Daniel Nocera at MIT has imitated photosynthesis to crack water efficiently into hydrogen and oxygen; at night these gases are recombined in a fuel cell to drive a turbine. In other labs, the race is on for that industrial golden egg, a cheaper, lighter, more powerful battery for use in electric cars; nanotechnology is being used to derive two electrons from one photon; thin film solar panels are already in production; other labs are working on solar paints. The lines of inquiry are proliferating by the thousands. That resourceful Californian generation that made its fortune refining the internet is beginning to relive its youth in clean energy. The whole sector is like a coiled spring, waiting to unleash its full force into the economy.

Here the use of scare tactics: see, us Europeans know better, and we're using your stupid tax breaks, designed to make Americans a tad paranoid (Really? he wants paranoid Americans?). His solutions beggar thought: breaking water into hydrogen and oxygen is fine, but where is the water in the desert? Recombine these in the night in a fuel cell to drive a turbine: WTF? What drivel is this? You can't use a fuel cell to drive a turbine: fuel cells generate electricity directly (you could drive a turbine by burning hydrogen, but fuel cells are so much more ... ecological, I guess is the right word. At least he's getting the key words down right, even if they are being put together like a child playing with an erector set. The whole sector waiting like a coiled spring, ready to unleash its full force into the economy?

Obviously, the man knows absolutely NOTHING about either watch movements or the economy. The coiled spring refers to the mainspring of a watch: as anyone watchmaker knows - and as well those who actually inform themselves about how watches work - unleashing the full power of a mainspring on a watch movement destroys the movement, since the critical thing is not unleashing full force, but rather managing the release. The same is true of the economy (and the concept of "watchwork economy" is something I will be developing further...)

In other words, Obama assumes power at a time when renewable energy has ceased to be a marginal pursuit. The hour may have summoned the man, but this happens to be a particularly difficult hour. In Berkeleyan mode, we have entered a global recession because we always thought we would. The fictional head of a snake has begun to devour its actually existing tail - a circularity the great Argentinean fabulist, Jorge Luis Borges, would have appreciated. We dreamed of this recession, we saw it coming and we made it so. Meanwhile, in the Johnsonian "real" economy, factories, distribution systems, human inventiveness, the will to work, the need for goods and services are much as they were last year - except, as certainty of the recession tightens, people fear more and spend less, corporations begin to make redundancies, and so the recession is locked in.

Au contraire: first of all, Obama does not assume power. No American President has ever "assumed power", but rather assumed the title of President of the United States, whose powers are clearly delineated and limited by the US constitution. That's an interesting document to read: I recommend doing so on a regular basis, especially for the author.

But what goaded me to write here is this line: We dreamed of this recession, we saw it coming and we made it so.

Good lord, what hubris. But more appropriately, what a crime: to deeply desire economic turmoil, to actively work to make it so. And most importantly: it was their goal. Does the ban on drilling now make sense? Do punitive taxes on oil products now make sense? Does the idea of making everyone pay for carbon now make sense? The left and the greens - the watermelons, Red inside, Green outside - have been working on creating the crisis. Of creating, to use the jargon, a pre-revolutionary situation where the old order becomes incapable of dealing with the problem. It's just rare that anyone actually admits to it.

Beyond that, the problems are solvable, but they are formidable too. The departing president has been energetically pulling levers in the real world, facilitating coal-fired power plants, opening up federally owned wilderness to oil and gas drilling and encouraging the commercial exploitation of oil shale. This will all have to be reversed by President Obama. Solar- and wind-generating plants are often far from cities; as in Europe, a new direct current grid is needed; the old is chaotically devolved to state level. The costs will be enormous, the benefits will not be immediately obvious to many consumers, and the US government has colossal debts. Coal remains a crucial energy source in the States, but "clean" coal is still a fantasy, and piping CO2 to the appropriate geological sites and pumping it underground is expensive. Oil interests will not be happy with their loss of supremacy and ancient privileges, or with contemplating a cap and trade scheme during a recession. Acceptable electric vehicles are still a good way off.

Now, this is the interesting twist on the old phrase: difficult but solveable: here it is solveable, but difficult. Might sound like a small difference, but the difference is critical: in the real-world of engineering, one works on the difficult in order to solve it; here the problems are declared, ex cathedra from first principles, as solved, now make it so. Sorry, engineering doesn't work that way (as the vast and doomed attempts by Soviet and ChiCom engineers to implement the sad plans of their masters have proved time and time again).

The next sentence reflects the fact that the author remains in the dream world: Bush is doing things in the real world. Which then "must" be reversed by a President Obama. Then he goes on to underscore how much he is living in a fantasy world with no relationship to reality: to change the entire grid from alternating to direct current - which also involves changing the entire world of consumer appliances and electronics - is sheer stupidity that generates huge costs with no direct benefits. This is not something the government can afford, and what the author argues for is the realization of pipe dreams: nothing more, nothing less than the demand that reality be changed to match the dream world.

And beyond the administrative and technological problems, there are the usual obstacles. It is not only Harold Macmillan's "events, dear boy, events" that can blow a thoughtful politician off course. There are half a dozen other pressing domestic and international concerns, then - mistakes, enemies, political process, the fumblings or ambitious scheming of lieutenants, the fading novelty of a new presidential face. And above all, undue caution.

Sigh. Reality as obstacle to the dream world.

Within the climate science community there is a faction darkly murmuring that it is already too late. The more widely held view is hardly more reassuring: we have less than eight years to start making a significant impact on CO2 and other greenhouse gas emissions, eight years to move from Berkeley's solipsism to Johnson's pragmatism. Thereafter, as tipping points are reached, as feedback loops strengthen, the emissions curve will rise too quickly for us to restrain it. In the words of John Schellnhuber, one of Europe's leading climate scientists and chief scientific adviser to Angela Merkel, the German chancellor, "what is required is an industrial revolution for sustainability, starting now".

If there are indeed "only" 8 years for the change to happen, then there is no point in trying: that sort of change takes a generation, not a mere two political seasons. Once again, reality intrudes...

To be effective, this is only possible at the level of international cooperation - far more difficult to achieve than any technological breakthrough. There is a rendezvous next year in Copenhagen in late November which the entire world of climate expertise is preparing itself for and which is considered by many in the field to be our best and possibly last hope of addressing the problem before it runs away from us. It is the global successor to Kyoto, known in the trade as COP (Conference of Parties) 15. There is a case to be made that it will be one of the most important international meetings ever convened. If it does not result in practical, radical measures, the fight to control our future could well be lost. Every nation on the planet will be represented. The general feeling is that the conference cannot be allowed to fail. And it cannot succeed without the leadership of the United States. There are fears that Obama will move too cautiously on climate change for political reasons, and that would be a tragic error. Schellnhuber says, "If he were prepared to come in person to Copenhagen and make a speech, a bold commitment, similar to what Reagan did in Reykjavik, he would become a hero of the planet, for good."

Now the author admits above that the European posturing about Kyoto has been hypocritical and a waste of time: why then does he think that COP would run any different? If anything, it's a COP-Out. The most important international meeting ever convened? More important than Yalta, more important than the establishment of the United Nations, more important that your average Boy Scout meeting? Scarcely: the author is proclaiming the apocalypse if the world does not dance to his tune: the problem is, he needs a subservient Barack Obama to does his will.

But hey, send Obama to the conference, let him wine and dine with these fools, let him participate in the dream. Reality will intrude. The idea that Obama can do for the ecological movement what Reagan did for the West is not merely pathetic, it is truly deluded. You see, Obama won't be able to do anything that endangers one of the core special interests that have bought the Democratic Party (and bought it a long, long time ago, my friends): the unions. Obama is facing a Congress that thinks it has it all: his real position is that of the new farmhand who is between the prize razorback and the feedtrough. Expect attendance, blah blah and at least the same degree of hypocrisy about implementing whatever COP comes out with that the Europeans express: expect nothing besides a bit of kum-by-yah and the usual nattering nabobs. The best and last hope indeed: if anything, such conferences are the best and last hope that this dream is finally sent off to be hung up and dried.

And so the mechanisms of the unreal, the smoke and mirrors, might have to come to the aid of our actually existing, overheating world. The process that let us believe we were dealing with climate change when we were doing nothing at all, or let us think our way into a recession - these emanations of collective and collusive dreaming can have their positive side. Obama may succeed in tipping the nations toward a low-carbon future simply because people think he can. Scientists, whose stock-in-trade is scepticism, and conference-weary diplomats, along with millions around the world are attributing to him something like unearthly powers. He is invested with more symbolism - of renewal, of rationality - than his slight frame can bear. But having persuaded everybody else, he may be doubly persuaded himself. This aura will be his empowerment, as numinous as good luck, as permanent as spring snow. He has to move decisively.

This is where the author is right: the only way that the watermelons are going to get any sort of their dream passed is to employ smoke and mirrors to bamboozle the sheeple. The fact that the watermelons continue to prey upon the uninformed and generate revenues from them is the only thing keeping them alive: their hope now is not for their "science" to prevail, but more importantly for the neo-savior to arrive and transform the world, to make dreams a reality. Oh, and those who drink the anthropogenic global warming kool-aid aren't the sceptics here: they are the accolates, incapable of scepticism, because it comes at the cost of the loss of their funding. Obama's the man, if he can't do it, no one can!

Sorry, this is peurile, pathetic and desperate.

There were those who said during the campaign that Obama turned a fine speech, empty of intent, that he was, as they say in Texas, all hat and no cattle. He must confound his detractors and start the detailed, practical preparation for Copenhagen, and refute them thus!

And if you kick you heels together and say "there's no place like home, there's no place like home, there's no place like home", then we all don't need to fly home for thanksgiving and hence can save the environment!

Sorry, words just fail me (hah!). The idea that the ultimate all-hat-and-no-cattle politician of the last 100 years will turn into the magician and save us all from our sins is childish at best.

Luck has it that this is the best that the watermelons have to offer to get their way: deus ex machina via Obama. To be honest, it's more than a tad insulting and it underscores really how pitiful the watermelons really are. Their time is running out. Obama has plenty of other problems to solve: pretending that he will be the savior in some exalted way is truly delusional.

How Science Can Work vs. How Science Should Work...

This is an interesting insight into how science can work.

Basically, two data sets that were in agreement turned out, as time went on, to be less and less in agreement. One pointed to cooling, the other pointed to warming.

So they "correct" one of the data sets.

Then they discover that reconstructed historical records didn't fit the model results.

So they fix the historical record. By using the "corrected" data sets.

Do you see the pattern here? I see an attempt to fit the data to models and to the expectations of the scientists involved.

This is an example of how science can work.

But it isn't an example of how science should work.

On Failure And Recovery...

Two articles have led me to get out of the sickbed and write something (I'm down with a nasty bronchitis and have been coughing my lungs up over the last three days).

This brings out the distinction between economic bankruptcy and financial bankruptcy well: economic bankruptcy is where no one buys your products anymore; financial bankruptcy is when you've made some serious financial miscalculations and have to find a way out of your dilemma.

This is related. It's the idea that no one knows what to do with the economy.

That's wrong.

It's just that no one wants to hear what has to be done, and the two are related. The latter is not limited to the US, either: the German pension system only function because a massive tax on gasoline consumption is partially siphoned off to pay not for the upkeep of the Autobahn, but to pay for the upkeep of senior citizens.

So, to the first: the Big 3 are, effectively, financially bankrupt for a number of reasons. Some are indirect (such as not being able to quickly change production to meet consumer demands), others are more direct, and can be simplified to two things: corporate fear and union greed. The Big 3 hate strikes and the corporate culture is built on making the unions happy so that there are no strikes; this means that the corporate culture of the Big 3 has become ossified, structurally inept, and incapable of rapidly adjusting to changes in the operating environment. The UAW has also been greedy, pushing up labor costs such that the Big 3 are no longer cost-effective producers. Productivity as explanation for very high wages goes only so far, especially in terms of actual labor input costs, which as a percentage of operative production can be very low: the problem lies not in the hourly wages, but rather the longer-term liabilities that the Big 3 have taken on in the name of labor peace.

I accuse these companies of corporate fear not just because they have taken on liabilities that any normal company would shy from, but also allow the unions to dictate not only employment levels, but, even worse, what products were to be made. The Big 3 cannot, effectively, build assembly lines that are highly flexible and capable of shifting product types within a period of several days (this is done by Magna in Graz, Austria: it can be done), but rather cannot change over without consulting the unions first. The UAW isn't interested in anything except one aspect of the Big 3: long-term protected employment of union members at higher-than-average wages.

That is the only thing that really matters to the UAW: it's what keeps them alive, it's the payback to the union members for ensuring high wage levels. According to the UAW, duea are two hours' pay per month, which at current average wage costs is about $50/member per month (based on average wage, without benefits, of $25/hour: with benefits, thise goes to $75/hour),. The idea that it pays to belong to the union isn't mine: it's the major argument of the UAW for membership. At the end of 2007, there were 464,910 union members: that means that the UAW has an income of over $23mn/month. They've got over $800mn in their strike account, and that sort of cash flow - $279mn/year - finances a lot of political activism and lobbying work.

That is why the UAW is so adamant about a taxpayer bail-out of the Big 3. But the UAW is caught between a rock and a very, very hard place: they are a big, very big, part of the problem. The Big 3 are very close to financial bankruptcy because their costs are too high and can't be reduced in a time when economic demand has dropped off significantly.

To get out of financial bankruptcy, you have to shed fixed costs to the point where you return to financial balance: this means, effectively, the end of the UAW.

Ouch.

But the pain doesn't end there.

That second link takes us to the idea that no one knows what to do about the economy. That is, politely put, balderdash.

To get the economy back on its feet, you have to to do only one thing: put more money into people's pockets. Not because they're going to spend it (a large number won't, but would rather at this point prefer to reduce their liabilities), but because it addresses one of the fundamental problems that the US has created for itself: too much government as a percentage of GDP.

Government spending (Federal, State and Local) as a percentage of GDP has been consistently over 30% since the late 1960s: this is the problem.

Now, I know all the arguments about this: that it's better than Europe or Japan, that it's okay because the economy is so big and can be afforded, that we can't put all those employees out of work, that we get a great return on the investment, yadda yadda yadda.

You think that there aren't any folks who don't profit from this? Of course there are. They're the ones who are pointing out what a great deal government is. They're the problem.

Duh.

Now, given the fact that much government spending was set up in such a way as to ensure that it would always be there - these are called entitlements - this means that we have to tackle the entitlements in order to get government spending back below 30% of GDP and keep it there.

The best way to get government spending under control, historically, is to have a President who is a Democrat and a Legislature controlled by the Republicans: this is based on the empirical evidence. This is what the Republicans have to sell to the American people to get back control of the Senate and the House. It's not undoable: it's simply going to be very, very hard.

The problem with government spending is that it creates a positive reinforcement loop with the Congress. We now know how thouroughly corrupt Congress is - and I make no exceptions amongst parties here, but there are so many more Democrats here than Republicans - with "earmarks" and the millions in effective kickback contributions to re-election campaigns from the companies that benefit from the earmarks. The more a Congresscritter can generate in earmarks, the more money they're gonna get from the companies that benefit: this is the vicious cycle, the corrupting cycle that has to be broken.

But getting back to the idea that no one knows what to do about the economy: that's false. Rather, it's that no one wants to be the bearer of bad news, that the only thing the US government can do (besides offering cheap money, and we now know what that does to the economy (it creates bubbles that go pop)) is really to tax less AND spend less. Doing both goes against the grain, is going to be hard to explain to those who have lived high on government waste and inefficiency, and is going to be damned unpopular amongst the chattering classes of DC.

But it is what has to be done.

Where to start? First and foremost: a flat tax that means everyone pays a proportinal share of taxes. Not a VAT, not a "fair tax", but rather taking a look at national income and deciding that there is a maximum that anyone should be taxed, corporations included: given that national income + corporate profits are pretty much what GDP generates, this should be no more than 20%. Collected at the point of employment AND the point of disbursement for capital gains and income from capital: you, the taxpayer, never get your hands on that 20% to hide it in some tax shelter. Everyone pays this: the gal flipping burgers pays it just like the CEO of Burger King. And no playing with locations: if Burger King is headquartered in the US, then the CEO pays that tax, and his bonus isn't paid to an escrow account in a tax-shelter country, but has to be paid and taxed in the US. No exceptions.

Now, given that govenrment taxation as a percentage of GDP is over 30%, this means that we have achieved at least a 10% increase in personal disposable income, if not more. Local sales taxes will eat away at this, but that's a local problem that remains stubbornly so.

Now, the critics cry, what about government spending? Cutting tax revenues of over 10% will mean that government debt has to increase!

Well, that's one way of doing it. It's the wrong way.

The problem, to reiterate, is that the government at all levels has become too big and is spending too much money. Government spending, per definition, does not generate value: it spends the value that others have generated. It is spending too much of it, and that is why we are facing the problems we face today.

There are things government needs to do, and there are things that people want the government to do. The difference between the two is critical: there needs to be a public debate on what the latter really means, since that is where the source of the corruption lies. A political interest group that "persuades" politicians to finance pet projects will always corrupt the politicians: that is what lobbying is all about. It's always about what money will be spent to get what the special interest group wants done.

That is the core of the problem, and it also attacks the core of the chattering classes in DC, who live off the corruption process.

That is why lobbying must be open, public and a matter of record in a simple way: for each Congresscritter, there needs to be a public scoreboard of shame, informing everyone who financed their elections and who gets the earmarks, and how effective each Congresscritter is in terms of the ratio earmark/election contributions. Then people could see who really owns their Congresscritters and why.

Enough. I'm starting to ramble, the medications have kicked in. Back to coughing my lung up...,

The Banality of Evil...

Every nation has its deep, dark secrets. The things it's not proud of. There are no exceptions, just as every person has such secrets, such things that it doesn't want published for the world to see.

This is chilling.

If even only partially true, and the author agrees that there is a credibility problem, just as refugee Jews had credibility problems in the 1930s, then China has a lot of explaining to do. More exactly: the Chinese government.

The banality of evil has been well established: evil isn't only about those who actively harm and destroy, such as child rapists and molesters, or even about those who by force of character try to realize their twisted dreams, such as Hitler or Pol Pot. Evil can be extraordinarily ordinary, of those "just doing their jobs", deliberately clueless about what they did and do. This is what makes evil so perfidious: you don't have to be evil, corrupt and debased, to do evil. All you have to do is stop thinking and be that cog in the death machinery.

The article points out that this is something that no one wants to talk about in public.


Indeed no one does. That is part of the banality of evil: it's easier not to do good under these circumstances.

It's still wrong, and while it may hurt, it will also be necessary for China to understand what has happened in China, to account not just for the blind, raging and merciless whims of Mao, but also the sheer bloody-mindedness of his successors.

China has a lot to be proud of. But the success of today doesn't negate the errors of the past, nor can it permanently hide something that even the racial purists of the 1930s would have rejected.

A View of Things To Come...

So, let get this straight.

According to this, one plan for "rescuing" Fannie Mae and Freddie Mac would be to split them into the parts that do what the government should be doing and those parts that the market can do, and then selling of the market stuff.

Not too bad on the face of it.

But then it goes downhill from there.

The new administration will want to use that money to fund "Government affordable housing programs".

Two things wrong with that right off the bat.

1) The money from the bailout came from the taxpayers and should be returned to the taxpayers. It's not like the government has the money; they can only take it from taxpayers and those who buy government bonds (investors). What is happening instead is that they are going to use that huge chunk of change to permanently expand government presence in the market. Not good.

2) Don't think for a moment that this program will have enough funding. No government program ever does. This will turn from a one-off item to a permanent part of the budget, resulting in an expansion of government spending by multiple billions of dollars per year. In other words, a one-time expenditure is going to become a line item in the budget.

To quote from that link:

To many, Fannie's and Freddie's downfall confirms the conflicts inherent in their status as shareholder-owned companies with lucrative government ties. The firms' implicit government backing allowed them to borrow cheaply, spurring executives to take excessive risks in search of fat profits.

Still, that hybrid model will be tough to kill because it allows private capital to fund federal subsidies for homeownership, a cause dear to many politicians. Under a new federal housing law, a portion of Fannie's and Freddie's new business will be siphoned for an affordable housing trust fund pushed by Democrats.

In other words, the Democrats have not learned from their mistakes at all.

The Lesson of the Sub-Primes should be: do not interfere with markets for financial instruments when the government is on both sides of the equation and hence has a conflict of interest. One side wins and the taxpayer loses.

That lesson that the Democrats have not learned.

So, The Fun Begins...

Rahm Emanuel has been chosen by President-Elect Obama to be his chief of staff.

Who is Rahm Emanuel?

Well, he is a Democrat from the State of Illinois, the number 4 Democrat in the House of Representatives.

He is also considered one of the more ruthless Democratics in the House and is known for being zealously partisan. Fair enough: that's what the Democratic party, right now, is all about. It's part of the reason they won the election.

Now, the real question is: who sent Rahm Emanuel? If you don't understand that question, then you don't know how Chicago politics works, and understanding that will give you insight into the new administration, which will be heavily stacked with folks from Chicago where it matters (the core political group around the future President). This "who sent him" means nothing more than "Who does he get his money from?"

In Emanuel's case, it's Wall Street. See here.

Over the last six years, $1.5mn from the investment community, followed by lawyers and the entertainment industry. The money from the investment community should come as no surprise: he was, after all, an investment banker between his time with the Clintons and being elected to Congress.

Where was he an investment banker?

Now it gets interesting.

Clinton appointed him to the Board of Directors of Freddie Mac. Then he moved to Dresdner Kleinwort Wasserstein, working on high-profile M&A, using the contacts he had made during the Clinton years. Why was he hired? The key word is Wasserstein: Bruce Wasserstein was one of Clinton's most active fundraisers. His client base at DKW was the Democrat's rich financial backers. His biggest deals were with politically connected utilities (such as a merger with the corporate parent of Commonwealth Edison, which is Chicago's utility company and heavily involved in Chicago politics, which are almost per definition Democratic politics). He is now a multi-millionaire and the 34th wealthiest member of the House of Representatives.

In other words, another Washington insider who used his connections to make millions.

This is the face of the new administration in Washington. This is the man who will be Obama's Chief of Staff. He's one of the people who got Freddie Mac into the trouble that they are in now.

My Wish for the Country...

... is that the newly elected President Obama doesn't suffer the same fate that President Bush has.

Why do I put it that way?

Because of this, written by a Democrat, an investigative reporter and lawyer.

He's right. The last 8 years have been a disgrace.

But not for the reasons that many might think. Go read that article before anything else.


There are a lot of people out there who should be ashamed of themselves, but not only aren't, but have made careers for themselves, in the worst possible way.




And here a small credo for the next 4 years, having seen the wreckage that a partisan press has left behind it. Let's not even talk about the blogosphere. I don't think that I've been guilty of such behavior as listed below, but I am stating them here specifically as making it clear to readers here where I will continue to stand and to post:

I will not engage in thuggish behavior, substituting ad hominem arguments for rational discourse for the pleasure of venting anger and disappointment;

I will deal with the facts, not with conjecture and speculation;

I will lay out my arguments, work my way through them, and argue my position with logic and first principles;

Occam's Razor will be sharpened daily and applied ruthlessly: if the simpler explanation works, the complex explanation loses;

I will speak no evil except of evil.


This election marks the end of BDS as a political argument: there will be no ODS here; doesn't mean that I won't point out that the king has no clothes.

President Barack Obama...

Well, that didn't go well for either McCain or the Republicans.

Obama did the better job of campaigning.

Now we see if he can live up to the hype: this is where I have my very sincere doubts. That's why I didn't vote for him.

But he is the President, invested with that Office, and that's that.


As President, he will have my support.



But not my blind obedience.

Recession, Isolationism and Megadeath

Been quiet here because reality intrudes...

This got me back.

The title of this post is Isolationism, Recession and Megadeath. No, that last is not a reference to this. But what I do mean is explained below.

I don't think it takes much knowledge of economics to realize that we are at the brink of a precipice. In a very fundamental way, we don't know what it going to be happening to the economy until the data starts coming in: anything before that is speculation at best. We don't even know if there is going to be a fundamental, structural break in the economy - where demand and supply shifts drastically, leaving tattered wreckage in the wake of the storm - or whether we are facing a "simple" recession that is going to put a damper on the economy for a while until enough heat is built up to get a head of steam back up.

There are arguments for both cases. I tend to the latter, as the business makers of today have tools at their fingertips that allow them to make rapid changes in their businesses that were unthinkable even a decade ago. Or, more exactly, the things that clever folks were dreaming about are, to an incredible extent, now reality for many, and indeed help run businesses. Things like just-in-time computer-assisted logistics, allowing advanced and sophisticated purchasing to be automated, bringing it to smaller businesses; things like virtual business units, formed as needs and markets arise, but also disbanding when they are no longer profitable; things like inexpensive and wide-spread CAD and direct prototyping; things like giant container ships, reducing shipping costs per unit to almost nothing; things like viral memes and guerilla marketing; things like the Internet audience and the Long Tail.

While any recession is unpleasant - and I've tried to find work during several of them, not recommended - I simply don't see this becoming the kind of structural break that some are implying: that Wall Street is dead and there are no more investment banks in the US (try telling that to Brown Brothers Harriman, for instance: there are quite a number of similar big players that are not publicity hounds).

What is happening, and this is true of any recession, is that the time has come when companies and individuals, indeed governments and entire countries, have to pay for their mistakes, their errors of judgment and their stupid pet tricks (sorry, Dave, to steal that name for this purpose). Recession happen when collective mistakes are made and clog the system, starting usually when smaller mistakes generate larger problems that can be safely ignored as long as everything else is going fine. But when the problems snowball and start to be unavoidable, that's when consumers hunker down and stop spending; that's when companies stop hiring and try to get their costs back under control (meaning that their purchasing managers start actually doing their jobs); that's when structural weaknesses are exposed and make necessary adaptation impossible.

Let's keep with the usual definition of a recession: two consecutive quarters of negative growth. Not slowdown - the so-called growth recessions - but actual contraction of the value added in the sum of economic activity in a geographical area known as a country (you can, with decent numbers, break this down to statistical areas, but let's stick with countries right now...).

What causes recessions? There is basically only one answer: mis-allocation of capital. Now, this is a very Austrian answer (in the sense of the Austrian school of economics, more here).

There are basically two sides to this story: on the one hand, you have the people who use capital foolishly; on the other hand, you have people who finance the mis-allocation.

Now, what does this have to do with recessions? How can people making stupid choices about how they spend their money lead to a contraction of the economy? After all, spending is what drives the economy, right?

Yes. But spending is a function of demand - generally speaking, you spend only on things you need (in the broadest sense of the word) - and as such has everything to do with psychology.

We avoided a recession after 9/11 not because the Fed shined in managing the shock to the system - it did - but because people listened to President Bush, who probably averted a recession single-handedly by exhorting people not to withdraw and cocoon, but rather to not change their behavior: he asked Americans to go out and spend. This averted a crisis of confidence.

This is increasingly the problem facing the US today, but it started with a crisis of confidence in the banking system. This is what causes depressions, not merely recessions: when it becomes virtually impossible for those with money to assess the risks that are entailed in loaning to people who want to borrow the money.

Why this convoluted sentence? Because you have investors - the people with money - who demand that they get paid for the use of their money. In order to determine that price, you have to assess the risk that the money will not be paid back. Invest in US government bonds? No risk, low prices for the money. Invest in corporate junk bonds? High risk, high prices for the money. There is a direct and causal relationship between risk and interest rates. Interest rates, after all, are nothing other than the price of using someone else's money.

Now, when the government intervenes, it screws things up. I don't mean sometimes, I mean always. Without exception. The question is how much it screws things up. The problem the government has is that it is driven by politics, not by economists: politicians call economics "The Dismal Science" because it makes them very, very depressed when it points out how much they are going to screw things up when the government interferes in the economy.

I've mentioned the below before, but bear with me.

The sub-prime crisis is to a large degree the logical follow-up to the Community Reinvestment Act of 1977, which basically said that if banks wanted preferential credit conditions - critical to remaining competitive - then they must make loans to borrowers that did not, under normal conditions, qualify for a mortgage to conditions that were not onerous. Basically, the banks are tested to see if they are, in effect, cherry-picking their customers and lending only to the wealthy: if this was so, they were found in non-compliance, which affected their deposit requirements, which, as we all know, is the fundamental leverage the Fed has over the banks.

This meant that the banks were, by law, required to make loans to customers that would not normally have qualified, or, more exactly, who would have qualified only for rather expensive loans, either through a risk premium (front-loading) or higher interest rates.

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

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

The problem that you see here is simple: strictly speaking, the banks haven't been making straight-forward mortgages, based on purely the numbers and not based on politically-motivated government interference, since the 1980s. While this hasn't led directly to the sub-prime problem, it underscores how political pressure distorts the market: it created the sub-prime market as such. Previously, the banks didn't make the loans: they were then required by law to do so, and in doing so, created the hole that became the sub-prime swamp. If there were no sub-prime loans, there would be no sub-prime crisis. Plain and simple.

So what does this have to do with isolationism?

Isolationism in the US is a recurring theme, one that recurs when three conditions are met. First you have disappointment with US involvement overseas, usually either disappointment that the US intervention somewhere, which made sense at the time, has turned out to be either significantly more expensive in terms of money and lives, or those involved are so completely and totally ungrateful that it grates on US sensibilities. Second, US workers start losing their jobs to foreign competitors, which are generally seen as being somehow unfair to US workers, not allowing them to compete on the basis of quality of work or some other metric. Third, politicians get involved in order to take advantage of disappointment, using these discontents to further their own political careers.

Hence the isolationism of the US after WW1, which was arguably the worst failure of US politics in the 20th century, as the withdrawal of the US, at that time the emergent superpower, from European politics meant that the worst sentiments of the Allied powers - to punish Germany for the war - were not leavened by Wilson's sentiments of restructuring international relations to avoid wars.

Isolationism is now gathering momentum once again. It is driven by disappointment - that the US intervention in Iraq has cost so much in terms of money and lives, but also the disappointment that the US has been so lambasted for doing the right thing, especially as the critics fail to say what the "proper" right thing should have been.

It is also driven by opportunistic politicians, with the Democrats here clearly taking advantage of the disappointment and discontent to score political points.

What does Isolationism have to do with Megadeaths?

Well, first of all what is Megadeath? It's actually a simple concept, one that shouldn't surprise: megadeaths are deaths in the millions. This happens when things go really, really wrong: building large cities on flood plains or in the shadow of volcanoes are some examples; the large-scale mass wars of the 20th century are others; making economic and financial mistakes that lead to starvation in the Third World are others. What is important is the concept: megadeaths are, invariably, demographic, economic and political catastrophes.

So what is the connection? Simply put, this:

As the scale of the economic crisis becomes clear and comparisons to the Great Depression of the 1930s are tossed around, there is a very real danger that America could succumb to the feeling that we no longer have the luxury of worrying about distant lands, now that we are confronted with a "real" problem that actually affects the lives of all Americans. As we consider whether various bailout plans help Main Street as well as Wall Street, the subtext is that both are much more important to Americans than Haifa Street.

This is the situation we have right now: that we, collectively as Americans, become even less interested in what is going on in the world. If anything, we don't care much right now, and the danger is becoming even less interested.

One problem with this emotion is that it ignores the sequel to the Great Depression -- the rise of militaristic Japan marked by the 1931 invasion of Manchuria, and Hitler's rise to power in Germany in 1933, both of which resulted in part from economic dislocations spreading outward from the U.S. The inward-focus of the U.S. and the leading Western powers (Great Britain and France) throughout the 1930s allowed these problems to metastasize, ultimately leading to World War II.

Is it possible that American inattention to the world in the coming years could lead to a similarly devastating result? You betcha.

While Kagan here is being a tad provocative (you betcha), he is absolutely right.

Why does this then happen? We know that the US already basically ignores the rest of the world, besides the news junkies and recent immigrants, but it is when the politicians start making decisions to deliberately ignore the rest of the world that the real troubles begin.

Why? Simply put, because there are those out there whose geostrategic ambitions are held in check by the fact that US politicians do care about what happens in the rest of the world. We've seen wars unleashed when a US politician was careless about drawing lines (Korea is one; the Iraqi invasion of Kuwait was the other, albeit carelessness by a diplomat brought about that one).

Whatever the parallels between the current economic situation and that of the early 1930s, the current international environment is by any comparison more dangerous for the U.S. than the one that led to World War II. This is not hyperbole, particularly considering a last factor. When France and Britain ignored developing dangers while handling them would have been possible and relatively inexpensive, America was able to bail them out, if at terrific cost. There is no one to save us if we make similar mistakes in the coming years.

The current economic crisis is extremely grave. It is hurting many Americans today and will hurt many more as it unwinds. It will end, however, as economic crises always do. The question is how long the recovery will take and how bad things will get before it takes hold.

This question should be at the forefront of voters' thinking as they consider the economic proposals of the two candidates for president, but not necessarily as they decide whom to vote for. Better policies can speed the recovery; worse ones can slow it -- but none are likely to prevent it.

Hence the title of this post: Recession, Isolationism and Megadeath.

Bluntly put: the recession, if it leads to isolationism and mistaken policies that lead to a worsening, and not an improvement of the situation, can, literally kill millions if it leads to new conflicts and a continuation of economic problems. Think of what the response might be if Iran detonates a nuclear bomb in Haifa: if you've been reading this blog for a while, you would know how many millions of Iranians would then die (and that'd be just the start).

That is why anyone recommending isolationist policies - like getting rid of NAFTA, like wanting to institute protectionist policies (such as unions and limiting competition from overseas), like wanting to increase tariffs to protect industries - must be seen, implicitly, as someone who wants war, who wants conflicts, who wants megadeaths.

There is a causal relationship. Don't pretend there isn't. This time it won't be a European war, but rather it may be one in the Middle East that leads to the destruction of one Israeli and 20 Iranian cities; it may be in Asia between China and Taiwan (how long does anyone think the Chinese would be deterred from bullying Taiwan into submission or destruction if it wasn't for the Seventh Fleet?); it may be in Western Asia between India and Pakistan, both armed with nuclear weapons.

Regardless, if the US turns its back on the world, bad things happen. Very bad things.

Fraud, Fraud, Thy Name Is ... Obama

Powerline has hit it again: read this here. It takes you to how to commit fraud by donating, more or less anonymously, to the Obama campaign. This is illegal and prohibited, yet the Obama campaign has deliberately enabled its web site to permit this.

This enables campaign financing fraud. That's the first fraud.

Second, ACORN continues to actively commit voter registration fraud. See here and here and here. It's not one or two isolated incidents: see this as well. It is systematic fraud that attacks the legitimacy of the entire democratic process. That's the second fraud.

The campaign of Obama is intimately involved in both cases: the evidence is mounting that this election looks to be one of the most corrupted in history, with massive violations of both campaign financing laws and voter registration fraud.

The Obama campaign is planning on putting together a team of no less than 5000 lawyers for election day injunctions, lawsuits and the like, as well as blocking any Republican attempt to question voter registration and balloting.


What does this say about the Obama campaign and, necessarily, about Obama?

First, a total lack of respect of existing laws. The facilitation of illegal campaign contributions isn't a trivial thing, but is rather an act that has long-lasting consequences that cannot be redressed: if The Obama is elected and it is then shown that he financed at least a part of his campaign illegally, you can't turn the election out and try again. The political repercussions are too great, and the US is made a laughing stock.

Second, the attempt to stuff ballot boxes - an old Democratic Party machine practice, especially in Chicago - is nothing less than the attempt to nullify the election itself, by making it impossible to determine whether Obama was actually elected by a clear majority of those who were legitimately voting, or whether the system was gamed to make the election moot.

Third: why are they doing this?

There are two reasons.

1) Getting Obama elected is more important than the law.

2) This is a direct attack on democracy. More exactly, by perpetrating - and getting away with - wide-scale campaign financing and vote fraud, those in charge of committing this fraud have effectively made the vote corrupt.

This is the reason for their actions: it's not enough to elect Obama, but their actions go further. They want to make the existing system, the system that has worked largely well for over 200 years, appear to be no longer capable of avoiding such fraud, and there will be calls for election system reform.

We'll be seeing calls to "reform" the system, calls to eliminate the electoral college, calls for change. Change is, after all, what Obama preaches.

We'll see, following this, calls for changing the way the government works. Most fundamentally, given the extreme difficulty of changing the constitution, what we will see are calls for a constitutional convention to re-write the constitution, purportedly to put in things "that will benefit us all" or words to that effect.

What people don't realize is that a constitutional convention can change everything. It can change the 1st Amendment to stifle politically unacceptable speech; it can eliminate the 2nd Amendment; it can literally re-write the constitution.

If a constitutional convention is called, what changes? Everything. The "Progressives" will make it sound like a small update, a modernization of the Constitution, but in reality it will be destroyed and replaced by some abomination.

As things are, any such changes to the Constitution must be ratified by a majority of states. This can be changed.

The more anyone with an open mind looks at the Obama campaign, the clearer the fraud is.


As others have said, this isn't your typical election: the Democrats, especially with their fraud, may well have effectively complete control of the legislative and executive branches. The judicial branch is what then remains independent, and that is not eternal.

Fear for the Republic. For that is what we have had. May we keep it still...

Best Analysis of the Economics Profession As It Exists Today...

Arnold Kling puts it beautifully here.

Let me quote:

I have always thought that the issue of the relationship between financial markets and the "real economy" was really deep. I thought that it was a critical part of macroeconomic theory that was poorly developed. But the economics profession for the past thirty years instead focused on producing stochastic calculus porn to satisfy young men's urge for mathematical masturbation.

If you don't do econometrics professionally - it's my everyday work - then you have no idea how accurate this is.

The first thing I tell students (we employ them) and customers when they come in for training is that the most critical thing for model-building is model specification and the importance of having the models make economic sense. We spend most of the time teaching them how to think in terms of dependency relationships and causal chains, and first then do we talk econometric techniques.

I've had a few run-ins with those with what I call the econometric fetish, where equation results serve to replace thinking, where econometric tests replace reasoning. Don't get me wrong: I use econometrics each and every day of my working life (spent the day today working on average Russian industrial wages per worker, thank you very much), but the critical thing is to realize that it is only a tool to get the economist where they want to be, which is to understand what is going on and what are the economic relationships and forces driving any sort of economic activity.

Hence: what he said. Too many economists have effectively taken the blue pill and prefer to live in a world that is, ultimately, meaningless and self-indulgent, rather than in the realm of the real, as Morpheus describes it to Neo.

It is also part of the reason why there are so few economists left employed by industry outside of the forecasting houses and the big banks: it is because they slowly became irrelevant, so in love with their models and equations that they lost sight of the reason why they were there, to advise, for instance, the board of directors as to what impact events would have on that company and what should be done. Once they failed here, the lawyers and accountants filled the vacuum, and we know how that ends.

In tears.

Channelling My Inner Partisan...

While I try to remain cool and calm, this is the way I often feel:

Click To Play

Hat tip to Patterico, and go visit Drinking With Bob. There's more than one worth watching there...

Be happy I don't have any desire to do video blogging. Be very happy...

JohnF

Yes, I am Joe...

Common Sense From Joe ...

We've seen now how Obama wants to "spread the wealth" (as if it isn't being spread already...). He was directly asked by a plumber about his tax plans, and was basically told that Obama wants to take his "wealth".

Well, meet the guy here.

His name is Joe Wurzelbacher, and he's a plumber.

These are the key things he's said:

Initially, I started off asking him if he believed in the American Dream and he said yes, he does – and then I proceeded to ask him then why he's penalizing me for trying to fulfill it.
...

See, I believe in working for what I get. I don't want to say it's a handout, but essentially that's what it comes down to. You're going to tax someone else more that's been working hard to fulfill the American Dream and you're gonna give it to other people who – I'm not saying they don't work as hard, but I'm sure some of them don't – and I don't think it's right just to give it to them or reduce taxes on their part and hike it up on my part like a teeter totter to bring it back even.
...
He doesn't want to "punish" me, but – when you use the word "but," you pretty much negate everything you just said prior to that. So he does want to punish me, he does want to punish me for working harder to – you know, my big thing is the American Dream. I work hard. You know, I was poor; my mom raised me and my brother by herself for a very long time until my dad came along. So I know what it's like to suffer. It's not like I was born with a silver spoon. Usually it was a wooden spoon and it was on my butt. It was just a contradiction of terms, what he said: he doesn't want to punish me but he wants to redistribute my wealth. And what I mean when I say my wealth, I mean the collective. Eventually – I mean, just to sound a little silly here, but you need rich people. I mean, who are you going to work for?    
...

You start giving people stuff, and then they start expecting it – and that scares me. A lot of people expect it now. They get upset when their check's late, they get upset when they don't get as many benefits as they used to, or when different government agencies are cut or spending is cut here and there for whatever reason – people get upset at that. And that's because they're used to getting it and they want more. I mean, everyone's always gonna want more. People work the system left and right to get more out of welfare, to get more out of state assistance, federal assistance. And if government's there for them, they're gonna keep on trying to manipulate it to get more out of it. You got people that come along and say, "Hey, I wanna help you people," I mean, they're all ears! They're like, "Hey, you can help me more, I don't have to work as hard, I don't have to do as much, and you're gonna give me this? Man, that's great, you're a good guy."
...
His healthcare plan scares me. You know, I don't like people going without healthcare, but it's not my job to pay for everyone else's healthcare. It's hard enough paying for my own.
...
You spend more, you gotta get it from somewhere. I don't think he's gonna cut any of the government down, in fact I think he wants to make it bigger. And eventually, you get it too big, it's gonna topple. In essence, I suppose I do agree for a little bit, but I just don't know enough as far as the grand scheme like that.
...
Me personally, my American Dream was to have a house, a dog, a couple rifles, a bass boat. I believe in living life easy and simple. I don't have grand designs. I don't want much. I just wanna be able to take care of my family and do things with them outdoors and that's about it, really. I don't have a "grand scheme" thing. My American Dream is just more personal to me as far as working, making a good living and being able to provide for my family, college for my son. Things like that – simple things in life, that's really what it comes down to for me. That's my dream.
...

There's a lot of things I wish McCain would say. As far as this, yes, I would like him to speak. Not so much about small businesses, but just people in general that make this money. It's not up to them to help America, I mean – let me rephrase that. It's not – they shouldn't be taxed more because they've succeeded. That's envy and jealousy. Get off your butt and go work. Don't sit there and expect the government to give it to you. So I wouldn't mind him speaking on it like that. I know he couldn't say it probably like that because that'd turn a lot of people off. But it just – yeah, I guess I would like him to speak about that and a bunch of other things. I'd like to hear him talk about immigration and what he plans on doing about that and with our borders. I mean, there's a lot of things that haven't even been addressed in the last two debates.

Words of wisdom and one heck of a lot of common sense from a plumber in Ohio. Were that more people understood this.

This is the common sense that has helped the US be so productive and successful over the last 200+ years.

The elitists of our country think that a plumber should be seen and not heard. I say that we need to hear from more plumbers. And electricians. And carpenters. And and and...

The elitists of our country think that this man should pay for his success. I say that such thinking is so completely contradictory to the American lifestyle that it deserves nothing but contempt and rejection.

The elitists of our country think that it is his job to pay for everyone else. I say that the elitists of our country deserve to be howling in the wilderness for the next 100 years at the very least.

This is the success story of America: hard work, long hours, owning your own business, hiring folks to help you, modest rewards and the simple life.

For the elitists this is a caricature of what is wrong with America.

I say that it is the backbone of America, and that it is the immigrant's dream. Nothing more, but also nothing less.

Where the Blame Lies...

Stefan Stern has a column in the FT today (here) on "How Did We Get Into This Mess?".

The fundamental question he asks, quite rightly so, is how so many banks and financial institutes, employing so many clever folks, made such massive errors in judgment.

Stefan explains this well, but I'd like to expound on it because he comes close, but not close enough to the real problem.


The problem is the fact that you have too many lawyers and accountants in leading positions.

Why do I say this?

Because lawyers and accountants do not really understand the concept of value added in the business place. They may occupy the boss's chair, they may be able to tell them what to do, but their understanding of business is simply too short-sighted and concentrated on one thing: the bottom line.

Both lawyers and accountants are auxiliary professions: they service those who create wealth. A lawyer is expert in knowing what is legal and what may a company do in its business affairs; an accountant is expert in knowing how the present the company's state of business so as to provide management with a clear understanding of resources, commitments and where best to improve productivity (i.e. ensuring that the most productive are kept happy and finding out where the least productive are in order to improve their productivity).

These are honorable professions. The problem arises when a lawyer or accountant is tasked with something outside of their level of expertise.

As Stefan correctly points out, the managers that made companies like IBM, GE and P&G great were dedicated to long-term stability and growth of the companies, rather than maximizing short-term profits. The main job of CEO isn't to do that, but rather to determine strategy, chose the people best capable of realizing that strategy, and supervising them. This works if the person in charge knows the business because they have spent their lives doing it, and knew the problems, opportunities and people involved intimately. Such a person makes the right decisions based on this kind of knowledge intuitively.

As Stefan says, referring to Will and Kenneth Hopper's book "The Puritan Gift": Understanding finance tells people how to fund activities, but not which activities to fund.

The current crisis is above all a management crisis. Only those companies with really good management have mastered the crisis by getting out of markets at a good time and who have managed the crisis, rather than merely looking for any deal that would improve the current quarter's bottom line without regard to what would happen next quarter.

Having an MBA or some other management degree doesn't guarantee that you'll also get a good manager: there are tales aplenty of companies hiring MBAs only to discover to their horror that they have hired very smart people completely resistant to learning actually how to manage a company.

And Stefan's closing remarks are quite correct: management deserves no sympathy at all under these circumstances.

But most of all the blame lies on the promotion of lawyers and accountants (glorified or otherwise) to top management positions well beyond their competencies. In an economy growing strongly, their faults could be ignored, and indeed have been for the last decade. Now, with an economy that will go into recession and which has much excess to recover from (an economic hangover, as it were), real management skills are in demand.

I fear that these are far fewer than one might think.

Ta ta Tata

Sorry for the pun, it's a serious subject.

 

I suppose it's a quintessential Indian problem, but the saga of the Tata Nano is instructive of the sort of socio-economic factors that help shape investment decisions.

The Tata Nano has been described elsewhere: suffice to say that it is a product aimed at providing personal mobility at extremely low cost. Potentially enormous benefits for the average Indian consumer.

The story starts a few years ago. The communist-led government of West Bengal invited Tata to set up plant in Singur and acquired 1000 acres for the company's usage. Once the farmers found out what the land was going to be put to use for, they wanted more for their land, but the government didn't give them more. Bad blood developed, the opposition party in  the region got involved in stoking up the anger, and the situation recently escalated: the farmers have blocked access to the buildings and protests have turned violent.

As a result, the needed managers refuse to move there: recent events have made middle-class managers a tad resistant to the idea of having to deal with worker disputes. This was not helped as the labor minister said that the death should serve as a warning to managers.

The workers had been dismissed when they demanded higher wages.

It's not clear, though, who the attackers were who killed Lalit Kishore Choudhary. They were not employees of Graziano Tranmissioni, the Italian auto parts company whose layoff of over 100 workers led to his death. A total of 63 people were arrested after the manager was beaten to death.

Tata has said it is not comfortable having to work under police protection where they are apparently not wanted. The planned plant would have produced 30 000 Tata Nanos per month, back-up capacity will be used to make 10 000 of them in existing plant and facilities instead.

But what is going on here? The CPI(M), which runs the region, has some explaining to do: the leader of the party in the region has been arrested for the rape and murder of a young woman who was involved in opposing the plant: he refuses to take a lie detector test. The young woman was the leader of the movement launched by the Trinamool Congress against the acquisition of farmland.

Who is the Trinamool Congress? According to Wiki, largely defectors of the Indian National Congress, the party of Nehru and Gandhi. They are notorious in their usage of bangla bandh, or short-term general strikes, to make their political points in a region that is dominated by the Indian communists. This party, the CPI(M) or Communist Party India (Marxist), runs the region as its own fiefdom.

It's a strange world when the communists try to get capitalists to invest and are rejected by farmers.

West Bengal, where this is all going down, is the most heavily populated state in India, with less than 3% of the land area and close to 9% of India's population. While heavily agricultural, it is known for militant unions and communist-led governments. More relevantly, the CPI(M) was responsible for the Nandigram violence, where basically farmers had their land expropriated for a chemical factory that led to violence that left 14 dead and 70 hurt as 4000 police cleared farmland at the orders of the CPI(M). But we're not talking here of moving a few farmers, but rather disrupting 40 000 lives: as mentioned, this is a heavily populated area.

So Tata's decision is not merely that of a corporation that doesn't want to be where it isn't wanted: it's also the decision not to get involved in a region where commercial interests trump politics and where the purported leading elite of the downtrodden masses are actively involved in the exploitation of those same masses: the capitalist exploiters of the poor downtrodden masses are those protecting the same from their purported leading elites. Investments are canceled and written off because the safety of the workers cannot be guaranteed.

It's a strange world indeed.

 

When investing overseas, it pays to do your homework...

Subprime Solutions...

We've had an interesting couple of days, to put it mildly.

When the House rejected the rescue plan - I'm still digesting that one and will comment on that later - the markets went south in a hurry. That's exactly what I expected, but I didn't expect the day after.

The markets went back up.


Market liquidity is not the problem (as it had been in The Great Crash: leverage there was so high that when margin calls were placed, the system convulsed).


The political commentary has been poor: even such sages as Martin Wolf continue to say "We are watching the disintegration of the financial system".

I say: balderdash.



What we are seeing is a market correction. Companies that made investment errors - Lehman Brothers and others - are being sanctioned and punished for losing sight of why you do risk management: not to be in the way of investments and profits, but rather to learn what the market risks actually are and to make a decision that is based not purely on the bottom line, but one that also includes real risks.


This is the problem when you have accountants and lawyers making investment decisions: over time, the only thing that matters is the bottom line.

You need good economists and right and proper investment advisers - above all: independent - to make those decisions based not merely on the bottom line, but also in the risks involved. Dismissing risks because they don't happen at first is foolish at best and criminal at worst, because, given the kinds of investments made, having the worst-case scenario come true once will destroy you.

But this post is on subprime solutions.

There are four things that need to be done in the wake of this crisis that will help ensure that it does not arise again (and failing to ensure that is sheer stupidity):

1) repeal the CRA and eliminate all additional subprime loans immediately. If you want to do some social engineering, then subsidize directly, not by gaming the system;

2) closing of Fannie Mae and Freddie Mac over a 10-year period. These institutions cannot, effectively, be reformed, but have a mind set that has proven to be toxic;

3) government guarantees may not be politically influence If such a guarantee is given to some sort of follow-on mortgage guarantee trust, that organization's leadership may not be chosen politically, but rather solely on the basis of technical competence. This needs to be written into the bylaws of whatever legislation is proposed, and the head of such an organization must be chosen much like the Fed Chairman is chosen;

4) no government-approved rating agencies. These agencies bear an enormous responsibility for the mis-allocation of capital based on fundamentally erroneous ratings, and part of the problem was that they operate as an oligarchy, without adequate competition.


This is, obviously, not comprehensive, nor does it address any sort of loss compensation for the banks or investors.



Nor should it: risk has to be resurrected for what it is. You can insure against risk: that's what insurance companies do. You pay for this. You cannot, however, remove risk: that is what at least some of the derivatives claimed to be able to do, and there is a simple rule that can be learned here: You Cannot Remove Risk.

Chinese Colonialism...

I've written on how the Chinese see the world before.

Now Peter Hitchens in the Mail Online writes this. As the pundits say, read the entire thing.


History is repeating itself once again, but has entered the tragedy phase, one that never ends.

Here's the core of the story:

These poor, hopeless, angry people exist by grubbing for scraps of cobalt and copper ore in the filth and dust of abandoned copper mines in Congo, sinking perilous 80ft shafts by hand, washing their finds in cholera-infected streams full of human filth, then pushing enormous two-hundredweight loads uphill on ancient bicycles to the nearby town of Likasi where middlemen buy them to sell on, mainly to Chinese businessmen hungry for these vital metals.
...

Out of desperation, much of the continent is selling itself into a new era of corruption and virtual slavery as China seeks to buy up all the metals, minerals and oil she can lay her hands on: copper for electric and telephone cables, cobalt for mobile phones and jet engines - the basic raw materials of modern life.

That's right, this time it's the Chinese. Their own propaganda sells Chinese involvement as enlightened and bringing nothing but benefits to the Africans, but reality has a nasty way of not following the party line.

The Chinese leadership may even believe that they are doing good. But anyone who would bother to really look at Africa knows the problems of endemnic corruption and the zero-sum way of life there, and you have to change the culture before you will have economic growth: the Chinese leadership, of course, believe that they have subdued their citizens (hah!) and that they can do the same for the Africans.

They can: it will require the same kind of mass starvation and megadeaths that Chinese communism required until a painful status quo was achieved between power and responsibility in China, one that is vastly less stable than one would be led to believe.

But this time it's Africa, and this is nothing less than the worst colonialism since Belgium ran the Congo, and that is saying a lot.

China offers both rulers and the ruled in Africa the simple, squalid advantages of shameless exploitation.

For the governments, there are gargantuan loans, promises of new roads, railways, hospitals and schools - in return for giving Peking a free and tax-free run at Africa's rich resources of oil, minerals and metals.

For the people, there are these wretched leavings, which, miserable as they are, must be better than the near-starvation they otherwise face.

Persuasive academics advised me before I set off on this journey that China's scramble for Africa had much to be said for it. They pointed out China needs African markets for its goods, and has an interest in real economic advance in that broken continent.

For once, they argued, a foreign intervention in Africa might work precisely because it is so cynical and self-interested. They said Western aid, with all its conditions, did little to create real advances in Africa, laughing as they declared: 'The only country that ever got rich through donations is the Vatican.'

Why get so het up about African corruption anyway? Is it really so much worse than corruption in Russia or India?

Is it really our business to try to act as missionaries of purity? Isn't what we call 'corruption' another name for what Africans view as looking after their families?

And what about China herself? Despite the country's convulsive growth and new wealth, it still suffers gravely from poverty and backwardness, as I have seen for myself in its dingy sweatshops, the primitive electricity-free villages of Canton, the dark and squalid mining city of Datong and the cave-dwelling settlements that still rely on wells for their water.

After the murderous disaster of Mao, and the long chaos that went before, China longs above all for stable prosperity. And, as one genial and open-minded Chinese businessman said to me in Congo as we sat over a beer in the decayed colonial majesty of Lubumbashi's Belgian-built Park Hotel: 'Africa is China's last hope.'

I find this argument quite appealing, in theory. Britain's own adventures in Africa were not specially benevolent, although many decent men did what they could to enforce fairness and justice amid the bigotry and exploitation.

This colonialism is worse than what Hitchens tells: it is wrapped in the mantle of progressivsm, that same mantle that took the lead in poisoning the post-colonial discussion with its rampant anti-Western rhetoric. This is truly where the lunatics are running the asylum.

I know from personal experience with Chinese authority that Peking regards anything short of deep respect as insulting, and it does not forget a slight.

I also know that this over-sensitive vigilance is present in Africa.

The Mail on Sunday team was reported to the authorities in Zambia's Copper Belt by Chinese managers who had seen us taking photographs of a graveyard at Chambishi where 54 victims of a disaster in a Chinese-run explosives factory are buried. Within an hour, local 'security' officials were buzzing round us trying to find out what we were up to.

But that's just the Chinese making sure that there is no interference in what they are doing, and it's all based on "legitimate concerns": poppycock.

Everyone in Africa knows China's Congo deal - worth almost £5billion in loans, roads, railways, hospitals and schools - was offered after Western experts demanded tougher anti-corruption measures in return for more aid.

Sata knows the Chinese are unpopular in his country. Zambians use a mocking word - 'choncholi' - to describe the way the Chinese speak. Zambian businessmen gossip about the way the Chinese live in separate compounds, where - they claim - dogs are kept for food.

There are persistent rumours, which cropped up in almost every conversation I had in Zambia, that many of the imported Chinese workforce are convicted criminals whom China wants to offload in Africa. I was unable to confirm this but, given China's enormous gulag and the harshness of life for many migrant workers, it is certainly not impossible.

In other words, China is the new colonial power. History repeats, this time as tragedy.