Mistakes happen, particularly in war, but this was not a mistake. It was policy. Or the lack of policy.
At the age of 19, Murat Kurnaz vanished into America's shadow prison system in the war on terror. He was from Germany, traveling in Pakistan, and was picked up three months after 9/11. But there seemed to be ample evidence that Kurnaz was an innocent man with no connection to terrorism. The FBI thought so, U.S. intelligence thought so, and German intelligence agreed. But once he was picked up, Kurnaz found himself in a prison system that required no evidence and answered to no one.
[...]
[Kurnaz' lawyer, Baher Azmy] dug into the case and found that the military seemed to have invented some of the charges. Military prosecutors said one of Kurnaz’s friends was a suicide bomber, but the friend turned up alive and well in Germany. [...] But far worse than the false charges was the secret government file that Azmy uncovered.
Six months after Kurnaz reached Guantanamo, U.S. military intelligence had written, "criminal investigation task force has no definite link [or] evidence of detainee having an association with al Qaeda or making any specific threat toward the U.S."
At the same time, German intelligence agents wrote their government, saying, "USA considers Murat Kurnaz’s innocence to be proven. He is to be released in approximately six to eight weeks." But Azmy says Kurnaz was kept at Guantanamo Bay for three and a half years after this memo was written in 2002.
They kept him, Kurnaz says, by inventing new charges. In a makeshift courthouse, Kurnaz claims that a military judge charged that Kurnaz had been picked up near Osama bin Laden's hideout in Afghanistan while fighting for the Taliban. Ironic, since it was the U.S. that flew him to Afghanistan to begin with.
If charges won't be filed against him, when will charges be filed against the person or people who caused or allowed this to occur? As Alex Knapp writes, this was "a citizen of one of our most valued allies [who] was tortured, denied counsel for three years, and kept in inhumane conditions, this despite the fact that shortly after he was detained his innocence was already determined. Not that it would have been justified to treat a guilty man this way, either. Due process is one of the cornerstones of America’s founding principles — one that is degrading every year."
Prime Time for Oppo Dumps
{Jon Henke]
It's getting down to desperation crunch time in the Democratic primary, so the oppo researchers are unloading the good stuff press is really beginning to scrutinize the candidates more carefully. While the "oops" moments they've uncovered probably are not campaign-ending disasters, they seem like the kind of narrative slips that could be problematic for both Hillary Clinton and Barack Obama. A parade of the recent troubles...
Hillary Clinton is running on her competence and determination to insure everybody. But she hasn't paid her staff's medical bills in a couple months.
Barack Obama is running as a new kind of candidate with a new kind of campaign. But his campaignis spreading good old-fashioned, er, misinformation. Oddly, they seem to think that hey, he amended the document and signed it himself, but that doesn't mean he actually read the thing is a good defense. [NOTE: yes, staffers do fill out questionnaires, and it is entirely plausible that Obama didn't read it the first time. It's even plausible that he didn't really read it thoroughly the second time, though one wonders why he filed an amended version if he or his policy people hadn't checked it closely enough to detect errors. But it's pretty implausible that a questionnaire was filled out and sent without ever being checked by the policy people who knew his positions well.]
Barack Obama is running as the sort of Uniter-Not-Divider politician who can bring us all together in rapturous harmony. But he keeps finding himself having to explain his choice in spiritual advisors and campaign committee members. The most recent story points out Obama's "connection to another racially divisive public figure—the stridently homophobic Rev. James T. Meeks", who was named by the Southern Poverty Law Center as one of the "10 leading black religious voices in the anti-gay movement". Incidentally, James Meeks was also behind the Halloween "hell house" which "housed a few denizens of "hell," including a pedophile trolling the Internet for a young victim, a meditating Buddhist, and two mincing young men wearing body glitter who were supposed to be homosexuals." Considering howtheProgressivesreacted to Obama'sassociation with Donnie McClurkin, I would imagine this won't make people happy.
Barack Obama is running on his unwillingness to take money from oil companies. But he's also been factcheck.org'd, since it turns out that no candidate has taken money from oil companies, and Obama has "accepted more than $213,000 from individuals who work for companies in the oil and gas industry and their spouses."
Hillary Clinton is running on her competence. But she has had to back down from her claims about experiencing sniper fire in Bosnia, claiming she was merely "sleep-deprived" and had "misspoke". ("Tired" is the politician's equivalent of the "flu" excuse that movie stars use when they need to spend a bit of time in rehab; it's transparently false, but they seem to think people buy it) But she had been "repeating this whopper for nearly three months" and the "Bosnia anecdote was part of her prepared remarks, scripted and vetted with her staff."
She must have been very tired.
Imagine what she might do if - to pick a potential Presidential situation entirely at random - there is a phone in the White House and it's ringing because something is happening in the world. It's 3:00 a.m., and your children are safe and asleep. What do you suppose she might say if she was sleepy?
It's been a difficult week for both of them, but they have only themselves to blame. Well, themselves, their opponents research departments and a few well-fed reporters.
When a tax is not a tax
[Peter Suderman]
Over at my blog group-home, Reihan wonders if maybe, just maybe, a "music tax" might be a good idea. He's responding to an idea that popped up in a recent Portfolio piece. Basically, the labels, or at least Warner music, want to see an additional $5 tacked onto everyone's ISP bill. They'd divide the spoils, and ISP subscribers would be able binge on file sharing without fear of legal reprisal.
I actually think this sounds great, at least provided that it's voluntary—in other words, that it's not really a tax. The article quotes David Barrett, who manages peer-to-peer networks for web hosting colossus Akamai, as saying that, no matter what the label reps say, "it's a tax."
"It'll be a government-approved cartel that collects money from virtually everyone—often without their knowledge—and failure to pay their tax will ultimately result in people with guns coming to your door."
Look, I'm usually the first person to smell hidden taxes, but the Warner rep advocating the plan explicitly denies any desire to have the government involved, and as long as that's true, this seems to be a pretty good way to solve the problem of illegal file sharing. My suspicion is that the $5 price point is probably too low unless it really is a tax, but I don't see why a $10 or even $20 fee wouldn't work. Think of it in comparison to other unlimited-media servives. The average monthly cable TV bill is almost $50, and all-you-can-watch Netflix plans run $14-$24 a month. How many people who buy music even a few times a year wouldn't spend the price of a CD a month (or less) in order to have essentially unlimited access to music?
So while I sympathize with Barrett and with folks like Michael Arrington who worry that this will quickly result in compulsory licensing, I see no reason why this can't or shouldn't work on a voluntary basis..
Gramm responds
[Peter Suderman]
McCain adviser Phil Gramm apparently played a role in regulatory changes that some have argued led to current woes in subprime mortgage market. Over at the Capital Commerce blog, James Pethokoukis has a response from Gramm.
Why Not Justice League?
[Peter Suderman]
Jeffrey Overstreet and Peter Chattaway are both dismayed by the rumor that Hayden Christensen, otherwise known as Stephen Glass, might play Superman in George Miller's upcoming Justice League film. In fact, they're more than dismayed. Chattaway wants the project to just go away entirely.
I'm not sure the casting Christensen, if confirmed, would be particularly good news, but I don't see why this project ought to be sunk. Yes, it's low on star power, but the first X-Men film showed you could make a fine superhero picture without any A-list performers. (Hugh Jackman, an unknown at the time, was catapulted to his current status by that film's success.) And I'd rather see something made rather than nothing at all. More than that, I'm just curious what would happen if you gave the director of Mad Max and The Road Warrior $100 million and said "Go make a superhero movie!" Sure, it might be terrible; but it might not be either -- directors who start doing gonzo, low-budget genre films have a history of coming through on big-budgetprojects. Just look what happened when the guy behind Army of Darkness was put in charge of Spider-Man. Miller's got a great eye for action and archetypal characters (Max was essentially a comic book anti-hero). I see no reason not to give him the chance on this one.
I Want My DTV?
[Peter Suderman]
There's a fair bit of confusion out there about the upcoming transition from analog to digital* broadcast TV. So it's too bad that today's Poststory on how some TV viewers might be affected by the transition doesn't do much to clarify the situation. For instance, here's Joel Kelsey of the Consumer's Union worrying over how low-income elderly folks will handle the transition:
"The elderly population is different in that they're less tech-savvy," Kelsey said. "Will they be able to move big TV sets, and will they know how to hook up the converter boxes?"
The last line in the piece quotes an elderly man living in Arlington:
"I may not even be alive by the time this thing happens!" Navarin said jokingly. "I hate to spend $800 on a new TV when these are perfectly good. I just don't think it's fair."
Both of these quotes seem meant to suggest that some will need to buy expensive new TVs as a result of the switch. But that's simply not the case. Most TV antennas now in use will be able to pick up the digital signals and display them with the help of a fairly inexpensive digital-to-analog signal converter box. What's more, those boxes, which typically only run about $60 to begin with (you can find them for $50 or so if you do some bargain hunting), are being subsidized via a $1.5 billion federal program that entitles everyone to $40 off up to two converters—putting the cost at about $20, not $800, and meaning that neither the elderly nor anyone else will have to buy bulky new sets.
Kelsey's concern that some TV viewers might not know how to hook up converter boxes is slightly more legitimate, but still I doubt there's much to worry about. Anyone who can figure out how to plug an antenna into a TV and adjust it so that picture comes in reasonably well can probably figure out how to connect the antenna to a box which then connects to the TV.
Here's another quote from the story, this one from Margaret Pully, who runs a community for low-income seniors in D.C.:
"TV is their lifeline to the world. Apparently it's not a free thing anymore," she said. "This is certainly an expense we weren't expecting."
Except TV, even over-the-air TV, has never been "free." You've always had to buy the equipment—the TV and antenna—if you wanted to pick up over-the-air broadcasts. A $10 or $20 one-time upgrade, it seems to me, is not unreasonable, even for someone on a tight budget. (Just as a reference point, that's about half what it costs for a 7-day rail pass on Metro.)
Now, I tend to think that there's no reason to subsidize access to broadcast TV in the first place. But setting that aside, maybe it would be fair to complain about the switch -- except that there's already a billion-dollar plus federal subsidy already in place (and one that's hugely wasteful in who it subsidizes at that). And I might be more sympathetic to worries about confusion amongst the elderly—the story reports that 73 percent of older consumers aren't aware of the subsidy—if the transition weren't still almost a year away, and broadcasters and cable companies hadn't committed roughly $1.2 billion to explaining the transition to customers, and the FCC hadn't already set aside $2.5 million to start their education efforts and requested $20 million more.
It's not like there's not a substantial amount of money, taxpayer and private, being spent to make sure that a relatively small number of people keep receiving a few channels on their aging TV sets. It's irritating, but probably politically necessary, that much of this money had to be spent at all, but the benefits from the spectrum it releases are almost certainly worth it. But as it stands, I'm not really sure what else anyone thinks ought to be done.
*Fixed to say "digital broadcast TV."
Clinton's new campaign motto: BYO
[Daniel Drezner]
Politico's Kenneth Vogel writes about the Clinton campaign's slow and steady accumulation of unpaid bills. There's quite a bit of facinating detail about who she's not paying:
It’s not just the size of Clinton’s debts that’s noteworthy. It’s also that her unpaid bills extend beyond the realm of high-priced consultants who typically let bills slide as part of the cost of doing business with powerful clientele whose success is linked to their own.
Some of Clinton’s biggest debts are to pollster and chief strategist Mark Penn, who’s owed $2.5 million; direct mail company MSHC Partners, which is owed $807,000; phone-banking firm Spoken Hub, which is waiting for $771,000; and ad maker Mandy Grunwald, who’s owed $467,000....
She owed Iowa’s Sioux City Art Center Board of Trustees $3,500 for catering and venue costs, New Hampshire’s Winnacunnet Cooperative School District $4,400 in event costs, Qwest $24,000 for phone service, various branches of the Iowa-based supermarket chain Hy-Vee $15,000 for food, beverages and catering, and $7,700 to Ohio and Massachusetts branches of the theatrical stage employees’ union, for equipment costs.
In fact, about a third of the nearly 700 individual debts Clinton reported at the end of February were for various types of “event expenses,” including $319,000 for catering and venue costs, $420,000 for equipment, $11,000 for photography and $9,000 for security.
I'm trying to figure out if Hillary Clinton can somehow turn this to her advantage in the remaining primaries. I think one of three slogans would work:
1) "This just shows that no matter what the situation, I won't discriminate against the little guy"
2) "In solidarity with beleaguered homeowners, I have decided not to pay my creditors."
3) "As I told the Washington Post, I will continue to rack up unpaid debts until the Michigan and Florida delegations are seated."
Suggest your own mottos in the comments!
UPDATE: Vogel has a follow-up story: "the $292,000 in unpaid health insurance premiums for her campaign staff stands out."
Is local governance a good idea?
[Tristan Reed]
In the United States, libertarians and small-government conservatives often subscribe to the idea that local government is, in general, better than federal government at providing services, barring a few exceptional policy areas, such as national defense. Local governments, at least in theory, are also thought to be more accountable to their constituents. Why should Washington bureaucrats allocate funding within school districts, when the school boards with local knowledge know better where that funding should go, the argument goes.
There is a sentiment similar in big multilateral organizations such as the World Bank, which when it advises countries often recommends decentralization plans that. it argues, will make governments less corrupt and more accountable to their people. Indeed, Sierra Leone, the country that in July will be my home, is currently undertaking a massive decentralization with backing from the Bank.
A working paper by UCLA’s Daniel Treisman may give decentralization advocates in the U.S. and at the multilaterals reason to be less sanguine about their cause. Treisman summarizes the reasons why decentralization may not be so great, and then does some neat cross-country regressions to see test them empirically. His results are discouraging.
Decentralization can be bad for a number of reasons. Decentralization can create so many checks and balances between government entities that nothing can get done. It may be harder to reform a broken system when you create more stakeholders, and thus an inefficient government, once decentralized, may become even worse. Second, adding more tiers of government, which often happens in decentralization schemes since one can rarely create more local government without keeping some power at the top, can cause duplication of policies and waste of resources. Think of the overlap between state and federal health care programs. Another worry is that local government officials can be less competent. They might also be more susceptible to bribery than those in high office.
Treisman finds little support for the “local knowledge,” hypothesis laid out in the school board trope. In general, he finds, greater local decision-making and budget authority are associated with nasties such as poorer youth literacy and sanitation. He also finds that the number of tiers of government is positively associated with the level of perceived corruption. More tiers of government are also associated with fewer inoculations, a good measure of a country’s health performance.
Now, all this is not to say that decentralization and localization of government is bad all the time. Though it may not be very beneficial on the aggregate, what doesn’t work in the majority of countries may still work fine in some. What the paper does suggest is that local government is not the cure-all for government inefficiency, though some think it to be. It also suggests that federal government may not be so bad relative to the alternatives. In a static system in which the size of government is held constant, it may be worthwhile to concentrate it in fewer levels, and nearer to the top.
Pleased to Meet You...
[Jon Henke]
While I am not above "sounding pretentious, obtuse, doltish, obsessive, or just dull", I tend to do so unintentionally, so I'll skip the awkward mucking about over how to introduce myself and simply point out that I am, to quote Douglas Adams, "just this guy, you know?"
I was honored that Megan would ask me to guest post in her absence - she's long been one of my favorite bloggers and thinkers - so I've promised her that I won't be needlessly antagonistic ("Ron Paul isn't good for libertarians, and your gold standard sucks, too") or otherwise leave the place a mess. For now, let's just get the narcissistic stuff out of the way...
Like Daniel Drezner, I'm also returning from a conference. Unlike Daniel Drezner, however, my conference was with bloggers. I cannot imagine a country governed by bloggers, which is probably for the best.
I attended the opening night at the Washington Nationals' new stadium this evening. But I'm not even a baseball fan. In fact, I didn't realize it was opening night until around the 5th inning or so. I used to be a pro sports fan - Atlanta Braves and Atlanta Hawks - but in 1994, (a) Dominique Wilkins was traded away from the Hawks and I discovered I had simply been a Dominique Wilkins fan, and (b) baseball players went on strike and I discovered I wasn't really all that interested in the exploits of petulant millionaires in tights. Still, tonight was quite enjoyable. The new Nationals Park is very well done.
I'm also not a fan of music. I enjoy pointing this out, because it invariably confuses people. "What kind of music", they'll ask. "Any", I'll respond. It just doesn't seem very interesting to me. I'm not sure why this confuses people, though. They're not surprised when somebody says "I don't like modern art", so why should it be unusual that some people just aren't touched by music?
In 2000, I voted for Harry Browne. In 2004, I wrote in None of The Above. Both lost.
I tend to be a right-of-center libertarian because I'm more concerned about the loss of economic freedom than social freedom - in part, because I think the former will lead to the latter. Decades ago, we were talking about lobotomizing gay people, now we're talking about marrying them. We're not in danger of theocracy. We should be more concerned about what Brandeis called "insidious encroachment by men of zeal, well-meaning but without understanding." The "do-goodism" to which James Buchanan referred is the greater threat. After all, "the licentious sinners we can control; the saintly ascetics may destroy us."
Limited government is a fine idea. I wish we had a Party that believed in it.
Let's predict the Zimbabwe news cycle
[Daniel Drezner]
There are multiple reports that Zimbabwe's president Robert Mugabe has suffered a crushing defeat during this weekend's presidential election. Apparently, a 100,000% annual inflation rate and employment of around 25% of the adult population is not a vote-getter.
These same news stories also say that the government is holding off on reporting the results, suggesting that Mugabe may try to jerry-rig the results to maintain his grip on power.
I don't know what Mugabe will do, but I do know that one of two things will happen:
I’m Tristan Reed, and I’m honored to join Megan’s crack team of guest bloggers for the week. I agree with Peter that introductions are akward, so I'll just give you my paragraph long CV, and hope that convinces you to read me.
I’m an entering economics Ph.D. student at Harvard, with research interests in development and behavioral economics as well as political economy. I’m taking next year off to work for the Jameel Poverty Action Lab in Sierra Leone, working with NGOs and international institutions to evaluate their development programs and find out which ones work, and for whom.
In my posts this week, I'll try to bring you the latest in economics and political science research, and to spark some discussion about what it all means.
What Tocqueville tells us about the web
[Peter Suderman]
One doesn’t typically look to 19th century political science in order to describe the state of the internet, but it strikes me that all the way back in 1835, Tocqueville provided us with as succinct and apt a description of the transition from old media to new as you’re likely to find:
As the noble never suspected that anyone would attempt to deprive him of the privileges which he believed to be legitimate, and as the serf looked upon his own inferiority as a consequence of the immutable order of nature, it is easy to imagine that some mutual exchange of goodwill took place between two classes so differently endowed by fate. Inequality and wretchedness were then to be found in society, but the souls of neither rank of men were degraded.
Men are not corrupted by the exercise of power or debased by the habit of obedience, but by the exercise of a power which they believe to be illegitimate, and by obedience to a rule which they consider to be usurped and oppressive.
On the one side were wealth, strength, and leisure, accompanied by the pursuit of luxury, the refinements of taste, the pleasures of wit, and the cultivation of the arts; on the other were labor, clownishness, and ignorance. But in the midst of this coarse and ignorant multitude it was not uncommon to meet with energetic passions, generous sentiments, profound religious convictions, and wild virtues.
The social state thus organized might boast of its stability, its power, and, above all, its glory.
But the scene is now changed. Gradually the distinctions of rank are done away with; the barriers that once severed mankind are falling; property is divided, power is shared by many, the light of intelligence spreads, and the capacities of all classes tend towards equality.
Replace “noble” with whatever your preferred term is for mainstream media and “serf” with blogger and it’s just about perfect.
After all, isn’t the internet the 21st century’s New World? We no longer have a physical frontier to conquer, at least not in the traditional sense, but we have an infinite supply of undeveloped, undiscovered digital territory. “Land is the basis of an aristocracy,” he wrote, and he argued that the evolution of property ownership from large land holders to a widespread ownership of smaller parcels facilitated the death of the aristocracy. In the same way, the abundance of digital land has radically altered the media (and business) landscape.
Introductions are inherently awkward, even in the very best circumstances. How does one decide what to say about him or herself without sounding pretentious, obtuse, doltish, obsessive, or just dull? And how do you then say whatever you’ve just decided on in such a way that doesn’t give away the fact that you’ve given it a good bit of thought? It’s like that great Michael Cera line in Juno, “Actually, I try really hard.” Yes, but you’re never supposed to let on!
On the other hand, introductions are also an integral part of most important social activities — business, friendship, house parties. Barring any strong Unabomberesque proclivities, you’ll have a rough time in life without introductions. And since Megan has asked us to make them, I feel obliged. So here are a few informational tidbits. (Feel free to use them as talking points.)
• I contribute semi-regularly to a number of blogs, most notably The American Scene.
• I review movies for NRO.
• My favorite song this week is “Nylon Smile,” which can be found on the excellent new Portishead album, Third.
• I’m an editor of Doublethink, which not too long ago profiled this blog’s proprietor.
• I am an unabashed D.C. partisan, and as far as city rivalries go, I think of New York more or less the way a Texas A&M fan thinks of UT.
• John McCain reminds me of Worf.
For anyone who for some odd reason wants to know more, there’s a brief bio posted over at TAS.
Please allow me to introduce myself....
[posted by Dan Drezner]
Hello, my name is... well, it's in bold above this line, so you can figure it out. I normally blog at the wittily-named Daniel Drezner.
I'm honored to be one of Megan's guest-bloggers during her retreat from the internets. I'll try to fill her shoes as best as possible -- a daunting task, given that Megan's a foot taller than me and I'm at least fifty pounds heavier than her.
Real posting will commence tomorrow, as I'm still decompressing from attending the International Studies Association annual meeting. For me, the highlight of the meeting came in a cab. After the cab driver found out my lunch companion and I were international relations professors, he strongly encouraged us to fight government censorship and "lead the revolution." At this point I turned to my colleague and said,"could you imagine a country governed by the International Studies Association?" We laughed for the rest of the car ride.
Maybe you had to be there.
March 29, 2008
Off to Puerto Rico
I head off to the airport at an absurdly early hour tomorrow, leaving you in the hands of my extremely capable guest-bloggers: Daniel Drezner, Peter Suderman, Mindles H. Dreck, Jon Henke, and new blogger Tristan Reed. I'm going to be trying a brand new experiment: unplugging from the internet for an entire five days.
Meanwhile, here's something to tide you over until the guest-blogging kicks in:
You almost never see tofu paired with pasta outside of vegan cookbooks, which is a pity because the textures actually go quite well together. This is a pasta that I whipped up for myself this afternoon; it's easy, tasty, and full of protein.
1/2 lb pasta (I use linguine)
1 bunch asparagus
1 box sliced button or baby bella mushrooms
2-3 cloves of garlic
1/2 package Nasoya superfirm cubed tofu (or cut any extra firm tofu into 1/4 inch cubes)
Olive oil
Cook the pasta with at least a tablespoon of salt in the water. Meanwhile, cut the asparagus into 1 1/2 inch pieces and microwave on high for 2-3 minutes. (If you don't have a microwave, poach in 1/4 inch of water in a frying pan for the same amount of time, until just barely undercooked.) Saute the mushrooms in olive oil until they start to brown. Add asparagus, tofu, and crushed garlic. Saute until the asparagus is cooked. Salt and pepper to taste. Pour over pasta with a tablespoon of extra olive oil to coat the pasta. Serve warm.
A jumbo problem
Recently, the government raised the ceiling on the loans that can be purchased by Fannie Mae and Freddie Mac in an effort to help homeowners in pricy coastal zones. "Jumbo" loans, above the old ceiling of $417,000, carried a stiffer interest rate; the government hoped to ease the burden on those homeowners, and perhaps give a boost to the housing market.
Many homeowners and mortgage brokers anticipated that the higher limit would lower rates on bigger loans to match the conforming rates. Instead, it has created a middle tier of rates for loans between the old $417,000 limit and the new $729,750 limit. Investors are demanding higher yields for those loans because mortgage investments have imploded and investors fear the larger loans will make bundles of conforming loans riskier.
"Borrowers and Realtors say rates should be as low as possible - end of story," said Tom Kelly, spokesman for Chase home lending, which started offering mid-tier loans in mid-March. "But other people have to sort through the realities. We just don't know enough about how the market will work, exactly."
This middle tier of loans has come to be called "agency jumbos" because the agencies of Fannie and Freddie can buy them. But Keith Gumbinger, an analyst for HSH Associates in Pompton Plains, N.J., sometimes calls them "tweeners."
Mortgage brokers and borrowers, however, are more likely to call them a disappointment.
Saturday movie review
Just watched H.G. Wells' Things to Come. Apparently, he actually wrote the screenplay. It turns out that H.G. Wells was very possibly the worst screenwriter in the history of the planet, and yes, I have seen any number of Soviet propaganda films, and also, Yentl. The thing has to be seen to be believed. But be sure to lay in a good supply of beer first.
In May 2002, in the midst of a severe food shortage in sub-Saharan Africa, the government of Zimbabwe turned away 10,000 tons of corn from the World Food Program (WFP). The WFP then diverted the food to other countries, including Zambia, where 2.5 million people were in need. The Zambian government locked away the corn, banned its distribution, and stopped another shipment on its way to the country. “Simply because my people are hungry,” President Levy Mwanawasa later said, “is no justification to give them poison.”
The corn came from farms in the United States, where most corn produced—and consumed—comes from seeds that have been engineered to resist some pests, and thus qualifies as genetically modified. Throughout the 90s, genetically modified foods were seen as holding promise for the farmers of Africa, so long as multinationals would invest in developing superior African crops rather than extend the technology only to the rich. When Zambia and Zimbabwe turned away food aid, simmering controversy over the crops themselves brimmed over and seeped into almost every African state. Cast as toxic to humans, destructive to the environment, and part of a corporate plot to immiserate the poor, cutting edge farming technology is most feared where it is most needed.
My understanding at the time was that this was even worse than ignorance: Africans keep out relief grain because they know that farmers will hold some of it for seed. They were afraid that if GM entered the food chain, they would that never, ever be able to export any plant products to Europe because of their stringent regulations (these have, I believe, been somewhat relaxed). So even if the president of Zambia knew GM was harmless, he couldn't risk permanently impairing his country's economic guture.
Moral hazard
I just can't get that excited about the complaint that the Bush administration wants to spend taxpayer money on people with bad mortgages. The government spends amazing amounts of money on amazingly stupid things. Giving money to people who want to own houses seems markedly less outrageous than, say, giving money to people who want to produce sugar in the northern United States.
To be sure, I am not a homeowner, so I do not chafe under the knowledge that irresponsible people are getting a better deal than I did. But it doesn't seem like this is going to affect all that many people--certainly, a lot fewer than the ARM freeze that Hillary was proposing. Besides, as a libertarian, I've had to inure myself to the notion that the government thinks its primary job is to prevent the chickens from coming home to roost. If I let myself get outraged by that sort of thing, I would have had a heart attack the first time we developed a federal jobs program for people who drown campaign volunteers.
What I worry about is whether this creates bad incentives. Will people be encouraged to take on risky loans in the future because of the bailout? Will we be freezing people into homes when they really ought to move? Probably. On the other hand, it's not clear to me that these effects will be extensive enough to worry about.
Thought for the day
If someone finds ways to exclude any source of possibly disconfirming evidence from the realm of credible authorities, they are probably a crank.
The bigger problem for those who want to see a crisis in Social Security’s future is this: if Social Security is just part of the federal budget, with no budget or trust fund of its own, then, well, it’s just part of the federal budget: there can’t be a Social Security crisis. All you can have is a general budget crisis. Rising Social Security benefit payments might be one reason for that crisis, but it’s hard to make the case that it will be central.
But those who insist that we face a Social Security crisis want to have it both ways. Having invoked the concept of a unified budget to reject the existence of a trust fund, they refuse to accept the implications of that unified budget going forward. Instead, having changed the rules to make the trust fund meaningless, they want to change the rules back around 15 years from now: today, when the payroll tax takes in more revenue than SS benefits, they say that’s meaningless, but when - in 2018 or later - benefits start to exceed the payroll tax, why, that’s a crisis. Huh?
The Social Security Trust fund is irrelevant; we do not have a Social Security problem, we have a general fund problem. (I also think that we should roll the payroll tax into the general income tax, while levying somewhat higher bottom rates, but that's a different rant). I also agree that it doesn't start in 2018; it starts much earlier, in the early part of the next decade, when the revenues from the payroll tax peak, and other taxes have to be raised to pick up the slack.
But I disagree about this:
Now it’s true that rising benefit costs will be a drag on the federal budget. So will rising Medicare costs. So will the ongoing drain from tax cuts. So will whatever wars we get into. I can’t find a story under which Social Security payments, as opposed to other things, become a crucial budgetary problem in 2018.
What we really have is a looming crisis in the General Fund. Social Security, with its own dedicated tax, has been run responsibly; the rest of the government has not. So why are we talking about a Social Security crisis?
We will have to find something in the neighborhood of an extra 2% of GDP to cover Social Security. That doesn't sound like much . . . but if you make $50,000 a year, that's an extra $1,000 a year in taxes. For most families I know that make that kind of money, cutting extra $1,000 a year from their budget is a pretty big deal.
Looked at in the context of the federal budget, it's an increase of about 10% of the budget to spend on one program. That, again, is kind of a lot.
I think the budget problem is ugly-but-manageable, however. The real problem is structural: Social Security discourages labor force participation among both younger workers and retirees. Every time the payroll tax gets raised, you give workers incentive to move into the informal sector. And of course, defined-benefit pensions encourage workers to retire as early as possible. Given that seniors tend to consume highly labor-intensive services, that probably means a decline in their living standards, and ours.
The other problem is precommittment--retirement programs are hard to reform on anything less than a 20-30 year time scale. So while the next administration can repeal tax cuts rapidly, whatever you do to Social Security will endure for decades. This introduces a lot of rigidity into the government.
Public service announcement
"Anyone who was conscious in DC or Baltimore in the late 70s to early 80s won’t need any convincing. As for the rest of you—and I feel a special sense of responsibility, as the RBC has many young readers looking for guidance in this crazy mixed-up world—just say “no” to boat. Yes, we all want to experience violent, psychotic outbursts, but there’s a downside, too. "
I feel like when Hunter S. Thompson thinks a drug is too crazy, you should probably listen.
March 28, 2008
Spring is here . . .
A friend twitters: "Christ, more baseball poets on NPR. I AM SORRY YOUR DAD NEVER SAID "I LOVE YOU". Now get off my radio."
Broken dreams
Apparently, a lot of foreclosed tenants like to trash the house before they leave. I don't get it. It's hardly the bank's fault that you can't make your mortgage payment. I mean, I understand the rage at fate that has pushed you out of your home and left your credit record in shreds--yea, even if you had a hand in that fate yourself. But I don't get pointless destruction.
Dear Dr. Boli: Why are there so many different kinds of clouds? Shouldn’t they be rationalized? —Sincerely, J. Bhatia, President, American National Standards Institute.
Dear Sir: Clouds are wilful and capricious beings, of a decidedly libertarian bent, and resist all efforts to regiment them into a more rational order. The best that can be done, therefore, is to learn the various types, so as to be able to distinguish between clouds that intend merely to get you a bit wet and clouds bent on knocking down your house.
Cumulus.—Cumulus clouds are the puffy white clouds one sees in the sky on an otherwise fair day. The most up-to-date meteorological theory suggests that cumulus clouds are the souls of departed lambs and kittens.
Nimbus.—Nimbus, or rain-bearing, clouds are the shadows cast by cumulus clouds on the other side of the earth.
Your chart here shows chronic punditry, with episodes of prognostication. Looks like you had a hard year last year.
In 2007, I made two contrarian calls. First, don't write off John McCain. Second, write off Barack Obama. My average was 50 percent, which is as well as a lot of people did last year.
It's also as well as the average chimpanzee did. Is that why you're depressed?
No, it's these doubts, this hesitation. About Obama. A man I respect. Admire. I want to fall for him, love him as so many others do. But ... I can't. I try, but I can't.
Ah. This is not so uncommon. Obama Resistance Complex. You have Barack blockage. You are afraid to love, to commit.
No, no. Some of my conservative friends think that Obamamania is a messianic cult. I don't. I understand the enthusiasm. I can't remember when I've seen a politician with as much promise. He is eloquent, charismatic, cool under fire. He's the best kind of intellectual: super-smart but not patronizing. He has taken political risks to show moral leadership. Who else would have stood at Martin Luther King's pulpit and condemned homophobia and anti-Semitism in the black community?
And wouldn't it be something to have a black president! Think of the bloody chapters in American history a President Obama could close. I want to believe. I go home, shut my eyes, and say, "Yes I can!"
But I can't.
Take a breath. Here, blow your nose. Now, try to tell me why you think you have these issues. Let it out.
Read the whole thing.
So you want to see a show . . .
If you live in DC, I highly recommend that you get yourself over to the Folger and buy a ticket for the MacBeth which is running through sometime in April. The thing is as accessible as a movie and as powerful as, well, a Shakespearean tragedy. The casting is slightly uneven--in particular, Kate Eastwood Norris' Lady MacBeth is way over the top for a role I didn't think could be played too crazy. I like me some scenery-chewing, but her borderline hysteria from moment one makes it impossible to believe that MacBeth would have listened too her. However, Ian Merrill Peakes is terrific as MacBeth--not so much in the way he says his lines as in the way his body powerfully conveys what is going on when he isn't speaking. And Dan Olmstead is absolutely outstanding as (among other things) Duncan.
And you won't care about any casting lapses, because it's simply the best staging of a Shakespeare play I've ever seen, and the style of the Folger Theater, which is modeled on the Elizabethan, makes it even more powerful. Every detail is absolutely spot-on. The set is spare, and almost modernistic, but crawling with metal vines that perfectly evoke the rot at Dunsinane. The costumes are good, the stage direction is brilliant, and the score--provided by an onstage percussionist who is visible to the audience--provides nearly unbearable dramatic tension. At one point, a particularly wrenching noise caused me to throw my pen and notebook into the air. There's plenty of fake blood. And the comedic moments are pitch-perfect. The three weird sisters alone are worth the price of admission.
Garbage in, garbage out
The best credit risk analysis system in the world will not help you if your employees just fill in the blanks with random crap. Barry Ritholtz:
3 "handy steps" for getting a questionable loan approved by JPM Chase's automatic system:
1. Lump all of an applicant's compensation as the applicant's base income, rather than breaking out commissions, bonuses and tips.
2. Do not disclose use of gifts for down payments.
3. If all else fails, simply inflate the applicant's income. "Inch it up $500 to see if you can get the findings you want. Do the same for assets.
Thus reads an internal memo from Chase obtained that accidentally found its way into the hands of journalist Jeff Manning of The Oregonian. It was the basis for an article titled, Chase mortgage memo pushes 'Cheats & Tricks'.
This, mind you, from one of the banks who is weathering the subprime crisis rather well. One wonders where they were getting the numbers at the other banks.
No, don't answer that. This is a family blog.
I don't know many economists who respect John Kenneth Galbraith's professional work; he tended to substitute wit for rigor, and the major economic model he proposed1, the theory of countervailing force, isn't looking so hot. On the other hand, almost all economists wish, to the extent of heartsickness, that they could write that well. And while the theory behind his economic history is often not quite right, the storytelling is absolutely first rate. You can't get a better popular overview of 1929 than The Great Crash, even though A Monetary History of the United States is probably a better way to understand the thing.
In the New York Sun this week, Ed Glaeser, the leading light of real-estate economics, had a lovely piece on the 50th anniversary of The Affluent Society:
Galbraith's advocacy of public spending aimed at reducing inequality and improving infrastructure helped usher in the 1960s. Lyndon Johnson's war on poverty was decidedly Galbraithian. While the New Deal social programs were born of economic desperation, Johnson's social spending reflected the confidence of prosperity, just as Galbraith had foreseen. But after 1969, the American public gradually turned against Galbraithian social policy. By 1980, Galbraith's arch-nemesis, Milton Friedman, had found an intellectual home in the White House. In the 1990s, even Democrats embraced private wealth over public spending. But in 2008, "The Affluent Society" seems relevant once more. As the political pendulum swings left, candidates once again call for a more vibrant state to right social wrongs. The excesses of the 1960s are forgotten and once again, the government is seen as society's savior. For people of all political stripes, it is worthwhile returning to "The Affluent Society," and pondering what Galbraith got right and what he got wrong.
While I am a staunch supporter of free markets, I agree with Galbraith that there is much the public sector needs to do. Private firms do not automatically provide safe streets, good roads, and clean water. Even more important, Galbraith was dead right in arguing that we need more effective schools. Human capital is our best tool against poverty and economic stagnation.
Galbraith's great failure was that he never really understood how much society is strengthened by a free and competitive private sector. "The Affluent Society" argues that a lack of regulation made American homes inferior to those in European social democracies. That view was wrong in 1958 and is completely untenable today. American housing is the best in the world, and the weaknesses of the housing market reflect too much, not too little, regulation, especially those rules that stymie construction and make housing unaffordable. While Galbraith was right that some social problems do need a stronger public sector, his analysis would read better today if he had also appreciated the tremendous vitality that comes with economic freedom.
1rather than what you might call "conspiracy sociology"
I'm going to be very interested to read this series by Marc Andreessen, but I rather strenuously disagree with this:
Overt sexism aside, from an incentive standpoint the result of shifting from stock options to restricted stock should be obvious: current employees will be incented to preserve value instead of creating value. And new hires will by definition be people who are conservative and change-averse, as the people who want to swing for the fences and get rewarded for creating something new will go somewhere else, where they will receive stock options -- in typically greater volume than anyone will ever grant restricted stock -- and have greater upside.
And sure enough, in the wake of shifting towards restricted stock and away from stock options, Microsoft's stock has been flat as a pancake. The incentive works.
Now, against that, it is true that stock options, particularly for public companies, have an often-destructive random component: they tend to increase in value in rising stock market environments and decrease in value (potentially to zero) in falling stock market environments, regardless of whether value is being created inside your particular company.
For that reason, in the long run it probably makes sense for some new approach to stock-based compensation to be developed that both preserves the motivation to create as opposed to preserve value, but factors out the environmental swings of rising and falling stock markets. Some form of indexing against market averages would probably do the trick. This has been tried from time to time, and I expect it to be tried more in the future, at least for public companies.
This is not the major problem with stock options. The major problem with stock options is twofold: out of the money options encourage managers to take excess risk, because they get nothing if they preserve value, so even a remote chance of boosting the stock price that carries a hefty risk of failure is a good idea for the managers--but a terrible idea for the shareholders.
The other problem is that they encourage short-term misinformation about a company's prospects in order to boost the price long enough to excercise your options and sell the stock. The time of option excercise is one of the few times when an executive can sell his own company's stock without triggering a market reaction.
You will notice that while Microsoft's stock price may not have done much, it also didn't go the way of Pets.com, or even Sun. No compensation system is perfect, but stock options have big problems.
This finding comports with my own experience, both as a student and as a professor. Even attending a state school in the Deep South, my political science and history professors were predominantly (but not exclusively) liberal. But debating them tended to reinforce my conservative leanings. Years later, teaching political science courses to predominantly conservative students, I oftentimes found myself taking a Devil’s Advocate stance simply to force them to challenge their own preconceptions. (Which, on reflection, made me wonder if my own profs hadn’t done the same thing.)
Another thing to keep in mind is that politics simply is a non-factor in most college courses. Even now, when I imagine campus politics, like that in the country as a whole, is more polarized than at any time since the Vietnam era, there’s likely not much political talk in the math, science, engineering, and foreign languages courses.
One thing to think about is that the clear biases of my English professors brewed a certain cynicism in many students. It was so obviously easy to manipulate our professors by turning in sub-standard papers that catered to their political concerns that it was hard to see those beliefs as the product of rigorous analytical thinking.
Bush administration: We were for Medicare reform before we were against it
Stan Collender roundly condemns the Bush administration's complete inaction in Medicare:
I have only one thing to add to what Andrew and Pete, my two bloggers in crime here at Capital Gains and Games, have both posted on the Medicare trustees report: it was facinating to watch the Bush administration talk about the immediate need to deal with Medicare after having adamantly refused to deal with the problem since Inauguration Day 2001.
I have vivid memories of former Treasury Secretary John Snow continually being asked why the administration wasn't proposing a Medicare reform package even though its problems were projected to be much closer than Social Security's, which it was proposing to change. His often-repated answer was that the White House wanted to deal with Medicare as part of a comprehensive health care reform plan...which it then also never proposed.
To now hear the current secretaries of Treasury, Labor, and HHS say that immediate action is needed while still not submitting a plan or admitting that they've been sitting on the sidelines for the past seven-plus years is some combination of amusing, infuriating, and fascinating.
Our nation's lack of action on Social Security is appalling. Not because it is going to bust the budget--it is going to become a very large, but still supportable, drain on resources. No, the reason it is appalling is that the structural incentives built into Social Security substantially depress labor force participation in a way that makes it harder to pay for Social Security, and especially health care.
But if Social Security appalls, Medicare quite stops the heart. We've seen this moment coming for twenty years and done nothing. Now it's here, folks: Medicare goes into deficit this year. For the first time, the general fund will be sending money to the entitlement programs, not the other way around. And that deficit will keep growing, and growing, and growing . . .
The Bush administration's response in the face of this has been glacial indifference. Nay, that's too kind: a glacier would at least pay enough attention to us to crush us under its icy maws. The administration's sole contribution to the question of "How do we pay for all this healthcare?" has been "While we're spending all this money we don't have, why not blow a few trillion on drugs, too?"
I can't give the Bush administration all the credit here, of course. Congress sure helped. The Democrats forced the government to spend more money on seniors by making it a key campaign platform, then complained when we didn't push our great generational overdraft higher still. The Republicans rushed to cater to their older constituents. And let's all have a big round of applause for those hard-working folks down at the AARP, who will seemingly be satisfied only when everyone under the age of fifty is actually physically chained to a desk, and all of their output funneled--via one of those vast pneumatic tube networks we'll all be using in The Future--directly into Centrum Silver and greens fees.
You know . . .
It would be a lot easier for those of us who defend Wal-Mart from the big box haters if they didn't confuse what is legal with what is moral. Lawyers, insurance specialists, wheelchair haters, please explain why suing cripples to get a hold of their personal injury settlements is not totally repulsive, or why Wal-Mart should not suffer a well-deserved public backlash, because it's sure not clear to me.
Jokes that stopped being funny the first day of high school
I beg everyone, for the good of the nation . . . no more book reviews, newspaper columns, or devastating web repartee that consists of taking either
1) An out of context quote
2) A piece of self-deprecating humor from the target
And adding "Why, yes, you sure are!", or some close variant of same.
If you are too big to be stuffed into a locker by the kids with muscles and social skills, you are too old for this to evoke anything except an empathetic cringe. You can do better than this. And if not, they sell books of jokes in Barnes and Noble now.
Corollary: "This is beyond self-parody" is . . . well, you know.
Second corollary: sarcasm works only if you are really good at it. The ability to stretch out the word "riiiiiiight" over most of the half-time show does not count as being really good at it.
Third corollary: copulating inanimate objects excreting onto various surfaces and kicking each other in the large muscle group are not nearly as entertaining as you think they are. They are even less entertaining in print.
Fourth corollary: Naked incredulity is an adequate compositional style only when a baby panda crawls up a flagpole to rescue Jenna Bush, or Cher books a concert tour. Otherwise . . . did you really say that? I mean, okay, that's an adequate start. But then I need something more. For example, do you know anyone in law enforcement who can stop Cher before she dies again?
C'mon guys . . . the children are watching. Don't you care about the future of your country?
Update This is culled from watching the comments, on this blog and others, that commenters direct at each other. We have many witty and intelligent people in this comment section from both sides of the aisle. It pains me to watch the discourse in the comments degenerate into "You're a big fat *loser*, moron!" I thrill to the more amusingly pointed debate, but then my heart sinks as once again, some troll wanders in from outside and calls the other commenters "a bunch of retards". Leaving aside the fact that undoubtedly a number of our readers have loved ones who are developmentally disabled, this is neither amusing nor enlightening.
March 27, 2008
Another note
The comments are slow because we're under constant spam attack; I'm now getting hundreds an hour. It's hopeless to fish your spam out of the filter, and the load times are getting slower and slower, which I know is frustrating. We're working on a technical fix, but sadly, so are the spammers . . .
Meanwhile, you don't have to keep hitting repost. Be patient; it's going in. Just slowly, is all.
A note on the body count
I'm getting queries about various things in the article, especially the fact that there is not very much about the statistics. I know you're disappointed. I too was disappointed when my editor informed me that there really wasn't room for 2,000 words on the fascinating topic of survey interview technique and small sample confidence intervals. Unfortunately, there's only so much space in the magazine; I had fifteen hundred words, and statistical arguments, dry and complicated, are extremely hard to fit into a small space.
There are also various odd quibbles about usage or turns of phrase. I'm not writing for academics; I'm writing for a general audience. The fact that something is obvious to you does not mean that it is obvious to laymen, and unfortunately, that + space constraints mean journalists have to simplify a lot, especially technical questions. This is, believe it or not, as unsatisfying to us as it is to professionals in various fields. But we don't have the space to write a textbook, and unlike professors, we can't flunk our readers if they drop out because they're bored and confused.
Luckily, I have this blog, and you, dear readers, to bombard with the accumulated dross of hours of interviews and a multi-foot stack of printouts. I'm heading to Puerto Rico on Sunday for vaction, leaving you in the hands of a crack team of guest bloggers who will make you sad to think that I'm coming back. Before then, I'll lay out as much as possible of the various arguments about the studies, the problems and advantages of cluster sampling, the specific issues in Iraq, and the more theatrical public controversies. The rest, I'll finish up when I get back, or third degree sunburn, whichever comes first.
Unfortunately, this takes a while: the whole thing is complicated, and thankfully, very few people have spent as much time absorbed in the question as I did while writing this story.
What I hope to do is the one thing that, as far as I know, no one has done so far: lay out a moderately detailed explanation of the history and issues of counting the Iraq war dead. I want it to be accessible to people who have no, or only a passing familiarity, with conflict epidemiology and the specific problems in Iraq, or even basic statistics. If you're already familiar with what I'm writing (or don't care about conflict epidemiology, which is somewhat understandable), just skip those bits. The blogging about Burnham et. al., and to a lesser extent some of the other counts, has been . . . well, let's just say, extremely passionate. However, as far as I know (and I think I managed to find all of the major blogs that were writing on the topic, as well as any significant article written in an English language publication), no one has laid out the entire subject in any sort of orderly fashion; it's mostly just critics responding to critics responding to critics . . . by which point anyone who isn't completely obsessed with survey technique has lost any understanding of, or interest in, what's going on. Print can't do what I can, which is utilize essentially unlimited space, hyperlinks, and reader feedback on what's unclear. I make no guarantee that at the end of it, I'll have made the thing any plainer . . . but darn it, I'm sure going to give it that old Hoover High Try.
Meanwhile, I'm afraid I'm going to ignore the various insistent questions about whether I thought of . . . whatever. So far, no one's asked me something that I (or really, all the people I interviewed) haven't asked and tried to answer. In other words, I'm getting there. If you do hit on something new, I'll look for an answer, throw it out to my sources, or say "Here's a good question". But if I start trying to answer all these queries out of order, we'll get bogged down in a labyrinthine set of disjointed explanations.
I asked at my day care today if any children were un-immunized and the lady told me that all the current infants (18weeks-18 months) had had their shots.
However, living in a hippie college town, they had previously taken unvaccinated kids in their care. When I remarked that it was pretty dangerous, she said that it was the law - they weren't allowed to discriminate against non-vaccinated kids. Does this sound right to you? As a private enterprise, I figured that they would be able to make their own rules of this sort, and what about my right not to have my kid around unvaccinated children?
In any case, this seems like a real issue to me and I was wondering if you or your readers knew anything about it.
A quick Google search shows that Minnesota allows day care centers to refuse admittance to unvaccinated kids, but it seems like this is not the case for public schools. The parents can simply sign a Personal Exemption.
P.S. A horrible story this lady told me. There was a 5 year old kid starting at the public kindergarten here who still was not potty-trained. They were not legally allowed to remove him from the public school because of this, so instead they had to send him home every day when he first soiled himself, until the parents got sick of picking him up. Welcome to Boulder - nestled between the mountains and reality!
Whatever you think of vaccination, legally requiring people to expose their children to unvaccinated playmates in order to receive day care seems nuts.
Let’s diagram this sentence. First, circle the parts that are hilarious. Second, underline the portions that are nonsense. Third, draw a square around the parts that while true, should cause a real economist to explain that perhaps the party might not go on forever (see also: Phoenix). Fourth, draw squiggles indicating concern that this person is a part of the policy-making process. Finally, make stabbing motions at the paper, indicating that this piece of information, deemed important by Times editors, likely made the average reader substantially dumber.
Good for them. Can I just reiterate how completely insane it is that an attempt to prevent Americans from consuming Bolivian Marching Powder has now become the single largest determinant of our foreign policy in Latin America and much of the Caribbean? It's as if we were boycotting Cuba in an effort to crack down on diabetes.
Iraq Body Count: Why is it so hard to count, anyway?
One of the things you need to understand to grasp the state of play in the casualty debate is just why it's so hard to get an accurate count. Some of this is obvious, but much of it isn't, and the obvious bits vary from person to person, so bear with me.
In America or any developed nation, if we wanted to know how many people had died after a wrenching event like an invasion, it would be pretty easy. We'd go to the Census Bureau and find out how many people there used to be in America, and what the rate of population growth was. Then we'd find out how many people there are now, and we'd compare it to the number there should have been on previous trends. This would still be imperfect. For one thing, even here we don't know exactly how many people live in the country, or die in it; every year some people go missing, and others escape the long arm of the census. It also assumes trends would have continued. And it is hard to distinguish between babies that weren't born, and babies that died in infancy from war-related ailments. But it would generally be pretty close to accurate.
There are other ways that we could figure it out--counting death certificates, or crime reports. It's a multivariable equation; as long as you have enough variables, you can solve for the missing ones, and check your answers.
None of this works in Iraq.
One hears over and over that it is hard to collect data in the chaos. This is true, but underspecified; the physical danger to the interviewers is only one of the problems. In Iraq, they are compounded by the fact that the country didn't have good data before the invasion. All we've got is a 1997 census that no one is very confident in.
A list of the things we do not know about Iraq:
The current population
The population in 2003
The geographical distribution of the population--the refugees have not been drawn evenly from all provinces.
The demographic distribution of either the pre- or post-war population.
The birth rate
The death rate
The mechanism for collecting death certificates has broken down: it's not clear how many of the certificates are being recorded anywhere, but at any rate the central ministry doesn't seem to have all of them. Also, the government is thought to have a vested interest in downplaying the violence, which undermines trust in the figures they publish. It's also not clear when it broke down--whether Saddam's figures are accurate, or whether a lot of people disappeared (in any of several senses of the word) under his regime.
Even if the data exists at the provincial level, the physical danger makes it hard for interviewers to collect it, as well as making people very reluctant to talk to, much less help, strangers.
If we can't tally the deaths from public records, or compare the pre- and post-war populations, that leaves us with one option: we can ask the Iraqis. In a follow-up post, I'll discuss why that's really hard, too.
Bleg
I am suddenly apparently unable to post comments on any blog--including mine--run by Movable type, or perhaps it is any blog that uses Akismet; they go straight into the spam filter. Making my own comments live is getting really tired, and obviously, it's hopeless anywhere else. All Akismet tells me is that it's flagging my posts. Any ideas as to why I'm suddenly verboten?
Update Experimentation with another computer indicates that the problem is not in my browswer, but in myself. Akismet has flagged me as spam. I'm not that naughty.
Those who learn the lessons of history are doomed to repeat it
Oh God, this is enough to send shattering chills down any journalist's spine:
The Los Angeles Times has acknowledged that it unwittingly relied on fabricated FBI documents, created by a con man, for a report that implicated associates of rap mogul Sean "Diddy" Combs in the 1994 shooting of rapper Tupac Shakur.The story's author, Pulitzer Prize-winning reporter Chuck Philips, said in a statement late yesterday: "In relying on documents that I now believe were fake, I failed to do my job. I'm sorry." Deputy Managing Editor Marc Duvoisin also apologized, saying in a separate statement: "We should not have let ourselves be fooled. That we were is as much my fault as Chuck's. I deeply regret that we let our readers down."
But what's particularly interesting is how they were fooled--and how the hoax was caught.
The embarrassing admission came hours after a report by the Smoking Gun. The Web site, which specializes in law-enforcement records, said the Times "appears to have been hoaxed" by "an accomplished document forger" in its story last week tying Combs's associates to the non-fatal shooting of Shakur 12 years ago. .
William Bastone, the Smoking Gun's editor, said he immediately "thought something smelled" after looking at the FBI documents posted on the paper's Web site -- particularly the fact that they appeared to originate from a typewriter, although the bureau's agents switched to computers about 30 years ago.
The humiliation for the Times is reminiscent of the black eye that CBS received for using what the network presented as National Guard records in Dan Rather's 2004 report on President Bush's military service.
I can't help but wonder if they weren't rooked by the Dan Rather fallout--if they didn't assume that a document which looked like it was typewritten was therefore more likely to be authentic.
Iraq Body Count: Introduction
I have a new article in this month's print edition on the attempt to count the number of dead in Iraq. My article focused mostly on how we process the numbers, but over the course of my research I accumulated a fair store of knowledge on the subject. Since the fifth anniversary recriminations are still in full swing, I thought it might be useful if over the next week or so, I covered the state of the debate.
In some sense, I don't think knowing the number matters1. The lower bounds of reasonable estimates are still high enough to make me think our involvement in Iraq was a bad idea, especially when considered in conjunction with the various other problems we know about, like the attacks on key infrastructure and the refugee crisis. So debating whether the number is 100,000 or an order of magnitude higher than that doesn't change my basic assessment of the situation.
But in many other ways, accuracy is tremendously important. These numbers shape the national debate; it is therefore critical that they should be as correct as possible. Also, the results from these studies have important implications for a range of policies. Knowing how bad the violence is, and what kind of violence we are dealing with, should shape many of the priorities and goals that we and the Iraqi government set for ourselves.
1 Go ahead, take this out of context.
Speaking truth to power
This is a vicious liberal lie. Sometimes hailstones are the size of eggs.
Seriously? Congress? Change?
Rep Jim Cooper's (D-TN) communications director just emailed to say that he is the first congressman to take Larry Lessig's Change Congress pledge. As I said before, I don't think this will fix all of our problems, but it strikes me as a basically good idea. Cooper has also vowed to forgo earmarks in 2009. Hearty applause on both.
Banal, yet poignant observation
Our grandchildren will not know how to parallel park. Heck, they may not know how to drive. I don't know why I find this bittersweet, but not my complete inability to churn butter.
Hat trick
Remember Steven Hatfill? The guy whose life was destroyed by accusations that he was the anthrax mailer? Probably you don't remember that a Federal judge found that "there's not a scintilla of evidence to suggest Dr. Hatfill had anything to do with" them. The investigation made headlines and planted hordes of reporters snapping candids everywhere he went. The vindication has passed almost entirely unnoticed, leaving this guy's life in ruins.
Now the reporter is refusing to release her sources, claiming that she can't remember who told her, and she's thrown away her notes. I hesitate to accuse another journalist of lying but this seems most, most unlikely unless she has suffered a traumatic brain injury in the interim. You don't forget the name of the person who gave you the biggest scoop of your working life; getting a really juicy tidbit that you can break is one of those moments of which you always have crystal clear recall. You also tend to keep all of your notes on a high profile piece, precisely because you might get sued.
The Reporters Committee for Freedom of the Press is standing behind her, expressing outrage that the judge has ordered her to pay $5,000 for every day that she refuses to release the names of the ten sources she used for those stories. I'm afraid I have no sympathy. I think the general presumption that journalists shouldn't be forced to release their sources is a good one. But this seems to have given many journalists the idea that we are some sort of sacred priest class, above the laws that govern the lives of the hoi polloi. Who on earth do you think you are, Miss Thing?
The relatively wide latitude given journalists on revealing sources is there to serve a social good, not our careers. In the case of the Plame case, I have some sympathy for the reporters; it is generally a good thing that public officials think that they can leak without having their names revealed. If they didn't, we'd know a hell of a lot less about how critical decisions, particularly in intelligence and foreign policy, get made.
But I don't see any equally compelling interest in protecting prosecutorial leaks. Prosecutors are not inquisitors; they are supposed to try their cases in public court, or not at all. Selective leaking of investigation details in order to put pressure on targets, or taint the jury pool, are abusive. (Naturally, they were Eliot Spitzer's favorite trick.) I can think of no reason to help journalists and law enforcement try their targets in the court of public opinion.
Where is Darwin when you need him?
Every time I work myself up into a fine anti-elitist rage, I am confronted by something like this:
The ads popped up Saturday afternoon, saying the owner of a Jacksonville home was forced to leave the area suddenly and his belongings, including a horse, were free for the taking, said Jackson County sheriff's Detective Sgt. Colin Fagan.
But Robert Salisbury had no plans to leave. The independent contractor was at Emigrant Lake when he got a call from a woman who had stopped by his house to claim his horse.
On his way home he stopped a truck loaded down with his work ladders, lawn mower and weed eater.
"I informed them I was the owner, but they refused to give the stuff back," Salisbury said. "They showed me the Craigslist printout and told me they had the right to do what they did."
The driver sped away after rebuking Salisbury. On his way home he spotted other cars filled with his belongings.
Once home he was greeted by close to 30 people rummaging through his barn and front porch.
The trespassers, armed with printouts of the ad, tried to brush him off. "They honestly thought that because it appeared on the Internet it was true," Salisbury said. "It boggles the mind."
I don't know which is more appalling: the person who posted the ad, or the people who believed it even after the owner showed up. I'm not sure I want to share a country with either.
Looking for vegans in all the wrong places
Have I heard of this book? Oh yes, I've heard of it. And frankly, I hope to never hear about it again.
The misbegotten screed known as Skinny Bitch was erroneously filed under "Vegan/vegetarian" in a bookstore I accidentally wandered into a little while back. It should have had its own section: "Eating disorders: How to".
Imagine distilling all the self-righteous moralism of a yuppie eco-tourist who voted for Nader, twice, and only eats hemp. Now add all the hectoring nannyism of the nutritionists who write those "Liver and lima beans: your forgotten friends" pamphlets from the US Department of Agriculture. Toss in generous lashings of the exhibitionist ignorance of self-styled health food experts--the ones who promise that if you can just find the right combination of vitamin supplements, you will live forever, and also, marry Brad Pitt. Then find the three meanest girls from your local high school and extract multiple doses of the unprovoked venom they direct towards the fattest girl in the class. Combine all these ingredients in a large bowl, making sure that you haven't accidentally included any shreds of a soul.
Finally--and this is the tricky part--remove the shallow, glossy exterior of one fashion journalist or music publicist. You must be very careful, because as you probably know, this gossamer layer is only one atom thick. Pour the other ingredients into that casing and cook in a pressure cooker set on "high" for five to ten years. Then eat it. When your digestive system has finished processing that dyspeptic concoction, the final product will closely resemble this book.
I understand that it was probably not designed to appeal to me, since I tend to bristle about being called a, well you know. But I don't understand how it could appeal to anyone. It's vile. The first chapter repeatedly uses the word "fat pig". Towards the reader. Unironically. I spent enough time in high school listening to a shrill inner voice calling me names because I wasn't thin enough. I'm not going to pay someone else to do it.
The world does not need any book promoting the notion that being overweight is a disgusting moral lapse. It certainly doesn't need one selling this nastiness under the guise of idealism. Yes, that's right: the reason they're calling you a fat pig and referring to your "cankles"? They want you to become a vegan.
When you are way, way less than 1% of the population, bullying people into adopting your lifestyle is extremely poor strategy. Attempting to do so by harnessing the upper middle class' morbid fear of avoirdupois is not an improvement. Veganism is not the next Atkins, thank God. Persuade people to become vegan, if you can, for animal cruelty prevention, environmental benefit, or hell, health reasons. But don't try to make them do it by threatening to call them names if they eat a cheeseburger. Their commitment to veganism will probably be slightly briefer than previous commitments to NutriSystem or the Abdominizer.
Besides, vegan does not necessarily equal healthy. To be sure, one of the things I do like about veganism is that I rarely have to think about whether what I'm eating is bad for me (only whether it has protein, calcium, iron, or B12). But it's not like being a vegan suddenly prevents you from eating junk, or fattening food. As witness the breakfast I just finished: Diet Coke and a Tofutti Cutie with a Fritos chaser.
I hate the notion of veganism they promote: that it's really all about famishing asceticism. Every time I traveled over the last seven weeks, three or four restaurants proudly presented me with . . . steamed vegetables au nothing. No fat, no spices, not even a squeeze of lemon. I'm a vegan, not a geriatric rabbit.
But then, one can hardly blame them, the way some vegans act. The Amazon reviews of great vegan cookbooks like Veganomicon and Vegan with a Vengeance are littered with people complaining that there's fat and sugar and--horrors no, what next!--white flour in some of the recipes. I have no objection to people who want to live on carrots and mulch, but I resent their assertion that that is veganism.
Obviously, I would like it if there were more vegans in the world: I think it's better for the environment, and also, network effects are great things. But I would cheerfully burn every copy of this book, and their equally dreadful cookbook, which is not only obnoxious, but also full of really terrible looking recipes.
There were ten in the bed and the little one said "roll over, roll over . . . "
"It is 3 a.m., and the stillness of the White House night is shattered by the ringing of the red phone. President John McCain, rousing himself from a deep sleep, turns on the light and picks up the receiver. A U.S. embassy in a Middle Eastern country, he is told, has been blown up, and al-Qaeda is taking credit.
McCain takes a deep breath. "Character counts, my friend," he says. "Bomb Iran. Bomb, bomb Iran."
There is a rustling of blankets, and, brushing aside Cindy McCain, a concerned Joe Lieberman rises from the bed. "Not Iran, Mr. President," he says. "They hate al-Qaeda."
"That's right," the president says. "I remember now." He sighs with relief. "Good thing you're here every night, Joe."
But suppose, dear reader, that John McCain becomes president and Joe Lieberman doesn't bunk with the McCains on a nightly basis. How easily should the rest of us sleep?"
Not easily at all. When what sanity your foreign policy has depends on the presence of Joe Lieberman, of all people, things have gotten pretty scary.
Besides, it's not as though McCain is only confused about foreign policy. Think of all the people who would have to be hidden under the covers just in case something came up. Economics isn't McCain's long suit, so I suppose Douglas Holtz-Eakin would have to be nestled in their somewhere, along with someone to correct McCain's little slips on science and public health. Luckily, his ignorance of history probably won't get him in trouble in the middle of the night, so historians everywhere can sleep easier knowing that they will not be called on for special White House duty.
But get Doug Holtz-Eakin out of that bed right now. For one thing, the image of him and John McCain cuddling up in their nighties is one I never, ever want to consider again. In fact, I'm considering having electroshock therapy in the hopes of incurring retrograde memory loss. And I like Doug Holtz-Eakin.
Second of all, there is no such thing as a 2 am economic crisis. Financial crises happen during trading hours. All other sorts of economic troubles develop at about the same pace as gingivitis.
I also get the feeling that the president is rarely pulled out of bed to discuss what to do about the latest E. Coli epidemic or vaccination guidelines.
Honestly, isn't foreign policy enough to worry about?
March 26, 2008
Assorted thoughts on moral hazard
I am genuinely conflicted by what we should do about moral hazard in the housing markets and the financial markets. Make things too easy, and people will be encouraged to take more insane risks; make them too hard, and the economic results will force the rest of us to pay for their sins.
Whatever it is we do, however, I'm pretty sure we should take the same approach to the homeowners and the bankers. Most homeowners are not dupes of anyone other than their own speculative mania; they borrowed more money than they should have on the assumption that asset prices would just keep rising forever. The bankers, the same.
One thought I have had is that perhaps we should declare a sort of bank holiday for people whose mortgages are unaffordable. Set a three month period during which people can hand the house back to the bank in exchange for canceling the loan and surrendering whatever extra cash they have in the bank. No expensive and time consuming foreclosure procedures; they voluntarily sign it over. In exchange for their doing this, we wipe the loan off their credit record. They don't get to keep a house they can't afford, but they also don't get crippled for the next ten years by an unwise but somewhat understandable urge to own a nice house.
Whether the BS bailout will motivate riskier behavior in the future is impossible to know directly. But the market has spoken in one regard: the stock prices of the investment banks that Wolf refers to jumped about 20% after the bailout. The market, obviously, thinks the bailout has made risky behavior less risky and more profitable than before. As Wolf says, this is "moral hazard made visible."
A put option at $2 a share in the event of catastrophic failure is not worth 20% of the current stock price; it is worth considerably less than $2 a share. Stock prices rose because Bear Stearns had been the counterparty to a really staggering number of trades that markets thought would be uncovered, and because fears of an acute liquidity crisis abated. Not because people suddenly no longer feared losing money on the stock.
Whither Iraq?
A friend asked me today what I thought we should do in Iraq. Answer: I think at this point we have a moral obligation to do whatever is best for the Iraqis. I have no idea what that is.
I therefore open up the floor to commenters. What should we do now in Iraq?
Update Please, please, please don't make me go in there and delete comments. I know you can do it if you try.
Tall girls
I see I am going to have to link to this article, if only to stop people from emailing me.
There are many drawbacks to being very tall in adolescence, but as an adult, the main one is that perfect strangers feel entirely free to treat you like a circus freak. People stop and stare at me. They point. They walk right up to me and ask me how tall I am. They ask me what size clothing and shoes I wear, and how much I weigh. They ask me about my dating life, particularly whether I go out with shorter men. (The answer to which, given that I live on the east coast, should be obvious.) People ask me my age, my ancestry, and what I like to eat. And if there's one thing everyone wants to know, it's whether I played basketball.
Yes, I played basketball. We all played basketball, okay? We didn't have any choice. Every gym coach we ever had thought that we were their salvation right up to the point where they saw our jump shot. The first thing any two of us do when we meet is make basketball jokes.
It's not particularly onerous--indeed, as soon as I see that questioning gleam in someone's eye, I go right ahead and say "6'2" and save us all a lot of trouble. But it does occasionally irk. Especially the pointing.
Doubting self doubting self doubting self . . .
My more vocal critics charge me with a lack of self awareness of my many flaws. Sadly, this is probably true.
Could it really be true?
I just received an one of the oddest emails I have ever enjoyed. The author asked me if I made up the incident about the kindergarteners and the spaghetti, and said he (she?) thought that someone on another website had "proved" I had. I am flattered to be credited with such an extravagant imagination. Sadly, my lies are all of the dull, workaday sort: "I had no idea I was going so fast." "I have to wash my hair." If I were going to make up stirring anecdotes about failure, they would involve plucky cocker spaniels crossing America in search of their family, not small children and pasta.
The speech was given at last year's US Gel conference, by a fellow from Palm whose name now escapes me. I suppose he might have been making it up, but one expects that the head of their UI operation has better ways to spend his day than making up weird stories to tell at small conferences. Also, he had pictures.
A method to my madness
One thing that I didn't make sufficiently clear--for which I, yes, apologize--is that I'm making a methodological argument about learning, not a play to exclude war opponents from the nation's op-ed pages and blog comments sections. Nor a call to start randomly invading smaller countries in order to find out which ones we can hold. Failure, and how societies handle it, is a topic that I happen to be deeply interested in, so I've done a fair amount of research on it.
Obviously, there are people who were right about the war for the right reasons, and we should examine what their thought process was--not merely the conclusions they came to, but how they got there. Other peoples' opposition was animated by principles that may be right, but aren't really very helpful: the pacifists, the isolationists, the reflexive opponents of Republicans or the US military. Within the limits on foreign policy in a hegemonic power, these just aren't particularly useful, again, regardless of whether you are metaphysically correct.
"It won't work" is the easiest prediction to get right; almost nothing does. The thought process that tells you something probably won't work is not always a good way to figure out what will, even if you were right for the right reasons, as I agree lots of people were. That's why libertarians have a great track record at predicting which government programs will fail (almost all of them) and a lousy track record at designing ones that do work.
On the other hand, "I thought it would work for X reason", when it didn't work, is, I think, a lesson you can carry into both decisions about what to do, and what not to do. On a deeper level, understanding the unconscious cognitive biases that lead smart and well meaning people to believe that things which will not work, will work, is a very good way to prevent yourself from making the same mistake.
America gets a lot of things right, I think, precisely because it includes people who have gotten it badly wrong. Most societies shun people who err; a senior business executive in Germany who has been attached to a failing company should not expect ever to be trusted with responsibility again. America, on the other hand, is a nation of failures, and has always been more hospitable than anywhere else to the people who made an honest mistake, even a lot of them. I believe that our economy works better than our foreign policy process precisely because foreign policy tends to be decided by either the successes or the failures, but never both.
Anger management
Once more into the breach, and then I will go back to more pleasant topics, like how we know how many people have died in Iraq (answer: we don't. But that's a long story.)
Obviously, I have a temper. I am slow to anger, but once roused, I as well as anyone know the delights of unloading one's accumulated venom on richly deserving targets. It is not my most attractive quality, and I do strive to control it, but there you are; one does not achieve perfection in this vale of tears. My only defense is that I almost never direct my verbal ire at anyone who has not put in hours of solid work being nasty, rude, and otherwise intolerable.
But I also understand that unloading, while making me feel better, does not usually advance my cause. On occasion, it does serve to put across the message "No, I'm really serious!" but more often, it ensures that whatever I wanted, I sure won't get it now.
There is a culture on the internet that prevails in certain areas of both the right and left blogosphere, of using insults and incredulity as a substitute for thought. Sadly, the assumption in both corners is that the reason the people they are provoking do not respond in kind is that they are simply not bright enough to muster the devastating weapons of personal rudeness and sarcasm to their side. It is thus useful and more than a little satisfying to occasionally demonstrate that no, the politer quarters aren't forgoing these things because we can't, but because they're both counterproductive, and not quite nice. All right, maybe more satisfying than useful. As I say, I have a temper. Also, if I do say so myself, I'm rather a dab hand at sarcasm, and it's a pity to have a skill one can't use.
Well, now that I've gone through the exercise and thoroughly expelled the remaining poison from my mandibular venom sacs, I do want to say something seriously to both sides: the anger is making things much, much, much, much worse.
I don't want to hear about who started it. Believe me, in 2003 many on both sides were acting like complete . . . well, I can't say what they were acting like, because this is a family blog. But you know what I would say, if I weren't a lady. Neither side's manners have improved noticeably since then. The very same people who were calling names and accusing those who disagreed with them of stupidity, poor judgement, immorality, and bad faith, are still saying exactly the same things. I'm now on the receiving end of all of it, so don't try to tell me that your side doesn't bear part of the blame.
War supporters: in November, it is extremely likely Barack Obama is going to win the presidency. If you continue to respond to the war's critics with "lalalalalalalala I can't HEAR you!", you are going to be completely shut out of the discussion come November. Demanding, incredulously, of me or anyone else, whether we seriously think it would have been better to leave a murderous dictator in place is not going to help. Somewhere in the neighborhood of 125,000 to 150,000 Iraqis have died since we invaded, each of whose heart beat and eyes blinked and minds dreamed as yours do right now staring at this computer screen. We've spent hundreds of billions of dollars, we have reduced our strategic effectiveness both within and outside of the middle east, and the most likely outcome of an eventual withdrawal seems at present time to be a prolonged and bloody civil war. It is only a good idea to remove a murderous dictator if this results in, on net, fewer people being murdered.
Whether or not you agree with me on this, do me and the war's opponents the credit of assuming that yes, we have thought this through, and no, we are not secretly rooting for Osama bin Laden. I'm sure there are people like this, just as there are people on the pro-war side who are secretly enjoying the prospect of moderately large genocidal attacks on various Arab groups. Neither is the majority, or even a substantial component, of the movement. Yes, I know you're mad at the "I told you so's". But if you have something to add to the conversation on Iraq--and I think you do--you need to engage, not hunker down in your mountain bunker with all your canned goods and ammunition arrayed about you.
As one who was once numbered among you, may I request that before you sally into the next debate, youat least consider that you might be succumbing to the temptation to double down on a bad bet rather than write off your sunk costs. No, I'm not going to tell you what to think, or say that this is what you're doing. Just try to ask yourself honestly. You don't need to tell me, or anyone else, what you discover. Meanwhile, try to remember that whether or not they are correct, the people who opposed the war are not barking moonbats, but reasonable people who were understandably frustrated at watching helplessly while something they opposed killed a hundred thousand people or so. Think about some political argument you are losing, at great cost to the public good, and you can probably understand why they get a mite testy.
War opponents: the core of your movement is not a majority; your ranks have been swelled by people who regret the current chaos in Iraq, but will abandon you at the slightest shift, as indeed the polls show. You will not accomplish anything without a coalition, and that coalition will need to include many of the people you are currently insulting. You have spent too much time talking to each other, telling each other that you are right, everyone who disagreed with you is evil and stupid, and you therefore deserve to run things. Whether or not this is true, you do not have the numbers or the power to do so. If all you have to offer to the foreign policy establishment is an enraged demand that they shut up and go away while you take over, you cannot seriously be surprised when they close the door in your face and continue the meeting without you.
I am starting to hear disturbing echos of the neocons on the antiwar side-not in their goals, but in their analysis. The neocons watched various colossal fuck-ups that they had opposed, and concluded therefrom that they must be infallible. Since they were never actually in charge of much, there was no counterfactual to humble them. With each mistake their opponents made, they became more and more arrogant about their own abilities, and hello, Iraq.
Saying that something will fail is much easier than making something work. If you do get power, you will have to actually craft policy, not merely snipe from the sidelines. When that happens, a belief that judgments under uncertainty are not difficult, that hard answers are obvious, and that you are vastly morally and intellectually superior to people who disagree with you will not serve you well. It will make you overconfident, possibly disastrously so, and prevent you from recognizing your mistakes. It will also mean that when you need them, the hawks will do as little as possible to help you. Probably you think you can get along without the hawks. Well, the neocons thought they could get along without those pansies in the State Department.
With every "I told you so" and demand that they apologize to you, personally, for the sin of being wrong, you are hardening the hawks against the possibility of changing their minds. I know you may feel that you cannot be happy until they apologize, to admit that they were wrong, that they were stupid, that everything they ever believed about war was in error. They know it too. Indeed, after all the sniping, many people will refuse to say they are wrong because it would make you happy. They don't want to make you happy. Frankly, you haven't given them any reason to.
Both sides: I know that people called you names and made any number of unfounded statements about your morals and motives during the run-up to the war. You can vent your rage at this, or you can have some influence on what we do in Iraq going forward. You cannot have both. If you think that dead Iraqis are more important than "mental exercises", and think that you have the way to prevent more of same, then suck it up and sit down at the table. Politely.
Regardless of who was right about Iraq--obviously, I think I wasn't--we are left with the question of what to do now. Only we can't make any headway there, because the two groups are far too busy fighting an intensely personal battle over who was right. With every escalation of the rhetoric, we are less likely to arrive at a solution. Both sides seem to think that if they just hold out a little longer, and lob a few more verbal artillery shell, they can win. Maybe. Meanwhile, the Iraqis are losing.
The whole thing is a lot like those relationship-ending fights where the grievances about the argument have taken over the factual truth of the original debate. People are making increasingly strident demands that would, if directed at them, generate exactly the response they are getting from others: I will do anything rather than concede an inch. Unfortunately, whatever your fantasies might be, we cannot get a divorce, so we'd better find some way to de-escalate the hostilities.
Are you talking to me?
It is astonishing how many of my commenters and web critics seem to have confused me with someone else. I'm six foot two in my stocking feet and bear a more than passing resemblance to an elf. The one common human experience I have never before enjoyed is being mistaken for someone who looks like me.
So you can imagine my surprise, nay discomfiture, to find that I am suddenly dealing with multiple cases of mistaken identity. Having never dealt with this particular social situation, I blush. I stammer. I search delicately for the correct words. I hope you will forgive me if they are a trifle awkward.
Many of my commenters and those who linked to me, for example, are under the impression that I am every war supporter they ever argued with. To be sure, my cheerful efficiency and whirlwind social life may give the impression that I am several hundred people. But this is a mere optical illusion, like the thoughtful criticisms of Brad DeLong's arguments that seem to be posted in his comments section and then eerily disappear.
I did not call supporters of the war "traitors" or "dirty [censored] hippies" . . . vegetarians who own knee-high leather moccasins rarely hurl those sorts of epithets. I spent most of the winter of 2003 urging both sides to be civil to each other, which as I recall was slightly less effective than urging my puppy to behave. Even if I felt moved to apologize for the unmannered as if I were their mother, it wouldn't make you feel any better, because all the people you actually argued with would remain unrepentant.
I find it slightly harder to understand how people can have confused me with a senior member of the Bush administration. It is true that retail clerks who are not quite looking at me have been known to refer to me as "Sir". I admit it freely. I am tall. I have a husky alto voice. And I am perhaps not overendowed with body fat. These are the facts. But I am mostly mistaken for a fourteen-year-old boy, not the 70-year-old architect of our Iraq War strategy. Clearly, I have not been giving my skin care regimen the attention it requires.
I am obviously brokenhearted that I supported a war which has killed something like 125,000 Iraqis and 4,000 American servicemen, driven perhaps a million more into exile, and destroyed quite a bit of Iraq's already inadequate infrastructure. I did not, however, have more than the most tenuous causal relationship with these deaths. In 2003 I was a freelance journalist and technology consultant writing a blog in her spare time. This left surprisingly little time for driving tanks into Baghdad. And much to my indignation, I was not even consulted by the Bush administration, either political party, any think tanks, or our many national media outlets. It therefore seems slightly odd to ask me how I feel about having slaughtered hundreds of thousands of people. I do not claim that the McArdles are totally above sacking the city, sowing the fields with salt, and leaving the bleached white skulls piled up at the gate as a warning to others. But since Mael Sechnaill the younger was restored to the position of Árd Rí na hÉireann in 1014, we have confined this sort of thing to the annual Thanksgiving Mortal Combat tourney.
It seems even stranger to brush aside my account of the mistakes I made with ever-angrier demands for repentance. Whatever reports you may have heard about me healing the blind and causing the lame to walk, I must be clear: I am not, in fact, Jesus Christ. My tears will not restore a single dead Iraqi back to life. Nor can I die for the sins of the rest of the world.
The only thing I can offer, at this point, is the hope that we can figure out how not to do it again. This being what I've tried to do by outlining how I went wrong.
This is, as I have tried to say in other posts, valuable information--information that opponents of the war are losing as they insist that the thing was obvious. Given that the defense and diplomacy staff of several administrations, a large number of IR scholars, and enormous swathes of the think tank world got it wrong, the one thing it clearly wasn't is obvious.
If you want to be congratulated on getting it right on Iraq: congratulations. But that is only sufficient if we are going to be asked again whether to invade Iraq and depose Saddam Hussein. If we are, I promise to leave the decision entirely in your hands.
It seems more likely, however, that we will face a situation that looks like Iraq in some respects, and entirely different in many other respects. Knowing that "Iraq was a bad idea" or even "Persons X, Y or Z got it right" will not, by itself, much help us. It is extremely risky to rely on genius--for one thing, they might no be around when you need them, and for another, genius is often hard to separate from having the right set of biases to fit the situation. Winston Churchill was a monomaniacal imperialist sot who did his level best to drive England's economy into the ground as Chancellor of the Exchequer. And England would have been lost without him.
Better to rely on process than persons. And that's where those who erred have something to add. The cognitive biases that affected us were not unique, as witness to the fact that many of them are now in prominent display among many war opponents. It is, obviously, also a good idea to listen to those who got it right--and thank God, we don't have to choose, what with this spacious new internet thingie we've got on. But if you had to pick only one, listen to the one who went wrong. They're far more likely to be able to accurately pinpoint their errors than the opponents are to usefully identify their strengths.
New comments announcement
The words "shut up" are henceforth banned in conjunction. If I want someone to shut up, I will tell them so. If you want someone to shut up, then you should get your own blog where you can enforce that desire. The purpose of the comment threads is to encourage interesting discussion, not regression into toddlerhood.
Further reminder: this is a family blog. Specifically, my family. Comments using profanity, speculating about my sex life, insulting my relatives, trying to sell useless commercial products, calling people Nazis or Communists who do not self-identify as members of those movements, or otherwise degrading the level of discourse are unwelcome, and as soon as I see them they will be uncomments. If your conversational skills did not pass seventh grade when the rest of you did, find somewhere else to deploy them.
Update I should note that this is not about getting rid of people who disagree with me. I will crack down harder on readers who like me than the ones who disagree: you can think of this as sort of a libertarian game reserve for well-mannered statists. I have enough of a hard time fighting off the crazies who come here from other web sites to throw bombs; please don't add to it, no matter what the provocation. If you think a comment requires more than polite disagreement, email me and I will take care of it.
March 25, 2008
Nintendoville
Like Ezra, I am the proud new owner of a Wii. Like him, I have only a few games, and want to know which others I should get. I lean more towards the "Winter Sports" type games (what I'm currently playing) than shooting things. Suggestions?
Boo-hoo, Bear
This is the kind of thing I'm talking about when I say that failure should hurt:
Just over a week ago, a complacent Bear Stearns went to the feds cap in hand, saying it would be gone by last Monday if help wasn't forthcoming. Wall Street was on edge, and a Bear failure might have led to subsequent collapses. JPMorgan had to be compensated for the toxicity of Bear's books, and shareholders and bondholders were deemed damn lucky to be receiving anything at all.
Now, with the financial system rejuvenated in the wake of the Bear deal, with interest rate spreads falling and inflection point calls growing more common, Bear sees an opportunity to rewrite history and secure a bit more for itself. This is a stunning turn of events. Having nearly destroyed its shareholders and the financial system, Bear is responding to positivity caused by the negation of the threat Bear posed with allegations that it was unjustly treated.
Yes, the Fed leaned on Bear to take a bad deal. But that's because Bear needed the Fed, i.e. the taxpayers, to bail it out. Renegotiating the deal makes things worse by making failure marginally more attractive, and also, by signalling to anyone else who needs funds that they should hold out for a better deal. The reason these things work, if they work at all, is that the windup is swift and orderly.
Why are you still here?
Paul Krugman asks why pundits that get things wrong still get asked for comment. Alex Tabarrok offers an answer that has a lot of merit. But there's another reason that partly explains it, which is that all pundits have made some fantastic bloomers in their time. Paul Krugman has been predicting imminent recession with . . . er . . . depressing regularity since George Bush got elected; I doubt he thinks he should have had his column pulled the first time his prediction didn't pan out.
That said the National Association of Realtors employed the wrongest economist ever, David Lereah, to say things about the housing market that an eight year old child who didn't speak English could have seen through. They are now running ads saying that housing is an awesome investment. Someone should sue them for fraud.
Riding isn't free
The problem with vaccination is that it is very vulnerable to free riding. If 99% of people get vaccinated, it is safer for your kid not to be vaccinated. It's probably safer at 95% vaccination levels. But as levels fall to, say, 85%--particularly if they are clustered among children whose parents like exotic travel--it stops being safer. It starts being deadly.
Any one person's actions will never, by themselves, tip the balance. But in aggregate, their decisions are disastrous.
That's why we create, for these situations, social and legal norms that say "No, you can't opt out." You can't not pay your taxes, even though the rest of us won't notice the added fraction of a cent this heaps on our tax burden. You can't go to the bathroom in the reservoir, even though the dilution would make your . . . er . . . contribution negligible. You don't get to dodge the draft just because you would prefer that someone else get killed defending the country.
We allow people to opt out of some of these social compacts when they are a genuine matter of conscience--you don't have to kill if you think it is morally wrong (though you still have to risk being killed by serving as a medic or in some other non-combat arm). You don't have to vaccinate your children if you're a member of a tiny cult whose children rarely leave the farm. We tolerate this largely because such genuine exceptions are few in number, and because the people who harbor them generally pay a higher price than the rest of us.
But we do not let you opt out because in your opinion, this would make you better off. The very essence of free rider problems is that every individual is better off not complying with the general practice, but the rest of us are all worse off. The only way to secure general compliance is to establish the norm that this is something you have to do even if you'd really rather not. Once you start making general exceptions, the whole system breaks down. And that system has made us all--including yes, your children--vastly better off.
Failure is the key to success
My discussion of failure in the context of the Iraq discussion is part of my broader beliefs about innovation. I saw a great speech a little while back by the guy who's in charge of designing new products at Palm. He talked about an excercise that he does with various groups, where he gives them pieces of spaghetti and some tape and tells them to build the tallest structure they can.
Engineers do all right; MBAs do the worst, because they waste time arguing about who will be in charge. But the best performing group? Kindergarteners. Little kids don't try to design a structure. They just keep trying things, and stick with anything that works. Their structures certainly didn't look as elegant as the neat frames designed by the engineers. But they did the job, which is to be as tall as possible.
To succeed quickly, he said, what you want to do is fail. A lot. Failing eliminates wrong answers faster than any possible analysis. I was reminded of the famous Thomas Edison quote: asked how it felt to have failed to invent an electric lightbulb, Edison said "I haven't failed! I've discovered 10,000 filaments that don't work."
That, in my opinion, is the secret strength of the American economy. We don't try to plan anything. We just see what works, and get rid of what doesn't. We make it easy to try, and hard to keep going once you've failed. Once people have failed, we make it easy to try again--even after our "draconian" 2005 reform, our bankruptcy policy remains the most generous in the world towards both individuals and corporations. But we do not keep moribund industries limping along in the hopes that things will change.
There is a credible argument that the reason Japan's recession lasted ten years is that neither the government nor the banks could let enterprises fail. They carried bad businesses and their loans for years rather than write off the loans. Those ailing firms sucked up all the capital that should have been used to rebuild the economy.
I think this determines how we should handle the financial meltdown. In many sorts of repeat games, "trust, but punish" is the value maximizing strategy for all participants. That's my approach to financial regulation. We should aim to provide maximum transparency, and keep the moral hazard problem down by establishing capital requirements that reduce the government's downside risk. But we should be very suspicious of prospective regulations that aim to prevent failure; the best way to do that is usually to close off potential avenues of success.
As I support easy bankruptcy, I also support having the government be insurer of last resort; letting those who have failed drown in their failure may be morally satisfying, but it is rarely good for society. When we shun failure, we lose all the information they learned.
That doesn't mean that I am in favor of bailing out bankers with taxpayer money. Failure should hurt; that's the "punish" part. Bankruptcy should be unpleasant and destroy your credit; running a company into the ground should be an anguishing experience for bankers.
How, exactly, we should punish them I am still not sure. A lot of commentators I see are underestimating how much Bear's managers are suffering. No matter what your level of wealth, losing your job and being publicly branded a failure isn't pleasant, even if you have millions of dollars. Still, I'd like to see policies aimed more explicitly at making it hurt. A good place to start might be to make the assets of company officers part of the bankruptcy pool--but I haven't thought that through, and I'm sure that there are consequences to doing so that I am not anticipating.
Whatever the punishment, it should be severe but brief. Hit them once, hard, and then get on with life.
Note to opponents of the war
Want to know why people won't come out and say they were wrong? This is why. If you are obnoxious to people who admit you were right, you guarantee that doing so is one mistake they will never make again.
Update To everyone who asked "Why would the behavior of the people you're arguing with matter?" I can only respond: so what have you learned during your visit to our planet?
I have no particular interest in the opinions of my harsher critics on this topic; the only interesting criticisms of my thought process so far have been made by me. But surely you have noticed that America has now hardened into two opposing camps who are often less interested in getting the right answer than in sticking it to the people on the other side? Both sides are guilty of this, and I wish it would stop, because this isn't improving matters in Iraq. Indeed, if you want us to stay there for another hundred years or so, the best way to do it is to completely alienate the moderates.
I am not immune to the charms of unleashing your fiery sense of righteousness upon the sinners of the world, but I try to limit my outbursts to largely lost causes. If I were that sure that I was a foreign policy genius, I would probably try to avoid doing things that manufacture more McCain voters.
Something else to keep in mind is that unless you are planning to die soon, you are going to get some major policy question badly wrong in the future, because no one is as smart as some of the war opponents have decided they must be. And every word that you type mocking the repentant supporters of the war will, I guarantee, be hauled up and thrown in your face. It is best not to fling calumny about other peoples' decisions unless you are very confident that you will be able to bat a thousand for the next forty years or so.
Did Greenspan err on ARMs
Greenspan takes a lot of flak for saying, in 2004, that more people should take on adjustable rate mortgages. Once again, I rise to his defense. What he said was not crazy: you pay your bank a very large premium to get them to assume the interest rate risk. Unless you think that you are better than the bank at estimating future inflation, you cannot make yourself economically better off by taking out a fixed rate mortgage--which is to say, you are about as likely to end up better off by taking out a sensible ARM as you are to end up worse off. My parents had an ARM years before it was cool, and we didn't end up in the poorhouse.
What people did with that advice was insane: they acted as if an ARM was a fixed rate mortgage, which is to say, as if there were no interest rate risk. They borrowed money right up to the limits of their ability to pay at the teaser rate. Some of them thought that rising prices would enable them to refinance before it reset (and to be fair, some of them were right); some of them appear not to have thought at all.
How much responsibility does Greenspan bear for this? With hindsight, obviously, I wouldn't say that sort of thing again. But was it obvious, prospectively, that people were going to use ARMs to leverage themselves to the hilt--and that banks were going to let them? It wasn't obvious to me at the time. And the people I heard criticising him at the time clearly didn't understand that borrowers pay a premium for fixed-rate debt, so I'm reluctant to credit their incredible analysis of matters economic. But perhaps there were brighter voices making the case, and I simply didn't encounter them.
Correlation, causation, vaccination
You would have to be harder hearted than I to ignore the anguished search of parents of autistic children for the cause of their child's condition. "I saw it," they say; "one shot, and then the child who had talked and laughed started retreating into himself." It's hard to argue with someone's pain.
Nonetheless, I'm going to. Our brains are designed to learn by associating events that happen at the same time, or in close sequence. When you were a little kid, that's how you learned that if you touched the stove, you got burned, long before you understood how combustion worked. We have other ways of learning as well, but that temporal link is the strongest, most primal association. We go through our whole lives looking for those connections.
This is not a bad heuristic, but of course, it often leads one astray, which is why there are so many ridiculous "cures" for hiccups. The fact that your child regressed after having a shot doesn't mean that the shot caused the regression. It suggests a theory . . . but that theory has been tested, and found wanting.
One of my commenters asks what I got wrong on the Iraq war. I've posted on this before, but I suppose it's worth saying again what I've learned from the experience.
1) I lost my normal scepticism about the government's ability to make things better. This is not a "I trusted Bush too much"; perhaps the Bush administration is really the reason that everything went wrong, but I am not in a position to evaluate that. I simply forgot to be skeptical that we could build a functioning nation in Iraq. The military performed beautifully--at its core task, which is killing people and seizing military targets. I therefore assumed that we would also be able to build a functioning government and economy. This can be done by people with a lot of tanks and high explosives, but not in any way that I would approve of.
2) I paid too little attention to how the Iraqis would feel. Despite my core belief that I live in the best country in the entire world, I'm basically a cosmopolitan. I should have realized that the Iraqis would find it humiliating to be conquered by an outside power, even one that was (as we are) one of the best-meaning occupiers in human history.
3) I overestimated my ability to interpret Saddam's behavior. I genuinely believed that he had WMD--the main reason I favored invasion--because he was acting exactly like I would if I'd had WMD. I failed to adequately consider that not being a brutal dictator in a chronically unstable region, I probably had limited insight into his thought process.
4) I forgot that institutions matter. The experience of Eastern Europe after the fall of the Iron Curtain revolutionized our thinking about markets. We used to think that they were the natural occupant of any space left free by the government. Now it turns out that they are supported by a dense network of custom and law that is largely invisible to us for the same reason that you can't tell someone how to ride a bike. I knew this, or should have--yet I expected that once we smashed Saddam, democracy and freer markets would naturally fill the vacuum.
5) I failed to consider who would come after Saddam. The corollary to that is that I didn't look hard enough at the possible succession. I imagine that, like the US government, I thought that the exiles could go back and take over; I had more excuse than they did, but not that much. Most exiles aren't De Gaulle.
6) I paid too much attention to the French. While in general, "Whatever France is doing, don't do that" is very good policy advice, it is not actually true that everything the French oppose is therefore a good idea.
7) I fell prey to the notion that we had to do something about Islamic terrorism. This was something. In retrospect, there were many better somethings to do. For example, we could have invaded France.
I'm sure there were other errors I made, but those are the ones that I can identify five years later.
The biggest thing I've learned is simple humility. Almost any set of facts can tell two stories; I will never again be so sure that my story is right.
You've got the wrong target in your sights
Radley Balko wants to get rid of the position of White House press secretary:
Yet we pay this person well into six figures of taxpayer money . . . for what, exactly? This person is supposed to be the liaison between the White House and the press. And we’re now to the point where stonewalling, obfuscating, spinning, parsing, and generally preventing the flow of truthful information are accepted and acknowledged parts of the job description (standard disclaimer about these things also being endemic to politics itself notwithstanding).
I can't get particularly outraged; after all, just think how much more we're paying our politicians to lie to us, insult our intelligence, and waste billions of tax dollars. The White House press secretary seems like a comparative bargain.
New York, New York
One of the reasons that I left New York (I mean, aside from my awesome new job), is that I didn't like what the place had become. I grew up on the Upper West Side when it was still the place where Leonard Bernstein had set West Side Story: a poor-to-middle-class place with no good restaurants but all sorts of interesting local places. The fifteen-story co-op in which I was raised felt in a lot of ways like a very small town.
By the time I left, in my thirties, the Upper West Side south of 96th street was wall-to-wall investment bankers, and the ubergentrification was creeping towards me; I lived across the street from the last grocery store south of 125th street that didn't carry artisanal cheese. I have no objection to artisanal cheese, of course, but the monoculture was oppressive. None of the finance people or their associated service personnel seemed to live in my neighborhood; they came there to sleep. On weekends, they left for their country houses as quickly as their expensively garaged cars could carry them.
So I moved to a city where the income distribution is flatter, there to bring much hilarity to my liberal friends who do not seem to understand that I can find income inequality aesthetically displeasing without wishing to make a law against it. To be sure, if America's income distribution looked like Manhattan's, even I would think that there was a problem. But despite--or perhaps because of--having grown up there, I do not think there is a civil right to live in Manhattan, nor find it particularly troublesome that 36 square miles of real estate have gotten awfully pricy.
This is perhaps why I have so little sympathy for the princes of schadenfreude in this New York Times article, who are hoping that Wall Street will collapse, allowing them to buy Manhattan apartments. Bizarrely, despite the fact that all of them seem to work in some service associated with the finance industry, they seem entirely unaware that if the financial industry in New York collapses, their employers will suffer the same fate. They also seem not to realize that it is the taxes from the banking industry (and its lavish, ridiculous bonuses) that finance Manhattan's low crime rate and excellent public services. Not to mention the restaurants, theaters, and so forth that make them want to live in Manhattan in the first place.
If they wanted to live in the New York that I liked--the one with the Dominicans hanging out on the street corner, the little hole-in-the-wall pizza joints and the improbable shops with ancient leases that sold scavenged junk alongside ticky-tack imports--well then, I could understand their celebration. But they want to live in the New York that the bankers created without the bankers. This is like wanting to go to heaven, but not wanting to die.
March 24, 2008
Why is this night different from all other nights?
There is a fine line between genius and insanity. This person has erased that line.
To qualify as one of the worst films of all time, several strict requirements must be met. For starters, a truly awful movie must have started out with some expectation of not being awful. That is why making a horrific, cheapo motion picture that stars Hilton or Jessica Simpson is not really much of an accomplishment. Did anyone seriously expect a film called The Hottie and The Nottie not to suck? Two, an authentically bad movie has to be famous; it can't simply be an obscure student film about a boy who eats live rodents to impress dead girls. Three, the film cannot be a deliberate attempt to make the worst movie ever, as this is cheating. Four, the film must feature real movie stars, not jocks, bozos, has-beens or fleetingly famous media fabrications like Hilton. Five, the film must generate a negative buzz long before it reaches cinemas; like the Black Plague or the Mongol invasions, it must be an impending disaster of which there has been abundant advance warning; it cannot simply appear out of nowhere. And it must, upon release, answer the question: could it possibly be as bad as everyone says it is? This is what separates Waterworld, a financial disaster but not an uncompromisingly dreadful film, and Ishtar, which has one or two amusing moments, from The Postman, Gigli and Heaven's Gate, all of which are bona fide nightmares.
Six, to qualify as one of the worst movies ever made, a motion picture must induce a sense of dread in those who have seen it, a fear that they may one day be forced to watch the film again - and again - and again. To pass muster as one of the all-time celluloid disasters, a film must be so bad that when a person is asked, "Which will it be? Waterboarding, invasive cattle prods or Jersey Girl?", the answer needs no further reflection. This phenomenon resembles Stockholm Syndrome, where a victim ends up befriending his tormentors, so long as they promise not to make him watch any more Kevin Smith movies. The condition is sometimes referred to as Blunted Affleck.
I don't think that can be quite right--is waterboarding really objectively better than invasive cattle prods? But I take the general point.
Dan nominates Caligula; Alex Massie goes for the Sicilian. I'm torn between Far and Away and The Road to Wellsville. I saw the latter with my then boyfriend, who was the son of an economist. Ten minutes into the movie, he said "Let's go."
I demurred. "We paid three dollars for these tickets. I'm going to watch the movie."
Ten minutes later, he whispered more urgently "Come on, it's just getting worse. Let's go."
"No," I insisted, "I am not wasting three dollars on twenty minutes of movie."
The rest of the movie passed in a sort of a nightmare that has become associated in my mind with Mark Twain's description of opera:
The banging and slamming and booming and crashing were something beyond belief. The racking and pitiliess pain of it remains stored up in my memory alongside the memory of the time that I had my teeth fixed
By the time the lights went up, we were the only people in the theater. This on a Saturday night.
My boyfriend looked at me and said "I'm taking you to meet my father."
"Why?"
"Because someone needs to explain the concept of sunk costs to you."
Queue jumping
James Joyner on the new "Clear Card" program to let frequent travelers pay $128 for expedited security procedures.
The government requires that people give up their 4th Amendment rights against unreasonable searches in order to fly on commercial airlines on the grounds that they have no idea which of us are potentially terrorists. The government then charges a fee to allow people to prove that they’re not criminals and skip part of the line. There’s something vaguely un-American about this.
This is compounded by the fact that the government doesn’t allow people with military ID or who otherwise have actual security clearances to bypass said lines, which leads me to think that this is about collecting the $128 rather than ensuring security. That view is enhanced by the fact that no security check that could be accomplished for $128 will do anything other than demonstrate that the person in question is not a wanted felon or on a terrorist watch list. That’s a screening that all of the 9/11 hijackers would have passed.
My only disagreement is with his use of the word "vaguely".
The art of explanation
Slate's What I got Wrong series on the five-year anniversary of the Iraq War, and similar efforts from other media outlets, have triggered a fair amount of irritation, especially among those who opposed it. Says Timothy Noah:
Why should you waste your time, at this late date, ingesting the opinions of people who were wrong about Iraq? Wouldn't you benefit more from considering the views of people who were right? Five years after this terrible war began, it remains true that respectable mainstream discussion about its lessons is nearly exclusively confined to people who supported the war, even though that same mainstream acknowledges, for the most part, that the war was a mistake. That's true of Slate's symposium, and it was true of a similar symposium that appeared March 16 on the New York Times' op-ed pages. The people who opposed U.S. entry into the Iraq war, it would appear, are insufficiently "serious" to explain why they were right.
I heard a fair amount of that this weekend. But I think it's seriously misguided.
The universe being a complicated place, you can usually tell multiple stories from the same pieces of evidence. We learn by gambling on what we think the best answer is, and seeing how it turns out. Most of us know that we have learned more about the world, and ourselves, from failing than from success. Success can be accidental; failure is definite. Failure tells us exactly what doesn't work.
Failure tells us more than success because success is usually a matter of a whole system. And as development economists have proven over and over and over again, those complex webs of interactions are impossible to tease apart into one or two concrete actions. Things can fail, on the other hand, at a single point. And even when they fail in multiple ways, those ways are usually more obvious than the emergent interactions that produced a success.
At the decision point where we decided to go into Iraq, there were two hypotheses we could have tested:
1) Something terrible will happen if we leave Saddam in power
2) We can depose Saddam and leave the world a better place
We chose to test hypothesis number two. So far, it looks like a dud.
Since it failed, the more interesting question is not what did you get right, but what did you get wrong. The people who were right can (and will) rewrite their memories of what they believed to show themselves in the most attractive light; they will come to honestly believe that they were more prescient than they were. This is not some attack on people who were against the war: I was wrong, they were right. But everyone does this with almost everything--indeed, not rewriting memory in this way is so rare that there's a clinical term for it. We call it "major depression". They will also quite possibly simply be wrong about how they got it right; correct analysis often operates at a subconscious as well as a conscious level.
The people who failed will also do this. But unlike the people who were right, there is a central fact stopping them from flattering themselves too much: things are blowing up in Iraq and people are dying. Thus they will have to look for some coherent explanation.
To be sure, many of those explanations are wan and self-serving--"I trusted too much." But others of them aren't. And the honest ones are vastly more interesting than listening to a parade of people say "Well, obviously, I'm a genius, and also, not mean."
JP Morgan sweetens the deal
I am of two minds at the news that JP Morgan has raised its bid for Bear Stearns from $2 a share to $10 a share.
On the one hand, it will help the deal go through, putting JP Morgan's balance sheet behind all of Bear's trade, which should go a long way to settle the markets. And the Fed leaned pretty heavily on Bear Stearns management to make a sweetheart deal to entice JPM in; that's not exactly fair.
On the other hand, failure should hurt; otherwise, the moral hazard problem is too great. And raising the price from $2 to $10 inches the needle a lot closer to "bailout".
Part of the problem with price signals is that we're not always sure what they're signaling. Cheap meat signals, to many, a good deal. But the cheaper your meat, the more brutal the conditions the animal was raised in. It's cheap to raise chickens in boxes, cheap to cut off their beaks so they can't peck themselves. It's cheap to never let your cows roam, cheap to feed them corn feed, cheap to force them to adapt to a fattening, subsidized diet that their bodies reject and deal with the consequences through antibiotics.
It's pricey, by contrast, to give animals room to roam, to feed them a healthful diet that doesn't force early maturity, to raise and slaughter them humanely. It's pricey to raise food on things that are recognizable as farms, and to make your energy and transportation practices sustainable. In the same way that gas is too cheap because the price doesn't include the associated environmental harm and long-term costs, meat is too cheap, in that the price ignores the environmental harm, the land-use opportunity costs, and the cruelty that often goes into "cheap" food.
I'd say meat isn't cheap; we've just shifted the costs.
Department of ridiculous boondoggles
Somehow while living in New York I failed to notice that the city government had decided to give the Yankees $220 million dollars towards the building of their $1.3 billion new stadium. I am a Yankees fan of long duration. But if the Yankees want a $1.3 billion stadium, they should pay for it themselves.
Apparently, the best seats will now cost $2,500 a pop. I'm feeling more affection for the Nationals by the minute.
New economics blog
Andrew Samwick, whom I have faithfully tracked for years in RSS, has moved his operation to a new group blog, Capital Gains and Games. I've already added their feed to my reader, and suggest you do the same.
Ecuadorian citizen killed by Colombians
Ecuador has been saying that it will be very, very miffed if it turns out that Colombia killed any Ecuadorians during its recent cross-border raid. Well, it turns out that Colombia killed an Ecuadorian during its recent cross-border raid. This will do nothing good for the already incredibly tense relationship between Colombia and Ecuador, particularly if Hugo Chavez decides to once again toss his hat into the ring.
More parents forgoing vaccinations
Another infuriating article about the twee Bobo sociopaths who refuse to vaccinate their children. Knowing parasites upon the herd immunity of everyone else, they are increasingly creating clusters of unvaccinated kids who form disease reservoirs where previously eradicated illnesses like measles are making a comeback. Their precious darlings then go on to infect younger children who haven't had their vaccinations, the immunocompromised, and adults whose immunity has waned1.
There is substantial evidence that communities with pools of unvaccinated clusters risk infecting a broad community that includes people who have been inoculated.
For instance, in a 2006 mumps outbreak in Iowa that infected 219 people, the majority of those sickened had been vaccinated. In a 2005 measles outbreak in Indiana, there were 34 cases, including six people who had been vaccinated.
Words fail one in trying to come up with adequate words to describe people who permit their children to bring the precious gift of sterility, encephalitis, and death to perfect strangers.
Of course, I recognize that people have a right to abide by their conscience, and I would not want public health officials to force children to be vaccinated. I just think that people who are unvaccinated, unless they have a legitimate medical reason for same, should not be allowed to use public roads, public sidewalks, or public services. They have a right not to vaccinate their children. But they do not have a right to risk my health.
Update I chose the word "sociopath" quite deliberately. I think parents who leave their children unvaccinated are the moral equivalent of people who drive drunk. I imagine the person in my comments who contracted measles at 15 months from an unvaccinated child, and ended up with permanent corneal scarring, feels even less kindly than I do.
1While it is commonly assumed that vaccinations give you lifetime immunity, depending on the disease, that immunity can fall off over time; the vaccines work by denying diseases their most common reservoir (schoolchildren), not necessarily by giving everyone permanent immunity.
March 23, 2008
Happy Easter
Being an agnotheist I have no deep theological insights to offer. Instead, I give you: Peeps Experiments.
'Splain me, please?
I am second to none in my indignation at the breach of Obama and now maybe Hillary's passport files. But here's the thing: what was the point? I mean, what interesting information could you possibly learn from the passport records of people whose every move is public record? To be sure, I wouldn't want people looking at my passport photos . . . but I wouldn't really want to look at anyone else's, either.
That doesn't excuse the people who did it: prosecute them to the fullest extent of the law, and all that. But still I wonder . . . why?
Renters beware
Calculated Risk warns renters to be careful of "too good to be true" deals on rent; you could end up evicted when your distressed landlord defaults.
And a Scots-Irish war veteran as the Republican nominee complicates predictions about whom Kennedy Country will support come November.
To the vast, vast majority of Irish-Americans who are Catholics (or descended from same), Scots-Irish≠Irish. Scots-Irish are also known as the Protestant bastards who were resettled in Ireland as a part of Britain's colonial policy for subjugating the island. Many of them joined the various rebel movements in the 19th century, but many more did not. Ian Paisley, the raving nutloon bigot First Minister of Northern Ireland, who is fond of referring to Catholics as "vermin" who "breed like roaches", and popularized the slogan "A Protestant nation for a Protestant people"1, taps into that community, even though I believe he is not himself Scots-Irish. Relations between the Scots-Irish and the Irish in America weren't all that much friendlier.
Now, this is all distant history, and while there might be some wizened old professional Irishman out there declaring that he won't vote for an Orangeman, he'd be an island in a sea of puzzled indifference. But McCain sure as hell isn't going to pick up votes from the Irish Catholic community because of his heritage.
1As of 1997, this slogan was still posted on an arch that spanned the main roadway going into the (half Catholic) town my family came from in Armagh. "Still" is perhaps the wrong word, as the arch, made of tubular steel, couldn't have been erected much earlier than the mid-eighties.
Update Alex Massie, one of my favorite Scots, and an alum of Trinity College in Dublin, points out that "A Protestant State for a Protestant Nation" originally came from James Craig the Scots-Irish first Prime Minister of Northern Ireland.
March 21, 2008
Declining dollar
Steve Forbes has a plan for America: end mark-to-market accounting, and strengthen the dollar. As so often, Mr Forbes seems to have confused what is good for him, personally, with what is good for the nation at large.
The dollar decline is not the cause of our problems; it is a symptom. To be sure, most of us professional prognosticators thought that it would be a cause of our problems. We expected that eventually the trade deficit would cause a decline in the dollar, and capital would start to flow outward again, tanking the markets. Instead what happened is that the market tanked and (presumably) foreign investors have started to withdraw their funds.
This is, to be sure, not making things any better. But the things that the government could do to prop up the dollar would make things worse. It could, say, ratchet up interest rates to make US assets more attractive. This would be fantastic for a market desperately trying to unwind its excess short-term leverage. It would also do delightful things to homeowners with resetting ARMs.
Also the way the Fed targets the money supply is to sell bonds. And what a market with to few buyers really needs right now is more product. Meanwhile, of course, business investment would fall even further. Hello, recession. And did I mention that our exports would tank even further?
There's an alternative: the Treasury could sell a lot of foreign currency. This would probably be pointless; because the US doesn't intervene in the value of the dollar, we have very little in the way of foreign reserves. The Treasury and the Fed together have about $70 billion in euros, yen, and Swiss francs. They have another $20 billion in foreign securities. Meanwhile, other countries have well over a trillion US dollars in cash and US securities.
Foreign central banks might try to help us, but with such a pitiful supply of foreign currency, we'd never stand up against the foreign investors trying to get out of our broken market, much less the fx speculators. George Soros alone bet 6.5 billion pounds sterling against the Bank of England nearly twenty years ago. There's a lot more money floating around out there today. Successful defenses of overvalued currencies are few and far between, and tend to involve measures a lot stronger than buying a few dollars.
The other proposal is even more daft. There's nothing to reassure markets in a liquidity crisis like reducing transparency.
The good news is, the weak dollar isn't the catastrophe that some people seem to think it is. While it is falling, it will trigger capital outflow, but when it bottoms, US capital markets will become attractive to foreigners. Meanwhile, our export industries will get more competitive. And while it will mean fewer cheap electronics (buy that flat panel now!), trade just isn't that big a component of the US economy. The really big problem is that it will make oil even more expensive. But the effect on gas prices will be relatively small compared to the Asian demand, terror worries, and supply-side restraints that have pushed it to $100 a barrel.
Psychologically, a weak dollar is a blow to our pride. But practically, it was going to have to happen, because Americans have been buying more than they sell for much too long. Among the various financial problems the world has today, this should be about the last one you worry about.
Investors disillusioned, but not defrauded
A friend who is a securities lawyer writes:
I wanted to respond to your post and Jim Manzi's about the burgeoning "hedge funds are nothing more than a giant odds-playing scam" meme. Regardless of your views on the EMH, that meme is completely ignorant of the way the legal and market regimes governing hedge funds actually work. Maybe their investment ideas don't work as well as they'd like, but (a) investors generally know what the funds' investment strategies are, and (b) they think they work. Maybe delusions, but few scams.
Tibetan solidarity
From the comments on my Tibet post, this seems absolutely brilliant:
A far better approach would be if the athletes themselves engaged in all manner of subversive tactics. I've heard it suggested that the athletes shave their heads in solidarity with Tibetan monks. Can you imagine the apoplectic fits the Chinese would go into if wave after wave of athlete representing various nations entered the arean with shaved heads? What if there was some symbol for Tibet the athletes wore on the medal podium? What if during press conferences, the athletes consciously mentioned the plight of Tibet? The possibilities for mischief are endless.
While I'm in my testy mood, I guess I might as well remind Barack Obama that the war in Iraq hasn't lasted longer than WW2. There were, in fact, some isolated outbreaks of fighting before Pearl Harbour.
And he was doing so much to improve our image abroad . . .
Comcast delenda est
After yesterday's discussion of the awfulness of Comcast DVRs, Peter Suderman points out that all their other service is terrible too. Roger that. I have too many Comcast horror stories to share them all, but my favorite was the technician who showed up to install my service without the equipment to splice coaxial cable. This seems like the sort of thing you really ought to have on you if you are going to install coaxial cable in someone's house. When he finally came back with his equipment (after first trying to get me to move the television to right next to my bed, where the existing hookup was), it took him half an hour to splice a head onto the end. I've done my fair share of cabling, and while it can be confusing to have only the one wire onto which you crimp your pre-made head, this seemed a bit excessive. Yet he got mad at me when I offered to do it for him. This is one of the many reasons why I am a loyal reader of Verizon's Fios website. Someday, we shall be free . . .
The weirdness of basketball
So I am participating in my office pool. I used my patented WAG method, which consisted of a little bit of reading the CBS description of each team, a little bit of supporting teams from places where my friends got degrees or teach, and a substantial amount of random guessing. So far, I don't seem to be doing all that much worse than people who actually know what they're doing.
Naturally, therefore, I am watching the games. This leads to two observations. First, HDTV, even a little HDTV, really does make watching sports more enjoyable. And second, basketball may be the silliest game ever invented.
I say this as someone who spent the better part of the winter every year dribbling, practicing my free throws, and memorizing plays. When you come to the game fresh after a fifteen or twenty year hiatus, however, it is readily apparent that the thing was invented by madmen. Or at the very least, people with a sick, sick sense of humor. Dribbling is a mildly more sophisticated version of what toddlers do with a rubber ball. Even toddlers get bored after five minutes of this. It makes the game much more difficult, to be sure, but so would requiring them to play in waders and a gas mask.
You can excuse these bizarre features in games that grew organically out of older ones. But someone invented this game out of whole cloth. It makes one quite faint to contemplate.
That is not to say that I'm not enjoying it. At least I actually know the rules of this game, and can appreciate some of the finer points. But there's something disturbing to think of millions of children growing up across the nation with a fervent longing to spend the majority of their adult days . . . dribbling.
Why shouldn't we boycott the Olympics?
The Tibetans want independence; the Chinese are cracking heads and shutting down communications in Tibet. What's the argument in favor of letting China put on a show as if it were a free nation?
I have some thoughts on financial regulation up at the Current.
Whence the basketball gender gap?
Apparently, people are upset because women's college basketball doesn't get as much attention as men's college basketball. Despite my long years as an exceedingly mediocre center--all I was really good at was being tall--I can't say this outrages my feminist heart. But I do wonder why this is so. I don't watch a lot of sports, so I have no idea what the qualitative differences are. Can someone explain why women's basketball is less enjoyable to watch than men's?
Hedge funds: heads I win, tails you lose?
I agree with Jim Manzi that this sounds kind of crazy.
Now imagine that we set up a hedge fund with $100m from investors on the normal terms of 2 per cent management fees and 20 per cent of the return above a benchmark. We put our $100m in Treasury bills yielding 4 per cent. We also sell 100m covered options on the event, which nets us $10m. We put this $10m, too, in Treasury bills, which allows us to sell another 10m options. This nets another $1m. Then we go on holiday.
There is a 90 per cent chance that this bet will pay off in the first year. The fund then grosses $11m on the sale of the options, plus 4 per cent interest on the $110m in Treasury bills, for a handsome 15.4 per cent return. Our investors are delighted. Assume our benchmark was 4 per cent. We then earn $2m in management fees, plus 20 per cent of $11.4m, which amounts to over $4m gross. Whatever subsequently happens, we need never give this money back.
The chances are nearly 60 per cent that the bad event will not occur over five years. Since the fund is compounding at a rate of 11.4 per cent a year after fees, we will make well over $20m even if no new money is attracted into this apparently stellar enterprise. In the long run, however, the bad event is highly likely to occur. Since we have made huge profits, our investors have paid us handsomely for the near certainty of losing them money.
The immediate response may be that so naked a scam is inconceivable. Well, imagine a fund that leverages investors’ money by borrowing massively in short-term money markets in order to purchase higher-yielding paper. Assume, again, that the premium gives a correct estimate of the risk. With sufficient leverage, this fund, too, is likely to make profits for years. But it is also very likely to be wiped out, at some point. Does this strategy sound familiar? It certainly should by now.
Not the basic underlying point, which I thoroughly endorse: there were a lot of people over the last decade or so who decided that they were geniuses because they made money for a few years. What they were really doing was levering up and massively underestimating the risk of failure.
This is, in my opinion, a general truism about human nature: if our decisions have good outcomes, we tend to assume that this is due to our native genius. We entirely discount the role of luck, aka random chance. The more our decisions pay off, the more confident we come, and the bigger bets we are willing to make--and then, the deluge.
But while I agree that many money managers were foolish and overconfident in their rather modest abilities, I don't see how you can cast it as a morality play. The only hedge funds I'm familiar with structure the compensation so that it is very hard to make much money if your clients lose it. That's not really surprising, since the clients of hedge funds are generally not gullible widows investing their meagre savings with a smooth-talking stockbroker; they're very rich people, or institutional investors. Those people tend to be at least somewhat familiar with the incentive problem created by guaranteeing that your fund manager makes money regardless of whether you do.
Also, most of the hedge fund managers I've met have a substantial portion of their own wealth tied up in the fund--it's very hard to get people to invest in your fund if you won't. They not only aren't minting money off a fund that blows up; they're likely to lose a considerable portion of their net worth.
Now, it's not as if I've done a representative survey of hedge funds or anything, so I'm open to being told I'm wrong. But I'd be very surprised to hear that it was so.
The most interesting part, so far, has been Lessig's argument to conservatives for why we need public financing. First, the idea he semi-endorsed is not full public campaign finance. It is public financing for incumbents, an idea he credits to Paul Begala and James Carville. Incumbents would be prohibited from raising any money, at all, period. Their funds will come from the U.S. Treasury and be a function of how much their opponents raise. If Challenger Jones raises $1 million, Congressman Smith gets a check for $800,000.
Why should conservatives and libertarians support this, given that Lessig accepts a $2 billion estimate of the cost? "Why is government so big?" Lessig asks, rhetorically. "Because Congressmen must get elected. The insidious relationship between the desire to regulate and the need for congressmen to get re-elected drives the expansion of government." Compare that $2 billion cost, Lessig suggests, to a radically shrunken (and less busy) FEC and the diminishment of loopholes and handouts.
Lessig quotes Ronald Reagan on how people vote themselves benefits from the treasury. Lessig agrees with the argument, but not the reasoning. "The problem we face is the problem of crony capitalism. Not wealth pumped down, but wealth pumped up."
This actually doesn't sound like a terrible idea to me. It won't keep the money out of politics--campaign finance laws are as rocks in the stream to the money sloshing around Washington. But it might, at least, keep incumbents from spending 50% of their time trying to raise money for the next race. And it would erode the massive advantage that incumbents usually have in direct fundraising.
It will not, however, much reduce the size of government. Almost all of the money that government spends goes to entitlements, defense, or interest on the national debt, all of which are extremely popular programs. Earmarks tend to be aimed at impressing a state's voters, not its plutocrats. And regulations are as often enacted at the behest of angry but poor activist groups as of rich lobbyists.
Indeed, one thing that might worry conservatives is that this would work. That would leave activist group power--which tends to rest on their mailing list--intact, while eliminating the countervailing force from industry. I'm not siding with business here--I don't like the business lobbies any better than anyone else. But they do provide a check on activist groups which, left to their own devices, would ignore the practical questions about the consequences of their programs.
Kindled hopes
John Holbo is wondering if the Kindle could be the one.
I’ve always wanted an eBook reader I could really want. I think most academics feel the same, probably most people do, who spend any serious time reading onscreen. And, like most people, I have sized it up as a consumer confidence Catch-22. No confidence-inspiring device, however snazzy, until a critical mass of customers settles. No settling until there is a confidence-inspiring device. It sounded, at least initially, as though Kindle was sure to be born a clinker: speaking selfishly, it wouldn’t have the sorts of features that would make it a wonderful thing for academics, as any eReader has to be. You wouldn’t be able to read PDF’s. (Total deal-breaker for any academic.) I guess they’ve worked that out; quite a few customers seem to be reporting in, happy. I don’t really care if the thing looks a bit homely and of course the price will come down eventually. Could Kindle be it? The phrase ‘bestselling eBook reader’ hasn’t had much occasion for use before now. It’s been the tech phrase I’ve been waiting to hear. Please report, CT-reading Kindle-owners, especially academics.
I confess, I too have been casting longing eyes at its box-it-came-in styling and thoroughly un-ergonomic design. I'm going on vacation in a couple of weeks (the first one since last August), and I really don't fancy hauling the eighteen pounds of books that are necessary to keep me occupied for an entire week. Also, I am out of bookshelves, with no room for more; my apartment is a funny shape with not so much in the way of open walls.
Talk to me, Kindle owners--should I get my hopes up?
As a result, Mr Reade, who reckons that the fundamentals justify a gold price of only $700-750 an ounce, has “thrown in the towel” and now expects bullion to reach $1,025 within a month and $1,075 within three.
The fundamentals? I would love to see any discounted cash flow for gold, an inert, industrially useless metal, whose only savings graces are 1) Bernanke cannot make more of it, 2) neither can anyone else, 3) people have agreed it's money for ten billions years.
March 20, 2008
Give up yet?
Jeremy Siegel, whose economic work was one of the key theories used to justify higher stock prices during the bubble, thinks that the market is near capitulation.
The idea is that the market can't bottom until everyone has given up in despair. I'm reminded of a friend who worked at a hedge fund during the last market downturn. "I keep telling them no-no-no!!!" he told me over dinner. "As long as you think the market has capitulated, it hasn't capitulated."
Bring me the head of Ben the Baptist!
There are a lot of liberal blogs calling for Wall Street's head today. I agree that the bankers who did this should suffer. But I disagree in two important ways: I think the bankers are suffering, and if we make them suffer the way many people want to, I think we'll all end up suffering more. More on this a little later.
Tivo talk
I hope everyone will join me in welcoming Tom and Charles back to civilization. If you're spending money on a Comcast DVR, take my advice: use a little of your monthly payment to buy a hammer. Then take the Comcast DVR back to the cable company, and use the hammer to hit yourself repeatedly in the head. It's much cheaper and more enjoyable.
Mac attack
One of the interesting features about markets is that they are rife with things that are only true if lots of people disbelieve them. For example, markets will only be efficient (and indexing therefore your best strategy) if lots of people believe that they are inefficient, and thereby help set the price by buying and selling individual stocks.
The same thing, it strikes me, is true of the much vaunted security of Macs. Macs don't get spyware and viruses, but that's not because their security is so much better; it's because so few people use them that it doesn't pay to build spyware and viruses for them. However, if everyone really believed that Macs were much safer, more people would use them, and then it would pay to develop malware that targets them.
Apparently it may be changing anyway, as Apple gains some market share, and Windows security gets better. Sigh. I can't say I miss my Norton antivirus.
Oil: up, up, and away!
Why is oil so expensive, anyway? Angry Bear has a great post on the subject, covering two of the most popular explanations:
1. Inflation is pushing up commodity prices
2. Oil is becoming more scarce.
Of the two, I find the latter much more convincing. But I'll let Stormy explain:
Rapier offers an entirely different approach to the cost of oil. The real cost of oil is directly connected to the cost required to extract it. He explains clearly and concisely the implications of EROIE (Energy Returned on Invested Energy).
Before I turn to his explanation, I wish to make two preliminary points:
1. Oil is the lynch pin of our world. The cost of everything, and I mean everything , is tied to it: from cabbages to cars, from light bulbs to plastic containers, from the cost of fertilizer to the production of iron. Oil is required to make plastic products, even fertilizer. Global transportation depends on it. A sizable chunk of production depends upon the energy oil supplies, to say nothing of our electricity and heat.
2. As the world becomes increasingly populated, more and more people depend upon it. According to the U.N., in 2000 the world was adding 79 million people each year. That means, since 2000, the world has added one country whose population is the equivalent of the United States. While fertility rates in the developed world are decelerating, not static or falling, the developing world continues its rapid growth.
Rapier offers two equations that have important bearing on the cost of oil.
1. EROIE = Energy Input/Energy Output.
2. Net Energy=Energy Output - Energy Input
The first equation is a ratio between the energy used to extract oil and the energy that oil provides. The larger the ratio, the more efficient the extraction is. And, it goes without saying, the cheaper the oil should be.
The second equation measures net energy. Similarly, the larger the number, the cheaper the oil should be.
Bob Lloyd, physicist at the Otago University, asserts that the concept of EROIE is not new. Anyone familiar the first law of thermodynamics understands it. But, because oil has seemingly been so inexpensive to extract, we have neglected the reality of EROIE. Oil has become a commodity similar to pork bellies, as if it were renewable or as if the cost of its creation were static.
The actual cost of oil extraction, in fact, is growing increasingly more expensive. Initially, the cost of extraction was ridiculously cheap. As Matt Simmons is fond of saying, a glass of oil was cheaper than a glass of bottled water... still is.
Texas oil in the 1930's had an EROIE of 1 to 100. It's EROIE was 1/100--very nice ratio. Similary, the Net Energy was 99. These numbers tell us that in the 1930's oil was very inexpensive to extract.
In the 1970's EROIE was 1/30 with Net Energy at 29, three times more expensive, but still ok.
Today, EROIE is at 1/15 with Net Energy at 14. In absolute terms, the cost of extraction is six times more expensive than in 1930.
Now consider the Canadian Tar Sands. Fort McHenry is booming; everyone, including the Norwegians and the Chinese want a piece of the action. Something is happening, for if you consider the actual EROIE of the tar sands, you will understand what I mean.
A report to the legislative leaders and governor of Connecticut concluded that the actual EROIE of the tar sands is 1/3, with Net Energy of 2. In other words, it takes the energy equivalent of one barrel of oil to produce three barrels. The report points out that shale in the Wyoming-Utah-Colorado area has the same EROIE as tar sands oil.
Between 1930 and 2008, the EROIE of oil increased over thirty fold, from 1/100 to 1/3. Net energy has gone from 99 to 2.
One of the things I worry about is this: if oil keeps getting more expensive, what happens to the Green Revolution? It was predicated, in part, on cheap fertilizer--and cheap fertilizer is made possible by petrochemicals. What will replace them when the oil starts running out? I assume the world supplies of bird guano and horse manure are shrinking, not increasing.
Home, sweet home
This article on whether you should rent or buy that has been going around the web is . . . well, it's not very good. It's heart is in the right place--home ownership is not a path to easy riches. There are plenty of good reasons to rent.
But the details are all wrong.
Myth #1: Renting is Like Throwing Your Money Away
Buyers throw their money away for the first five years they own a home, because they simply give money to the bank for the privilege of borrowing money. Renters, on the other hand, pay for one thing every month: shelter. They don't pay interest to the bank, property taxes or maintenance fees. They pay rent.
Renters pay all of these things: the landlord usually has a mortgage, certainly has property taxes, and we hope he's doing maintenance. You just call it "rent", which means it's not deductible from your federal taxes.
Myth #2: There are Tax Benefits to Owning
Contrary to popular belief, buyers do not get back the mortgage interest they paid throughout the year at tax time. Mortgage interest can only be deducted from taxable income. This essentially means that buyers pay a dollar just to save 30 cents.
Furthermore, deducting interest has no tax advantage unless a buyer pays so much in interest that the amount exceeds the standard deduction that everyone--including renters--is allowed to take.
When it comes to owning, the only guarantee is that buyers will be required to pay property taxes. Since renters are not required to pay any taxes on the property they rent, it seems downright foolish to factor the 'tax benefits' of owning into a buying decision.
See above. Whatever these taxes are, you're paying them as part of your rent. It is true that housing becomes a better investment the farther you move up the income ladder, which is one of the many reasons that we should eliminate the mortgage interest tax deduction. But if you have one kid, you're not taking the standard deduction anyway.
A mortgage is an inflation play: you bet that rent will grow faster than your house payment. Probably not a good bet in many markets right now--but on the other hand, inflation's creeping up, so it also might not be totally crazy.
Myth #3: It Doesn't Cost Any More to Buy Than It Does to Rent
People can usually rent a home by paying first month's rent, last month's rent and possibly a security deposit. All the money that is paid initially actually goes towards monthly payment obligations, with the exception of the security deposit, which is nearly always returned to the renter in the end.
When a person buys a home, the money that is paid upfront is more significant and may or may not be seen again. For example, a buyer must pay closing costs (typically five percent of the loan amount) and real estate agent commission (typically six percent of the loan amount) before being called a homeowner. This 11 percent 'investment' ensures that the home must appreciate by at least 11 percent before the buyer can hope to break even.
This is just wrong--wildly wrong. A lot of closing costs are flat fees, which means that as the value of the mortgage rises, the closing costs fall. Looking at this estimate from Bankrate.com I get an average closing cost of 3.6%, not 5%, on a $125,000 loan.
As for the broker's commission, that's paid by the seller, not the buyer. One could argue that it is actually paid by the buyer in the end, but all that means is that it's factored into the house price. You don't pay another 6% on top.
Myth #4: Buyers Have Assets, Renters Do Not
At best, buyers have depreciating assets. Home prices are falling in nearly every area of the country. An estimated 50 percent of the buyers whose loans were originated after 2002 now owe more than their homes are worth.
Homeowners who have been paying on their homes for ten years or more are seeing their equity disappear. This means that the 'investment' they made through mortgage payments is gone--dried up virtually overnight through no fault of their own.
Renters may not co-own a home with a lender, but this doesn't mean that they don't have assets. Many renters have a large and prosperous portfolio, Star Wars collectibles (just an example) and other assets that can be sold IMMEDIATELY for cash. The reason they own these things is because they haven't been paying a lender to 'rent' money so that they could pretend like they own an asset.
This is maniacally unbalanced. It amounts to saying "asset prices change", which is true of everything, even, I'm afraid, Star Wars collectibles. Agreed, you can take the money you save not buying and plunge it into investments. Most people don't, however; a house is a form of forced saving.
I do agree with the last "myth": you shouldn't buy housing as an investment. You buy a house because you can't get what you want any other way; because you want to put down roots and have a house that you can do what you like with. If you're planning on moving every five years, and are in a lower tax bracket, you're probably better off renting. But you're much better off with something like the New York Times rent v. buy calculator than you will be with that article.
Why government sucks, part 11,982 in our ∞ part series
Terrorist watch lists are probably a good idea. But because the government is, well, the government, it doesn't really care whether the watch list is right. Their incentive is to make sure that absolutely nobody who might be a terrorist is able to do absolutely anything in the US.
These lists always have to trade off between Type I error (false positive) and Type II error (false negative). Since we live in an imperfect world, you have to decide whether to err on the side of ensnaring the innocent, or missing the guilty.
But people building terror watch lists only get punished if they introduce Type II error. Hence, they have no incentive to avoid Type I error. Which is why they have an easy procedure to put people on, and no obvious way to remove them again.
The rest of us, however, have to trade off the risk of getting killed in a terrorist attack, and the risk of never being able to fly or have a bank account again. With something like one in three hundred Americans on watch lists, it seems to me that we have gone too far.
Market myths
The current financial crisis is causing the conspiracy theorists and self-taught economists to emerge from all the dark corners and crawly undersides of the political landscape. I am not going to pick on any one blog post, because the errors are too common. But I think it's worth explaining why some of the more lunatic theories are wrong.
Item One: The Iraq War did not cause this problem
Iraq is probably contributing somewhat to headline inflation. But it is contributing by making oil somewhat more scarce, thanks to production shortfalls and hoarding by speculators. Real factor scarcity does not create the kind of inflation that touches off asset price bubbles. Only inflation of the money and credit supplies, by giving speculators money to borrow and spend on their favorite asset, has the (arguable) power to create these financial manias.
Nor does the government's borrowing create these bubbles. If anything, it mitigates them by soaking up excess capital from the markets and thus raising interest rates higher than they would otherwise be. Essentially, the government took money out of the housing market and used it to blow things up in Iraq. Bad for Iraq, but probably good for the financial markets.
Item Two: The Bush tax cuts also did not cause this
As noted above, government budget deficits do not create financial manias. What the tax cuts gave to the economy in terms of stimulus, they took back in the form of higher interest rates.
Moreover, there's a strong argument to be made that the Bush tax cuts actually exerted some downward pressure on house prices. That's because when the tax rates fell, the value of the mortgage interest tax deduction also fell. Some of the money that people got back in the form of lower taxes probably went to the housing market, but you have to net out the amount of money leaving the housing market as the tax deduction became less valuable.
Item Three: Being on the gold standard would also not have prevented this mess
There are a lot of hucksters out there writing books and newsletters telling people that a gold standard (or some other commodity currency) is the cure for all their worries. The way they tell it, "hard" currency is a sort of broad-spectrum economic snake-oil, the ginseng of the financial markets. Only adopt their plan, they beseech, and America will no longer be plagued by exchange rate fluctuations, government profligacy, trade deficits, inflation, speculative mania, financial panics, or indigestion. This is triple-distilled balderdash.
There is nothing wondrously transformative about pegging your currency to the atomic weight of 196.97, or any other magical metal. America managed to have a regular supply of speculative booms and spectacular busts throughout the nineteenth century despite the soothing presence of gold in our money supply. The international gold standard in the 1920s and 1930s was marked by speculative mania, catastrophic deflation, competitive devaluations, massive exchange rate and trade imbalances, and of course the worst economic contraction in living memory. The depth and duration of which, I must point out, many economists attribute to America's fierce determination to defend her currency.
A little closer to home, you might look at Argentina--Paul Blustein's excellent book is a good place to start. Argentina's dollar peg was essentially a commodity currency--they didn't control their money supply, and got a contractionary monetary policy when their economy was in recession. Nothing about a dollar peg forced the government to stop borrowing, the bankers to stop speculating--or people from suffering when the government was forced off the peg.
Item Four: Among the many other things that did not cause the current crisis was the repeal of Glass-Steagall
A little history: Glass-Steagall was a major act of the mid-thirties, which set up the FDIC to insure and regulate banks, and split off commercial banking operations from investment banking. In 1980, the feds repealed one of the act's major provisions, Regulation Q, which had allowed the regulation of interest rates on banks. This is why you now get a competitive interest rate on your bank account instead of a free toaster when you open an account. In 1999 Gramm-Leach-Billey repealed the separation of investment banking and commercial banking, which is why JP Morgan has a big enough balance sheet to buy Bear without fear of failure.
Neither of these provisions created securitization, which got going in the late 1970s and early 1980s (a decent history can be found here, or you could just read Liar's Poker again). They also didn't create the march into ever-more-exotic financial instruments in the late 1990s and of course, our current decade.
Item Five: The collapse of Bretton Woods--also not a cause of the current crisis!
See above. Commodity/pegged currencies have exchange rate problems too, notably worsening balance-of-trade problems when currencies within the fixed-rate system become over or undervalued. Like, say, having the Chinese propping up the dollar to keep their exports competitive . . .
Item Six: The long twilight of American economic might is not yet upon us
Decade-long recessions like Japan's, or long declines like Argentina or Britain's (pre 1990) are caused by structural problems in the real economy that keep resources from being allocated efficiently: Argentina failed to industrialize, Britain was hostage to moribund state-owned firms. We could develop those sorts of problems, but as of now, America is admirably adept at moving capital and killing off our dead companies. We may have a nasty, nasty recession, but it's not yet time to brush up on your subsistence farming skills.
Later, if I have the strength, I'll muster a defense of fractional reserve banking.
Update Before the Austrians crawl out of the woodwork to yell at me, yes I know that not everyone who supports the gold standard is a crank, though I still find arguments in favor of it wholly unpersuasive. But the arguments being advanced as to the role of fiat currency in the current crisis are bizarre. If anything, a gold standard would have increased the inflow of money from Asia, which was one of the major factors inflating the bubble.
Employee loyalty should stop at the pension fund door
Unbelievable. Five years after Enron and WorldCom went down, taking not only thousands of jobs but most of their employees' retirement savings with them, we are hearing the same old song: Bear Stearns 401(k)s were crammed full of company stock. And they're not alone:
One-third of employees eligible to invest in company stock through their 401(k) have more than 20% in their company's stock.
Almost 9% of them have more than 80% invested in their employer.
For employees in their 60s, almost 20% hold half of their 401(k) savings in company stock.
What is the proper amount of your investment portfolio to have in your company's stock? In my opinion, zero. Your paycheck and your retirement savings should not all depend on one firm. It sure as hell shouldn't be 20%, much less 80%. But your company is in great shape, you say? Bear Stearns was trading at $150 not very long ago. It's fine to hold a little company stock, but it shouldn't be the funding mechanism for anything crucial, like the food you're planning to consume in old age.
But in their most recent economics report released Wednesday — titled “Apart From That, Mrs. Lincoln, How Was the Play?” — Bear Stearns economists detail their sometimes sarcastic critiques of Mr. Bernanke, and lay their firm’s inescapable demise squarely on his shoulders.
In their introduction, John Ryding, Conrad DeQuadros and Meghna Mittal admit that it is difficult for them to objectively assess the events of the past week. But if it isn’t clear from the title of their report, the three economists maintain some of their sense of humor in a trying time for Bear: “We were concerned about a run on the bank (although we never imagined that we would be the bank!).”
The Bear team recap the Fed’s efforts to stabilize the still-tottering financial system, including by introducing a new loan facility for investment banks “announced with ironic timing at 7:13 p.m. on Sunday.” Those efforts should help alleviate the pressure on securities firms feeling squeezed by the mortgage assets they cannot sell, the three write. But banks will still probably require more capital.
It is then that the Bear team unload on Mr. Bernanke, going back to 2003 and 2004, when he was still a Fed governor. At the time, they argue, Mr. Bernanke and the rest of the Fed were far too concerned about deflation and kept interest rates at what they considered to be a far-too-low rate of 1 percent before only gradually raising them.
Mr. Ryding argues that he warned back then that various signs pointed to reflation, and that the Fed should have boosted short-term interest rates.
It's such a pity they didn't warn the other people at Bear Stearns.
Bear raid on Obama?
The Wright problems are pretty great timing for Hillary Clinton. Just where did the rumors about him start, anyway?
Just some crazy 3 am thoughts.
Ad space
Tee-hee. You can sum up the essential differences between New York and DC by pointing out that the New York subways are crammed full of ads for english lessons and cosmetic dentistry. In DC, the same space is occupied by ads for the newest long-range bomber.
March 19, 2008
Even more table
On Geraldine Ferraro, from back before we had a new racial scandal to buzz about.
The Fed is treating the problems in financial markets as a liquidity crisis. What that means is that the assets that the institutions are holding, such as mortgage-backed securities, are really worth $X, but their current market value is, say, $X times 0.95, and no one will lend the institutions the money to enable them to carry those assets to maturity. If the Fed acts as lender of last resort, then eventually the Fed will get paid back out of the cash flows from those securities--more likely sooner, as investors regain their confidence.
That's if the mortgage-backed securities are really worth $X. But if those securities are actually worth $X times 0.95, then the Fed will take a huge loss on behalf of its owners, the taxpayers.
Krugman thinks that housing market defaults are going to spread from the subprime segment of the mortgage market to the prime segment in a big way, so that mortgage-backed securities really are worth less than $X. I am less pessimistic than Paul in my outlook for home prices and mortgage defaults, but the probability that his forecast turns out to be approximately true is certainly greater than zero. So I don't see how you can say he is irresponsible for speaking out, even if it turns out that his forecast is wrong.
My argument is that the securities are almost certainly worth 0.95X, or perhaps 0.8X. But that isn't enough to produce a general insolvency crisis. Few of these firms hold the majority of their assets in risky mortgage backed securities, or permutations thereof. They will take losses, but banks take losses all the time. They won't go bust unless the crisis of confidence dries up their credit, turning a duration mismatch between their assets and liabilities into a fatal error.
But I certainly agree with Arnold Kling about this:
I am seeing a lot of people argue that the investment banks should not have to mark down the value of their mortgage-backed securities to the market value of less than $X. But the alternative of historical-value accounting (what the assets were worth before the market turned sour on them) is worse.
To make a long story short, the reason that the U.S. taxpayers took such a big hit in the S&L crisis of the early 1980's is that S&L's claimed to be solvent using historical-value accounting, and so they kept borrowing more money even though they were actually insolvent. Market-value accounting provides better protection against insolvency.
There is no such thing as a perfect accounting system, but mark-to-market is a much more conservative accounting standard than the historical cost rule it replaced. In general, accountants like to reduce a CFO's discretion as much as possible; that's what mark-to-market does.
On the other hand, we could reconsider the proposal of my old financial accounting professor, Roman Weil: rely less on rules than on broad principles, and rotate the auditors, by law, every five to seven years. But just changing the rule back to "use historical cost" would, IMHO, be a big mistake.
To have and to hold
Discover Magazine has a neat little article on irregular verbs that doesn't seem to be online:
Now for frustrated English-language students everywhere, there is good news: a formula that predicts hwen an irregular verb will convert to the regular form. However, they might have a long wait.
Derived by Harvard University mathematician Erez Lieberman, the formula shows that verbs have their own "half-life", that is, the time it takes for half of the verbs in a particular group to become regular. The half-life is based on how popular a verb is: the more often it is used, the longer it will take to convert. For example, the verbs have and hold both have irregular forms in the past tense--had and held. Yet have is used roughly 100 times more often than hold. In line with that, we should expect held to become holded in nearly one-seventh the time (in about 5,400 years) it will take for had to become haved (in roughly 38,800 years).
To come up with the formula, Liebrman compiled a list of 177 Old English irregular verbs, many of which had regularized. He grouped them according to how often they popped up in modern English, which correlated with how long it took for the irregular forms to disappear.
The next irregular verbs likely to fall include infrequently used ones like slink.
I suppose in the beginning, all verbs were irregular. Which suggests that we're falling from an Edenic garden of plenty towards a monotonous, sanitized future in which all the verbs are exactly alike. Paging Rod Serling . . .
Things white people apparently like
Having black people on their cable news shows explain Obama's speech to the white anchor. You would think the thing was being translated from the !Kung. Luckily, America apparently has a nearly unlimited supply of black people who want to go on cable news shows to make exactly the same banal observations as the commenters of various other hues.
I'm stuck home with vertigo. Please, God, send me a car chase.
Bookblogging: 20 Years at Hull House
I was having a conversation the other night with someone who said, sort of apologetically, "I was an English major, but there are huge gaps in my reading." I think at this point this is the occupational hazard of, well, almost anyone. The pile of books on my shelves that I really ought to have read grows faster than I can attack it.
In a small effort to rectify this, I'm reading Twenty Years at Hull House, Jane Addams' account of her Chicago settlement house. I thought I'd blog it as I go along.
The first thing that strikes you is her hero-worship of her father. Modern people don't write like this; we want to see parents as people. In Addams' portrayal, her father comes across as a sort of Christ-like figure--endlessly patient, kind, generous, modest, and so forth. The childhood she describes in a small Illinois town is so perfectly idyllic that you can't help but wonder what dark secret she was hiding.
The other thing that you notice is how willing she is to castigate herself for her moral failings, but how much she shies away from discussing any other sort of pain. It's rather Calvinist--all her suffering comes about from her lapses in virtue.
But she was a frail woman, afflicted with a congenital spinal deformity about which we hear only once. She never married (Hull House was founded when she was twenty nine), which must have been a severe blow for a woman of that era. She clearly suffered from major depression, along with her health worries, but she attributes her depressive episodes to the squalor of the poor, and her failure to help them. I have no doubt that these things morbidly afflicted her while she was down--but I have a hard time believing that the mere sight of poverty (which after all, was also present in American cities) was itself enough to send her into a morbid fit.
The whole thing is cast along the lines of the sort of saccharine Victorian literature that is now blessedly forgotten. Yet it's absolutely gripping. Her motives are opaque, her grasp of economics abysmal, and her description of the people around her annoyingly scant--but she has an amazing eye for the world she lived in, and the fervor of a zealot.
SNAFU
Battlefield acupuncture. I feel like sticking needles into our own wounded is unlikely to improve our image abroad. On the other hand, maybe it will scare the hell out of the terrorists. If that's what they do to their guys . . .
Quote of the day
Alan Jacobs: "The what-I’m-listening-to thing always strikes me as aspirational rather than documentary. It’s really not 'what I’m listening to' but rather 'what I would be listening to if I were actually as cool as I want you to think I am.' "
I'm listening to Tak, a band of Cambodian trans-gender goatherds. It's sort of like Bruce Lee meets Nine Inch Nails by way of Sufjan Stevens. Cambodia is the new Canada, you know. I mean, you did know that, right?
The joy of soy
They are now advertising soy milk on television. It features a woman raving about how tasty soy milk is, and how glad she is that her boyfriend got her to try it. Since I like soymilk only slightly better than putting water on my cornflakes, I'm amazed that they are trying to take the stuff mainstream. I don't think I know anyone who actually likes soymilk--it's just that vegans and the lactose intolerant need something for their coffee and their cereal.
Bear raid?
There are rumors floating around that Bear Stearns was the victim of a bear raid. That's when you short the stock and then use one of a variety of manipulations--such as spreading rumors that Bear Stearns might be insolvent--to make the stock plunge so you make a killing.
No doubt the share price--currently $5.58--is being buoyed in part by short covers. But a deliberate conspiracy? Bear raids are illegal, and the SEC is a bit touchy right now--and of course, shorting financial stocks wasn't exactly an original idea these last six months. I'm also suspicious that so far no one I know who works on Wall Street has offered this as a potential explanation. Readers?
Belgium no longer exists
That's probably not the sort of thing you want to hear from a Belgian political leader, even one of a small nationalist party. Ingrid Robeyns reports on Crooked Timber that even though Belgium finally has a government again, things aren't exactly going swimmingly:
Whether or not that is true, the latest news is that Yves Leterme managed to reach an agreement on a new government yesterday. But what a government, and what an agreement! The coalition includes the three major parties (liberals, social democrats, and Christian democrats) and is asymmetrical, since the francophone social democrats are taking part, whereas the Flemish social democrats are not. This is highly notable, since until now federal governments have, to the best of my knowledge, never been asymmetrical in this way. But more worrisome, the agreement they reached is regarded by commentators from across the spectrum as extremely vague and weak. There are no details on the budget, yet there is an agreement on taxcuts (a demand from the liberals) and on an increase of the social benefits (a demand from the social-democrats), in addition to a commitment not to create a budget deficit. Perhaps they do believe in manna from heaven after all. Nothing is said about the Flemish demands to regionalise the social security system, employment policies and other responsibilities they wanted to transfer from the national to the regional levels. Nothing is said about how they will solve the problem with Brussels-Halle-Vilvoorde, without which future elections will be unconstitutional.
So no surprise that most media commentators ask: how long will this government last? De Standaard summarizes the situation aptly: “No team, no programme, no budget, no leader.”
The states of convenience cobbled together by nineteenth century European imperialism are still falling apart. In the long run, in the modern world it seems hard to have a state without a nation. I'm curious to see whether the process has some natural resting point.
White people are, like, soooo funny
All right, let me add myself to the list of white people who don't like Stuff White People Like. Leave aside the arrogance of declaring "white people" to be equal to a rather small group of self-satisfied, overeducated, affluent poverty-vultures. And I actively applaud its purpose--my demographic is a rich vein of humor. One that should be strip mined.
Unfortunately, SWL just isn't very funny. How can you take a target as rich and inviting as people who deliberately buy ugly shoes and produce . . . a dull thud?
Compare it to David Brooks, for example. Yes, David Brooks, the master of the mild funny, is more amusing than a 29-year old hipster who aspires to be a comedian. From Bobos in Paradise, his thoroughly amusing books on the annoying new elite stuffing themselves and their Restoration Hardware shopping bags into every Starbucks in the country:
Rule 1. Only vulgarians spend lavish amounts of money on luxuries. Cultivated people restrict their lavish spending to necessities.
Aristotle made the ancient distinction between need--objects we must have to survive, like shelter, food, clothing, and other esesntials--and wants, which are those things we desire to make us feel superior to others. The Bobo elite has seized on this distinction to separate itself from past and rival elites. Specifically, the members of the educated-class elite feel free to invest huge amounts of capital in things that are categorized as needs, but it is not acceptable to spend on mere wants. For example, its virtuous to spend $25,000 on your bathroom, but its vulgar to spend $15,000 on a sound system and a wide-screen TV. Its decadent ot spend $10,000 on an outdoor Jacuzzi, but if you're not spending twice that on an oversized slate shower stall, it's a sign that you probably haven't learned to appreciate the simple rhythms of life.
Similarly, it is acceptable to spend hundreds of dollars on top-of-the-line hiking boots, but it would be vulgar to buy top-of-the-line patent leather shoes to go with formal wear. It is acceptable to spend $4,400 on a Merlin XLM road bike because people must excercise, but it would be a sign of a superficial nature to buy a big, showy powerboat. Only a shallow person would spend hundreds of dollars on caviar, but a deep person would gladly shell out that much for top-of-the-line mulch.
You can spend as much as you want on anything that can be classified as a tool, such as a $65,000 Range Rover with plenty of storage space, but it would be vulgar to spend money on things that cannot be seen as tools, such as a $60,000 vintage Corvette. (I once thought of writing a screenplay called Rebel Without a Camry, about the social traumas a history professor suffered when he bought a Porsche.) In fact, the very phrase "sport utility vehicle" is testimony to the new way Bobos think about tools. Not long ago, sport was the opposite of utility. You either played or you worked. But the information age keyboard jockeys who traffic in concepts an dimages all day like to dabble in physical labor during their leisure time, so hauling stuff around in their big mega-cruisers with the four foot wheels turns into a kind of sport.
Or try James Wolcott, who is ten years older than David Brooks:
After watching Barack Obama's searing, soaring, grandiloquent, angel-summoning, devil-dispelling speech about race in America, a speech that had Andrew Sullivan and Chris Matthews emptying the silver drawer for superlatives, I ankled it ot the elevator, headed down to the lobby, and walked with my arms outstretched toward the bus stop on the corner to hug every black person waiting for the 104 and do my bit to close the gap of suspicion that divides us. You'd be surprised how many Upper West Siders of all persuasions aren't interested in receiving a hug from a stranger at a bus stop on a chilly day, and how many of them carry canes that they wield with striking force, even after one hugs the sidewalk and achieves the fetal position. Oh well, live and learn.
Or this blast from the past:
These are people who know how to make fun of a demographic. Reading Stuff White People Like is like waiting for a sneeze that won't quite come--I keep thinking I'm about to laugh, but I never do.
Morning market roundup
Larry Ribstein asks what the hell good Sarbanes-Oxley is doing, if Bear can fail like this.
Felix Salmon offers a possible reason why Bear's current share price is so much higher than JPM's offer of $2 share: the bondholders are buying shares so they can vote "yes" on the deal.
Marc Ambinder speculates on the political fallout from all of this.
The Wall Street Journal says that a showdown is brewing between Bear Stearns shareholders and JPM.
Stock futures and European markets are rethinking yesterday's gains.
March 18, 2008
Speech! Speech!
I should say, now that I've cooled off a little, that Obama's speech was brilliant. This was the speech we've been waiting for him to give: a thoughtful, brutally honest, and deeply respectful treatment of a major issue. This was the best political speech I've ever heard a politician deliver--admittedly a low bar. I would be happy to have that in the White House.
But because I am greedy, I want Obama to give us even more. I want him not to demagogue foreigners as the source of our national problems. I want him to recognize what a great contribution immigration continues to make to our society, including Barack Obama himself. I want him to say that our problems are of our own making, and that the solutions are within us.
His speech today was brilliant precisely because it didn't play to either side's desire for an easy scapegoat. But I don't want him to unify us against foreigners; I want him to unify us for some better purpose than keeping the world out. And it makes me mad that he doesn't, because I feel like if anyone could, it would be him.
Table talk
More video! Aren't you all lucky?
Seriously
Is there a reason I need to know about the legal, consensual sex acts of various tri-state governors? I know the economy is bad, but surely things are not yet so dire that we must look to our elected officials for pornography.
Language log
Two of my favorite blogs offer instances of bizarre misuses of words.
Tyler Duvall is the chief policymaker at US DOT; he favors funding for experiments in congestion pricing. In transportation-policy analysis, this is roughly as controversial as vaccination programs are in health policy. He also favors, more broadly, privatization of road building and operation, which has a mixed record so far.
Peter DeFazio is the chairman of the House Transportation and Infrastructure highways and transit subcommittee, and represents the nice people of Eugene, Ore. At least a few of whom might be scratching their head at
“Tyler Duvall is a little pointy-headed neocon with grand ideas about the future of transportation, and they all involve tolling,” DeFazio said. “He's bright, young, energetic—just totally wrong, and has a bizarre, neocon view of transportation.”
I must have missed Irving Kristol’s broadsides against the federal gasoline tax, that nine-part series in Commentary on the National Surface Transportation Policy and Revenue Study Commission, and Paul Wolfowitz’s scheme to disband the Baghdad Rapid Transit District.
“Neocon” serves roughly the same purposes in the outer rings of the Democratic Party as “gay” does for junior-high-school boys.
Read the whole thing. The article chronicles a variety of tactics designed to impair Al Qaeda's strengths on the web and in the hearts and minds of Muslims.
It's good stuff. But it's not "deterrence" in the Cold War sense of the word.
Successful deterrence of Al Qaeda would be taking place if the organization decided not to take action because they feared retaliation by the United States against assets that they held dear. Deterrence works if an actor refrains from attack because they calculate that the cost of the adversary's response would outweigh any benefit from the initial strike.
But that's not in the U.S. strategy. Instead, what U.S. officials appears to be doing is decreasing the likelihood of a successful attack -- by sowing confuson, interdicting logistical support, and reducing sympathy for the organization. The closest one could come to deterrence is if one defined Al Qaeda's reputation as a tangible asset that would face devastating consequences after a successful attack. Even here, however, the U.S. strategy is primarily to weaken Al Qaeda by increasing the odds of an unsuccessful attack.
The more appropriate word to use here is "containment."
Now if we can just get people to stop calling big government Democrats "communists", and market liberals "fascists", we'll really be getting somewhere . . .
Gun rights: not that way
I support strong gun rights, but I don't think this suggestion from Akhil Amar is the way to do it. "That's how a lot of states have always done it" could be used to justify . . . well, almost anything, including some really repulsive things. I think this particular social contract needs to be a little more explicit than "Whatever the neighbors are doing is all right."
Famous last words
I've long thought that Jim Cramer should be illegal, along with everyone else who purports to pick stocks on the telly. Further proof that I am right:
Statement is here. Summary: the Fed is scared, both of inflation and a slowdown. But not quite as scared as the markets were yesterday. The market, which was expecting something rather more generous, reacted unhappily.
This is your head on blogs
Mark Kleiman and I discuss financial regulation, death, and taxes.
Paul Krugman: breaking the bank?
I'm with Felix Salmon--Paul Krugman's unequivocal declaration that this is an insolvency problem seems borderline irresponsible. What insight does a Princeton trade economist have into bank balance sheets that almost all other observers lack? I'm not near Wall Street any more, so take this for what it's worth, but what I'm hearing is indignation that JP Morgan and the Fed got such a sweet deal out of Bear's shareholders, not worry that either one will take a bath.
Charting the banking crisis
This picture is worth more than 1,000 words. You really need to check it out.
Hanging upside down
Analysts from the venerable Marty Feldstein to various small fry are very worried about the risk that homeowners will walk away from the houses on which they are "underwater"--i.e., where the mortgage is greater than the value of the house. In most states mortgages are non-recourse loans (the lender can take back the house, but if it sells for less than the outstanding mortgage balance, the bank has to eat the loss.) This, they argue, makes it economically logical for people to let the bank foreclose.
I know that I'm the eternal optimist, but this particular risk strikes me as wildly overblown--that's why I think this is fundamentally a liquidity crisis, not a solvency crisis. By which I mean that I do not believe that the various mortgage backed securities and their descendants will bankrupt firm after firm with their massive defaults. The problem isn't that they will not produce any cash flow; it's that because no one knows how much cash flow they'll produce, no one wants to be a buyer in the current market. I think it's very likely that individual firms may go bust as their toxic waste goes nuclear, but I don't see this as a deep insolvency problem for the broader market. Most firms, I'd wager, would be fine if they could just ride out the credit crunch.
It would be a solvency crisis if the worrywarts are right that huge numbers of those homeowners are going to walk away. But I don't see that. People who can't make the payments will, to be sure, be forced out of their homes. And I don't want to soft-pedal that problem: the numbers are grim. Almost twenty percent of subprime loans are delinquent, and 5% of subprime ARMS have entered the foreclosure process.
But as terrible as these numbers are, they are not yet "widespread financial insolvency" terrible. And though it's hard to know exactly when the peak will arrive, given that the bubble peaked in August 2005, we should be somewhat close to it now; the most generous teaser rates should either have already reset, or be about to.
I find it very unlikely that the 80+% of borrowers who are not delinquent will let their homes go into foreclosure. This may be the economically rational thing to do--but people are not computers, nor even economists. They do not want to destroy their credit rating with a foreclosure or a bankruptcy, and more to the point, they don't want to lose their home. They will, I predict, go to some pretty extraordinary lengths to hold onto that house, even if no federal bailout is forthcoming. I think the people declaring that all these borrowers are going to hand the bank the keys and stroll away whistling have been spending too much time on Wall Street, not enough time on Main Street.
But that's just my opinion. I could be wrong.
Pod people
Just in time, Tyler Cowen and Russ Roberts have made an excellent macroeconomic podcast. Highly recommend that you listen to it.
My fifteen minutes of fame
I just got a call from my high school asking me to provide a few sentences on my Riverdale experience for the glossy book they give the parents of prospective students. For various reasons, I haven't been to a reunion since my five-year, and as far as I know have not told anyone in the alumni organization what I am doing. Nonetheless, the headmaster apparently specifically mentioned me as someone to contact. On my cell phone.
It's nice to think that you're one of your school's success stories (though I think Henri Cauvin of the Times Washington Post, who was in my class, probably ranks higher on the famous scale). But it also feels eerily like being spied on.
Make it stop, please, make it stop
I don't think it's silly, as some have argued, to demand that Barack Obama repudiate his pastor; the first rule of being famous in America is that if someone close to you insults your country, you are required to denounce this. Perhaps it is not fair, but there you are; Pat Robertson took his after 9/11, and don't we all wish he'd taken it all the way off the air?
So I tune in to watch the speech, and I'm pretty happy with it: he's acknowledging that both sides have some reason behind the way they feel about these matters, but that nothing will get better until we all get to work on letting it go.
And then he has to go and make possibly the stupidest remark in this entire campaign--or at least, Best in Class (you can't really expect him to outdo a television anchor.) "This time we need to talk about the fact that the real problem is not that someone who doesn't look like you will take your job, it's that the corporation you work for will ship it overseas for nothing more than a profit."
This is jaw-droppingly, head-shakingly, soul-cringingly, "Oh my God, maw, I think my eardrum just exploded" stupid.
"Don't be afraid of the people who don't look like you--be afraid of the people who don't look like you, and have the nerve to live somewhere else." They'll sneak over the border at night, steal your job, and sell it to some wetback hooker in Juarez.
I understand the political logic that forces Barack Obama to spend a fair amount of time hating on trade. But I sort of feel--call me a starry-eyed idealist though you will--that a speech urging Americans not to hate and fear people who are different from them, should perhaps itself forgo urging Americans to hate and fear people who are different from them. You know, to set a good example for the children.
Needless to say, CNN loves it.
Spread the pain
I'm getting a fair number of emails asking "Why not let the thing collapse all at once instead of dragging it out? Wouldn't it be better to get it over with? Plus, no moral hazard!"
How do I say this? No. NO!. Excuse me, but the Austrian "work the rot out of the system" arguments make me a bit touchy.
The Great Depression is a good example of what happens when the government stands by while credit markets collapse. Oh, don't get me wrong, the government did plenty of affirmative bad things to prolong and deepen it, starting with Hoover's lunatic tax increase and defense of the gold standard, and moving steadily on to FDR's various insane attempts to rig prices, which only halted when some senators explained that no, they didn't really fancy giving the executive branch quasi-dictatorial powers, no matter how nice a chap FDR happened to be. But the credit contraction triggered by the stock market collapse is what got the ball rolling.
Financial markets are strange creatures. They are uniquely prone to turn negative expectations into self-fulfilling prophecies: if everyone thinks that your bank is going to collapse, it will, even if its financials are perfectly sound. When banks collapse and depositors lose all their money, not only do real people get hurt, but also the ripple effect does very, very unkind things to GDP.
Asking whether it wouldn't be better to get it all over with at once is like saying "I hate having to take my statins every day--why don't I just take all thirty pills this morning?"
For an explanation of how a lack of liquidity can crush the economy, you can't do better than Paul Krugman's old piece from 1998.
Department of non-leading indicators
Way back in 2000, when I was just a dewy young thing preparing to pluck herself out of the MBA cabbage patch and venture out into the world, there was one small thing that concerned us: the stock market seemed to be a little, well, uneasy. Indeed, I was at the orientation for my Merrill Lynch summer internship the day the NASDAQ collapsed; the HR person fussed ineffectively as all the yuppie larvae drifted out of the auditorium to stare in sick fascination at the CNBC ticker mounted on the foyer wall.
Oh, no, don't worry, we were assured. That sort of thing doesn't happen to MBA's--not to Chicago MBAs. Not to you, adorable you with your brilliant mind and firm (but not excessively so) handshake.
We make money in good times and bad, said the investment bankers; after all, when the market's down and IPOs are dead, that's the perfect time for a stock repurchase or a merger.
We make money in good times and bad, said the management consultants. After all, when things go wrong is when people need us most.
This was, of course, gilt-plated flapdoodle. By my count, a year after graduation, about a third of my class was unemployed, underemployed, or waiting for some never-never job to start. The management consulting firm that I was supposed to work for strung us along just long enough to dump us on the market at the same time as the next class of MBAs. In the year that followed, I experienced something perilously close to utter despair.
Nonetheless we believed these transparent lies with the anxious fervor of a Christian Scientist with appendicitis. There was no reason not to, really: what else were we going to do?
Pray harder, I suppose.
One look at DealBreaker this morning was enough to bring it all flooding back. The summer interns who just got shafted by the Bear collapse; the quieter announcement of layoffs from Goldman. Note to MBAs: if you haven't already, start looking around for a nice refrigerator box. The good ones tend to go quick.
When do you stop being poor?
Yesterday I did a Bloggingheads with Mark Kleiman that ought to be up soonish in which we discussed, briefly, taxation and distributional justice. One of the things we touched on is how much of your income you are morally (not legally) required to give away.
Liberals get angry at conservatives who point out that most poor people have more than one color television, with some justice. The collection of goods that constitutes a decent minimum changes over time. In the 1920s, many people thought it was ridiculous to say that the poor ought to have iceboxes and electric lights. We add to the bare minimum in part because we are wealthy and can afford to, and in part because when goods become common among the non-poor, society adapts to those goods in ways that exclude the poor from a decent life. A telephone, for example, may have been a luxury in 1940, but without one these days it's awfully hard to get and hold a job.
On the other hand, liberals also seem to be getting angry at the idea that there is a decent minimum--that the poor are not entitled to all the benefits of being solidly middle class.
What I wonder is where it stops. If we are upset by the very fact that it is nicer to be middle class than poor, and even nicer to be rich than to be middle class, then the only way to fix this is to fix everyone's income at the same level. Otherwise, the poor will enjoy life less than everyone else.
So question for my liberal commenters, and other liberal bloggers: assuming that you are not yourself poor, what is it okay for you to have while poor Americans do not? This is not a trick question, a prelude to some "gotcha" argument. I'm genuinely curious: where, exactly, do you think the levelling should stop? House size? Length of commute? Lean meat in the diet? Where do you draw the line?
Liveblogging the Lehman call
For those of you who have not heard an earnings call before, I thought I'd live blog it for you. Lehman reported its earnings this morning, which fell sharply, but still beat expectations, which has buoyed the stock price.
11:16 Analyst now asking if they will be swooping down, like vultures, upon the contents of the ruined citadel that is Bear Stearns. Response is a eulogy for Bear, followed by a long winded speech of which the upshot is: yes. This ends the call.
11:13 Last question of the call. Analyst asks how long fixed income buyers can sit on the sidelines with spreads where they are. One suspects that if Lehman knew this, they would be trading on it, not sharing it with us.
11:09 The analysts asking questions are really cute. They keep offering comments along the lines of "Keep your chin up guys! America's behind you." Well, not exactly. But that's the gist. I wish they'd be more mean, which is a great deal more fun for the listeners, but in fact Lehman has been admirably forthright about their financial position and deserves the congratulations--extremely minimal squirming for a company on modified suicide watch.
11:03 Treasurer, who has a lovely British accent suitable for impressing Yankee rubes, undertakes to explain just what those unencumbered assets are. As I suspected, they seem to be concentrated in those volatile, and less liquid, sectors of the fixed income markets. Nonetheless, Lehman's stock is up almost eight points since open.
11:02 Oops, net short on subprime, not all residential.
10:59 Interesting; if I heard right (a truck was going by) almost none of its residential portfolio is prime; it's almost all Alt-A. In other words, Lehman will still be heavily exposed if the subprime problems spread to other segments as some people are warning they will. She argues that they are well hedged in residential, and in fact net short in the sector.
10:57 Interesting question: is Lehman looking at the Fed facility that will soon be made available to investment banks as a way to delever in an orderly way, or as a way to do more client business? The latter, she replies, describing the opportunity to use low-interest money to do deals for clients as "incredibly attractive". Indeed, its pulchritude is apparently so overwhelming that she repeats the phrase three times. My enthusiasm for the new Fed facility is waning by the minute.
10:52 Someone from Oppenheimer points out that leverage levels are still high, with no market for many of the securities. When, exactly, is Lehman planning to get out? CFO admits that there are less liquid buyers than there were six months ago--stand by for stunning confession that George Bush is still president of the United States. Then she gets down to saying that the residential mortgages are still well hedged, even though commercial mortgage portfolios are pretty exposed.
10:51 Now the questions. This is almost always the most fun part of the call--that is, if you like watching CFOs squirm.
10:49 New understatement of the year "We do expect that fixed-income markets will continue to experience volatility."
10:40 Most of their commercial mortgage portfolio is fairly highly rated, which is happy to hear. One wonders, though, what happens if the mortgage contagion spreads.
10:37 Their credit spreads have tightened considerably since the earnings release. Not out of the woods yet, but I believe I can hear the highway.
10:34 She's claiming, if I heard her right, that there has been no net change in their repo position as of close of day yesterday. That is very, very reassuring news.
10:32 Now to the reassurance part. She says they have minimal reliance on commercial paper and other forms of short term finance. They started with cash of $34 billion in October, and now have $30 billion after taking care of their commercial paper. She also says they have unencumbered assets of $64 billion, and claims that they could tap into that pool at any time. Of course, it's not always quite that easy to tap those assets in times of crisis.
10:24 Now onto international markets, where Lehman has gotten most of its revenues recently, largely from Asia. Europe is also hurting, though not as much as us.
10:18 $1.8 billion writedown. Ouch. Big chunk is residential mortgages, bigger chunk is commercial mortgages, which are harder to hedge.
10:17 The woman from Lehman is now explaining the difference between mark-to-market and a permanent write-down to the people who have dialed in. I can't imagine what they are doing listening to this if they don't know this already.
10:12 It's a sad day for financial markets when a firm starts bragging that "We had no single concentrated large loss."
10:09 Understatement of the year: "In investment banking, we saw substantial decline in demand for debt securities." This is something like saying "In death, we saw substantial decline in the level of blood pressure."
10:06 Financial guru promises to explain their liquidity position, with numbers. This is much better than the standard approach of explaining it with extended parables about lost sheep. No one is going to listen to anything she says until she provides those numbers.
10:05 Legal eagle explains that if you buy their stock, nothing that happens to you as a result is their fault.
9:45 Banal hold music
Stopped clock or underrated prophet?
A lot of people have brought up Nouriel Roubini's name in the last few days; he's the economist who has been predicting an explosive unwinding of our bubbly markets for a while.
Well, he certainly called that. Sort of. For years now, Roubini has been warning about the dangers of America's overvalued dollar and the resulting current account deficit. Deficits in the current account, of course, must always be balanced by equal and opposite surpluses in the capital account--foreigners will not give us their goods for free, and America receives surprisingly little foreign aid. That river of capital has been rolling through Wall Street for quite some time, and long before much of anyone else was worried, Roubini was warning that when the floodwaters receded, the damage was going to be pretty spectacular.
But pretty much everyone, including IIRC Roubini, was expecting that the proximate cause of the collapse would be a sudden reverse of the capital flows, either because of a dollar crisis or because Asian central banks started to get worried about the massive piles of US securities they've stockpiled in the course of keeping their currencies artificially low. That would trigger a financial crisis, probably through the vehicle of a housing price collapse.
What happened was the reverse. The housing bubble popped, then the banks started having problems. Now we're worried about the capital outflows.
Roubini is now arguing that this is a solvency crisis, not just a liquidity crisis. I'm not sure what he means by this. Given where subprime defaults stand today, several years after the housing market peaked, I find it unlikely that the market as a whole is likely to experience solvency problems; most of those securities will continue generating cash flow. Yes, I expect defaults to increase in other segments too, but from record lows. While I'm sure that this will continue to be a solvency problem for individual firms, I don't see how you get that a solvency problem--rather than a liquidity crisis--is causing the current meltdown.
But he basically got the big thing right, which is that the enormous capital surpluses were making the economy incredibly vulnerable to a radical event. Other people were saying this too, of course--indeed, I wrote article after article on the problem of "global imbalances". But he said it loudest and longest, and always stuck to his guns.
The name I'm surprised I haven't heard more is Nassim Taleb, who has long been arguing that people in the financial industry are systematically underestimating the likelihood of rare but catastrophic events in the finance market, such as the Russian bond crisis that brought down LTCM. That seems like a pretty good explanation of what we're seeing now. His book, The Black Swan, is highly recommended if you're interested in finance and risk; he did a podcast on it last year with Russ Roberts that is worth listening to if you're trying to understand how so many smart people could be so dumb.
Hoping on Heller!
The DC handgun case will be argued today. As you've probably guessed, I'm rooting for the Second Amendment purists. I don't have much to add to that, though if you're interested, you can take a look at this old post on the effectiveness of gun control, which aside from citing the execrable John Lott (I didn't know!) remains pretty good. After that, I recommend heading over to Volokh or Scotusblog and following it there.
Be more specific, please
Crazy Megan! Why doesn't she understand that we need more financial regulation?
I'm not against the idea of financial regulation per se; I like 10-Ks just fine. But I'm still trying to figure out what sort of financial regulation would have prevented this. Not every regulation is an improvement. Raising capital requirements for financial institutions is a good idea, but I don't think that's exactly what the "Bury Bear" crowd has in mind.
It's no good to demand a "tougher" regulator, because it's not clear that anyone did anything wrong. They didn't scam the public; they got caught out by bad investments. Stupid investments. Lunatic, even. As did the many hedge funds that have already vaporized the capital of their rich investors.
I'm all for regulation that increases transparency, but the very problem is that no one has any very good idea how to price all these exotic financial instruments. Should we outlaw them? That would prevent the sort of trouble we've just witnessed, but it would also make it harder for firms to do desirable things like hedge risk.
As I see it, we are currently beset by three problems:
1) Diversifying risks reduced the number of local failures, but made larger, rarer events possible. It also made it harder to accurately assess risk, or renegotiate deals gone bad.
2) Bankers thought that they were smarter than they were: they systematically underestimated the chances of an extreme, unlikely event like the current crisis.
3) A speculative bubble in the various tiers of the mortgage market. Borrowers, bankers and investors systematically mispriced the risk they were taking on.
I don't know how to stop asset price bubble, and neither does anyone else. By the time an asset price bubble is obviously a bubble, it has taken on a life of its own. In the late 1920s, the Fed tried to calm down the stock market by raising interest rates. Unfortunately, this only attracted more foreign money to make margin loans. The investors paid no attention--why worry about 10% interest when stocks are going up 20% a year? You can tamp them down by ratcheting up interest rates at the first sign of sector inflation--but then you risk destroying a natural and good reallocation of capital between sectors.
I'm also not clear on how regulators will be better at pricing complex derivatives than bankers are--the bankers are, after all, trying to make money; they didn't misprice the things on purpose. In banking, in particular, the regulators can't pay enough to attract top financial talent; no SEC employee is going to make twice what the president of the United States does. We can just tell the regulators to be more conservative, but that risks stifling a lot of helpful economic activity.
Likewise, there are clearly very real costs associated with mortgage securitization, which were not properly appreciated until now. But I'm fairly sure that we wouldn't be better off without securitization.
I'm not against some sort of financial regulation to prevent this, but I want to know what sort of financial regulation. The laws that get passed after these sorts of events tend to be driven more by fear than common sense. Moreover, they're somewhat superfluous, because the fear--the collapse of overoptimistic expectations into a mild permanent pessimism--is already doing a lot of your job for you. Asset bubbles seem to be features of markets, but experimental economics suggests that the cure is knowledge--people who have been burned in speculative bubbles don't make that particular mistake again. It's plausible to argue that the reason financial markets were relatively quiet between the 1940s and the 1970s is that the memory of the Great Depression was seared into everyone's brain.
My default approach on all of these things is typically American: wind it up in an orderly fashion, and make sure that the profligates suffer for their mistakes enough to discourage them, and everyone else, from doing it again. I'm not against prospective regulation, if it's good--but that requires something a little more specific than "Beef up the SEC". Calls for "more regulation" are like calls for "more virtue"--the devil is in the details.
Meanwhile, there's a giant hurdle in Michigan, as my colleague Marc Ambinder reports. A lot of Democrats voted in the Republican primary, since Obama wasn't even on the Democratic ballot. It's not sure-fire that they would have broken disproportionately for Obama, but that seems like the way to bet.
This seems like a pretty huge blow for Hillary; she'll have an uphill battle getting those delegates seated. I'd imagine there will be some sort of compromise where the superdelegates get seated, but the regular delegates are shut out.
More on freight rail
My father the transportation expert points out something else I should have said about freight rail: the railroads don't want to take freight that's going less than 1,000 miles because it isn't cost-effective for them. If the average truck trip is 700 miles, there's a huge gap that needs to be filled before freight rail becomes a meaningful replacement for a lot of truck trips.
He also notes that one of the giant problems with rail yards is that cities like to rezone around them. This severely restricts the usage of the yards, because the neighbors complain if you operate them 24/7. This is putting even more pressure on the rail yard system.
So the left wants me to admit that the current meltdown means that we need oodles more financial regulation, and maybe the death penalty for being a rich idiot. The right wants me to admit that if we don't allow warrantless wiretapping, it will be harder to catch terrorists.
In the case of the latter, I concede that possibly they are right, as I am certainly no expert. But the purpose of catching terrorists is to make Americans better off. I am suspicious of the notion that we make Americans better off by giving the government broader spying powers.
In the case of the former, I also concede that a regulator might have prevented this--though take a long, hard look at government pension funds and their penchant for taking fliers in the derivatives market before you posit an all-wise regulator. But the regulator that would have stopped this would almost certainly have done so by being very, very conservative about new transactions--which would have stopped this, and a lot of things we like, like higher economic growth. There is no free lunch in regulation.
These two things are essentially flip sides of the same coin for me. Government powers come only at enormous cost: to liberty, to community, to the economy, and of course, the financial burden of paying for them. In some cases they are necessary. But pointing to a problem and noting that it exists is not an automatic warrant for me to smash it with the hammer of the state.
How is a Bear like a bank run?
If you don't understand how an investment bank like Bear Stearns, which doesn't have depositors, can suffer a bank run, Felix Salmon does an excellent job of explaining:
They don't take retail deposits from individuals: there's no such thing as a Bear Stearns checking account, as far as I know. But that doesn't mean they can't suffer from a bank run. Except in this case it wasn't individuals withdrawing money, but hedge funds and other banks.
Bear had a large balance sheet, full of highly-rated bonds. If it ever needed cash, it could go to the repo markets and essentially borrow money against its own balance sheet: it would sell the bonds to a counterparty, and promise to buy them back at a slightly higher price the following day or the following week.
But then, last week, the repo window slammed shut for Bear. Other banks would no longer accept Bear Stearns as a counterparty, which meant that Bear couldn't use its balance sheet to raise cash.
Then, to make matters worse, the hedge funds all started deserting Bear as well. Bear has a large prime brokerage operation: it looks after hedge funds' assets, basically, and will lend them money against those assets as needed. But the hedge funds, worried that Bear didn't have the money to lend, started moving their assets elsewhere, and Bear's highly profitable prime-brokerage franchise started spiralling downwards.
Without the trust of other banks or hedge funds, Bear was toast. And the famously sharp-elbowed Bear was never much loved on Wall Street to begin with. Maybe it's true that the rest of the Street was simply waiting for an opportunity to get back at Bear for real and imagined slights, including the refusal to play ball in 1998. But I don't think the Fed was bearing any grudges; its job was simply to mop up in the aftermath.
Oral history
Peter Suderman has an amusing rejoinder to parents who say that text messaging is robbing them of their children:
I suppose I can accept that someone would be confused about the technical process of text messaging — figuring out how to navigate a phone’s menus in order to send an SMS is usually fairly easy, but perhaps not intuitive for everyone.
But how, if I might ask, can anyone understand the process but be confused about how to type more than a few phrases? This seems to me rather like understanding how to how to write in English and how to send an email but being confused by the prospect of typing anything more than a limited number of pre-determined sentences. Once you’ve learned how to type one phrase on a number pad, what makes any additional phrases more difficult? Is the subject really a total technical illiterate, or is this bad reporting? Is there something I’m missing?
As you may have heard me say, I'm an enormous fan of John McWhorter's book on the decline of formal language, Doing Our Own Thing. I talked about it with him when we did a Bloggingheads together (the segments on language are here and here.) One of the most fascinating things I learned from the book is how different oral and written languages are--languages without writing use short, redundant sentences, while written ones support a great deal more complexity in sentence structure.
McWhorter's thesis is that there has been a marked decline in formal language in America since the 1960s, which followed a long slow decline from the 19th century. It seems to me that this marks our transition from a written culture into a verbal one: we moved from speeches meant for printing in newspapers, to speeches meant for broadcasting. In the broader culture, people shift from letters to the telephone, from books to movies and television.
I wonder now if the internet isn't marking a transition back to a written culture. Almost everyone my age or younger communicates more often by email, IM, and SMS than they do by telephone. And people are shifting back to text for news as they abandon television news for the web. That's opening up, as the piece Peter makes fun of argues, a real culture gap between parents and kids. I wonder if it won't also eventually bring us a little more verbal complexity than we enjoyed in the 20th century.
For the good of the nation . . .
Regarding the Julian Sanchez op-ed I linked earlier, Matt says:
FDR and Harry Truman did some dirt, LBJ did more, and then Richard Nixon took things to such extravagant extremes that he got caught, people got outraged, and restrictions were put in place. But the stuff that had been going on for decades before Nixon was really bad on its own on its own terms. Given the long bipartisan record of wiretap abuse, and given the greater range of possible abuses under modern technological circumstances, it's all-but-inevitable that if we further weaken the restrictions on the White House's ability to act, that abuses will happen.
It's really baffling to me that Republican members of congress -- and all-too-many Senate Democrats -- don't see it this way. Unlimited, unaccountable power will be abused, and not always in ways that Republicans like.
In recent months, it has become clear to me that the Bush administration doesn't seem to be doing this out of some venal attempt to grab power for Republicans. Rather, they genuinely believe that the executive branch was stripped of too much power during the backlash from the Nixon scandals, power that they need to fight terrorism and other security threats.
This is not, mind you, particularly reassuring. Almost every government official is seized by the vision of all the good things they could do if they only had more power. Terrorism, and the fading memory of Nixon, have given the Bush administration more leeway than most to actually accrue some of that power. It was our job to tell them to stop daydreaming and get back to work. And we pretty much failed miserably.
Power corrupts
Incidentally, last week when I was in California I had dinner with another blogger I'm quite fond of. During the course of dinner we were talking about various blogs we like, and he said "No offense, but I think Radley Balko is the most valuable blogger in America right now."
None taken, as I quite agree. Radley is one of the few bloggers doing actual reporting on police and prosecutorial abuse, shining light on the darker spots of the justice system. If you're not reading him, you either need to rectify this situation, or get your head examined. I think most cops are fundamentally good people doing a dangerous and that is neither well-paid nor particularly rewarding. Likewise, prosecutors generally went into their work because they care deeply about justice. But both groups of people have vast and poorly supervised powers of coercion, which is a recipe for making bad things happen. The work Radley does actually makes America a better place, which is more than almost any of the rest of us can claim.
Cui bono?
One of the main rejoinders to my stance on FISA, which is that the government should get warrants whenever US territory is involved, is to say "What's the harm? How could the government use this to spy on innocent Americans?" Just off the top of my head, it seems tailor-made for spying on Arab Americans who organize peacefully to lobby against America's Israel policy. Whatever your position on that policy, this should give you pause . . . since it would make it equally easy to spy on AIPAC tomorrow.
But the real answer is, "What's the harm in getting a warrant from a FISA court?" If the government isn't going to spy on millions of innocent Americans, it really shouldn't be that onerous to pre-clear it with the court.
I don't blog a lot about national security because it just isn't my area of expertise. But my general position is that the government should have as little freedom as possible to do anything, particularly spying on people on American soil. Speaking as someone who lost more friends and acquaintances in the World Trade Center than almost any of my readers, I think there are worse things than terrorism. But it's also not really clear to me how much this helps us fight terrorism. As far as I can tell, the FISA courts are extraordinarily willing to grant the government what it asks for.
The authors compare reported trials of first- and second-generation antipsychotics, looking to see if potentially biasing factors have skewed the results. One (perhaps surprising) result is that the authors couldn't confirm that the newer drugs necessarily work better through showing fewer extrapyramidal side effects (those are the muscle and coordination problems seen with many drugs in this class). While they may well show fewer EPS problems, that doesn't seem to be related to their efficacy.
Something of a relief is that the efficacy of the various drugs didn't seem to be related to whether or not the drug industry sponsored the trials involved. Given the publication bias of submitting favorable results (and given the obvious commercial interests involved), that's perhaps surprising. But it's welcome data to bring up the next time someone e-mails me about the eeevil Pharma companies and their bought-and-paid-for studies. I don't get a steady stream of that stuff, fortunately, but it still shows up often enough.
Frankly, I'm surprised too. On the other hand, I guess I should have expected that there would be publication bias in studies showing publication bias.
Meanwhile, this is just amusing:
I still keep an occasional eye on the antipsychotic drugs, since that was the first therapeutic area I ever worked in when I joined the industry. The project came to a bad end, which was probably a good thing for my professional development. We took the drug into Phase I, gave substantial doses to normal volunteers, and rejoiced when it did nothing to them whatsoever. Then the compound went into Phase II and into real schizophrenics, and it did nothing whatsoever to them either, sad to say. And so it goes in CNS drug development.
I mean, amusing if, like me, you aren't in CNS drug development.
John Heilemann makes the point that Spitzer couldn't survive his political scandal because there were no enemies he could use to rally the troops. No Linda Tripp, no Ken Starr, no Vast Right Wing Conspiracy. In politics, picking your enemies is a helluva skill. Find odious enough assailants, and your supporters will want so badly to foil them that they'll accept just about anything from you. What happened to Spitzer is that, without enemies to beat, he became the party's enemy. His presence would've dragged down their efforts to take back the Senate in the 2008 elections and given the Republicans a potent counterissue. So he had to go.
I think that's true--but I think that it's also worth noting that Eliot Spitzer didn't have any friends. He tried to use the same tactics as governor that had worked for him as attorney general, and they backfired badly. Prosecutors spend most of their time in negotiations where they hold most of the cards, while newbie governors need to spend a lot of time sucking up to interest groups and other politicians in order to build a coalition.
That's why when it all blew up, the only person on television defending him was Alan Dershowitz. Hillary was never going to go to bat for him, but why didn't we see lesser lights of the Democratic party suggesting that hey, guys, this wasn't really so bad--or at least trotting out the tired old saws about what a tragedy this was for the family? The Republicans did better by Larry Craig.
Bear attack
I'm a libertarian. Shouldn't I be angry about the Wall Street bailout?
Yes. No. Sort of.
Let me explain.
I am not the sort of libertarian who thinks that any and all financial intervention by the government is definitionally a bad idea. I am in favor of the Federal Reserve. I am the lone defender of the FDIC at libertarian events. I have been known to find kind words for the SEC. So I am not, in principle, opposed to this sort of bailout on the grounds that this is not the government's job.
Liberals like Paul Krugman and Kevin Drum are up in arms about the notion that the financial sector is privatising benefits while the public sector is taking on all the risk. They are looking for a way to make the bailout hurt for the bankers.
Readers may be surprised to learn that I basically agree with them. The bankers who decided that they had repealed the law of averages should suffer. A lot. Every time they get on the jitney to the Hamptons, I want them thinking "Did I leave the uncovered credit risk on?" Many of them should lose all their money pour encourager les autres. This is not about bailing out Wall Street; it's about bailout out us.
As with the people who took out unwise mortgages, I am in favor of having the government make strategic interventions to shore up the markets, but I think that they should make it hurt. No one who took excessively risky behavior--even if they honestly didn't realize it was excessively risky behavior--should escape without getting spanked, hard. Pain is nature's way of saying "Don't do that!", a lesson that apparently a lot of us needed to learn.
There will still be some sort of moral hazard, I think (though the mysterious knzn does have a point), in that bankers will not be as cautious about systemic risk as they should be. Alas, we live in an imperfect world, and the price of preventing catastrophes is that you will have more of them to prevent. Ultimately, that's a price I'm willing to pay. And I think you should be too. The people screaming that we ought to let the banks fail don't seem to realize that they, too, can be thrown out of work in the resulting hideous recession.
In the case of the employees and shareholders of Bear Stearns, I think they're probably hurting just about right; most of the Bear Stearns bankers will lose their jobs, and most of the shareholders will lose their shirts. This is as it should be.
The Economist: sinner or saint?
I have to confess, I'm a little stonkered by the discussion in the left blogosphere about whether they should subscribe to The Economist, or whether it is, like, the stupidest magazine ever. Obviously, having worked for the place for four years, and read it for many more, I'm somewhat partial. Nonetheless. There's something really sad about someone complaining that a magazine is terrible because it makes stupid people feel smart. Sad in part because working for The Economist is a good way to find out just how many actually brilliant and accomplished people read the magazine, and gush about it when they meet you. But also sad because it sounds like that third grade loser trying to get the cool kids back by saying "You don't even know short division!" People who are actually confident in themselves do not, in my experience, complain about dangerous reading materials giving the proles ideas above their station. Terrible, horrible, classically liberal ideas. Bad proles!
The Economist has its faults, but it is the best newsweekly in the English-speaking world. Many of its critics, I observe from long experience, applied considerably looser standards of accuracy to publications that agree with them than they expected from us. Journalists are not experts; and especially at a magazine, which can't stick three people in Ulan Bator, they will never have as much grasp of nearly any issue as the academic experts.
Luckily, that isn't their job. Saying "the more I know about a subject, the less wonderful they seem" is not a devastating critique of The Economist--it is a fact about every single publication, and nearly every journalist (I exclude foreign correspondents who become experts on remote conflicts that no other speaker of their language has covered.) Anything that you're an actual expert on will seem hopelessly muddled as rendered by a journalist, because we spend our lives trying to explain complicated things in very few words to an audience that has virtually no background in the subject. It's just that when the publication agrees with you, you figure they got it generally right, so you give them a pass on all the simplifications. And if you don't believe me, I suggest that you go to your favorite publication and offer to spend a week editing the letters to the editor.
Incidentally
I think all three candidates had better be prepared with an intelligent plan for the credit markets in the next few days. They may be taking over in a deep recession, and they'd better start telling us now how they plan to deal with it. Whatever they say, it will not be what they end up doing, because the situtation is fluid. But it will tell us two crucial things:
1) Can they react quickly to a crisis?
2) What's their approach to solving economic problems?
Where's Austan Goolsbee when you need him?
Those who sacrifice liberty for security . . .
Julian Sanchez has a great op-ed in the LA Times on wiretapping.
As the battle over reforms to the Foreign Intelligence Surveillance Act rages in Congress, civil libertarians warn that legislation sought by the White House could enable spying on "ordinary Americans." Others, like Sen. Orrin Hatch (R-Utah), counter that only those with an "irrational fear of government" believe that "our country's intelligence analysts are more concerned with random innocent Americans than foreign terrorists overseas."
But focusing on the privacy of the average Joe in this way obscures the deeper threat that warrantless wiretaps poses to a democratic society. Without meaningful oversight, presidents and intelligence agencies can -- and repeatedly have -- abused their surveillance authority to spy on political enemies and dissenters.
The original FISA law was passed in 1978 after a thorough congressional investigation headed by Sen. Frank Church (D-Idaho) revealed that for decades, intelligence analysts -- and the presidents they served -- had spied on the letters and phone conversations of union chiefs, civil rights leaders, journalists, antiwar activists, lobbyists, members of Congress, Supreme Court justices -- even Eleanor Roosevelt and the Rev. Martin Luther King Jr. The Church Committee reports painstakingly documented how the information obtained was often "collected and disseminated in order to serve the purely political interests of an intelligence agency or the administration, and to influence social policy and political action."
Political abuse of electronic surveillance goes back at least as far as the Teapot Dome scandal that roiled the Warren G. Harding administration in the early 1920s. When Atty. Gen. Harry Daugherty stood accused of shielding corrupt Cabinet officials, his friend FBI Director William Burns went after Sen. Burton Wheeler, the fiery Montana progressive who helped spearhead the investigation of the scandal. FBI agents tapped Wheeler's phone, read his mail and broke into his office. Wheeler was indicted on trumped-up charges by a Montana grand jury, and though he was ultimately cleared, the FBI became more adept in later years at exploiting private information to blackmail or ruin troublesome public figures. (As New York Gov. Eliot Spitzer can attest, a single wiretap is all it takes to torpedo a political career.)
. . .
It's probably true that ordinary citizens uninvolved in political activism have little reason to fear being spied on, just as most Americans seldom need to invoke their 1st Amendment right to freedom of speech. But we understand that the 1st Amendment serves a dual role: It protects the private right to speak your mind, but it serves an even more important structural function, ensuring open debate about matters of public importance. You might not care about that first function if you don't plan to say anything controversial. But anyone who lives in a democracy, who is subject to its laws and affected by its policies, ought to care about the second.
To be sure, I'm the sort of ornery person who gets mad that the government is forbidding me to take drugs I have absolutely no interest in, so this probably resonates with me more than most. Nonetheless, it bears remembering that you can be materially harmed by infringements on liberty even when it isn't your liberty.
Side thought: how much of the much-vaunted political consensus of the 1930-1965 period might have had its roots in the fact that the government was spying on dissidents?
The vapidity of cable news, part 938
MSNBC anchor: "The futures markets are about as low as they've been in a long time. We'll stand by to see if they rebound on what the president says."
I am trying to imagine what George Bush could possibly say, other than "Wake up, America! You were just having a nightmare . . . " that would make us feel better about all this.
Who's to blame for Bear?
There's a certain amount of moral outrage floating around in the punditocracy, looking for a solid target. The implication is that someone, or at least some small group of people, must have done this to us in the course of feeding their insatiable greed. I'm sure there will be a post-mortem in which some reporter will tell a very convincing story about how this could all have been averted if only someone had Made A Rule. It may be Bear's managers who should have done it, or the Fed, or the SEC. I don't know who the culprit will be, but I am very sure that everyone else will be very sure that Someone could have (and should have) prevented all this.
Before we enter into the orgy of blame, I'd suggest that that someone was everyone, almost. Crazy Asian people who thought America was some sort of Miracle Market sent us more money than we needed for investment, inflating an asset price bubble. The Federal Reserve, complacent after more than twenty years of tame inflation, added a little kerosene to an already blazing fire. Silly people decided that real estate prices would continue rocketing upwards forever, and took on ridiculous mortgages that they had no reasonable hope of paying off. Idiot bankers thought that their enormous brains, raffish good looks, and advanced computer models had enabled them to conquer risk.
A couple of years ago, I had dinner with an investment banker who had gone to Chicago a few years before I did. He spent a great deal of the time extolling the virtues of modern markets, proclaiming that over the last ten years, we'd become massively better at pricing risk.
Being a great fan of John Kenneth Galbraith's work on asset-price bubbles, I felt the hair go up on the back of my neck. "Are we really better at it?" I asked. "Or do we just think we are?"
"No, we're really better," he assured me. Ooops.
I mean, I think that in fact we did get a lot better at assessing credit risks--but not nearly as much better as we thought, a fact that for a long while was masked by the river of money flowing into the US from abroad. Bankers, seeing their credit models worked so well--in fact, defaults were lower than expected!--took on even more risk.
But while the bankers are in some sense the most directly culpable, they didn't behave in any fundamentally different way from millions of their fellow citizens. There were incredibly unwise decisions all the way down the chain from lenders to homebuyers, and each of those bad decisions was necessary to create the current mess. We're witnessing the ugly denoument of a sort of folie-a-millions.
ZOMG
Here's a little something to start your Monday: the David Carradine Career Deathmarch.
It certainly did nothing to help David's rep as a master of pain distribution when he appeared in this infomercial for his series of exercise tapes called Spiral Fitness. This was meant to capitalize on the 'Crazy Device + B-List Celebrity' fitness craze back in the '90s, like the Thighmaster or the Total Gym. Unfortunately, David was a bit too short on funds to manufacture a decent crazy device, so he used what appears to be either a short length of garden hose or a large rubber dildo instead.
Watch about one minute in when, after witnessing Carradine flail about in a backyard for far too long, the camera angles switch and accidentally catch somebody's dog in the scene. The dog, following its keen canine instinct to avoid shame, promptly runs off camera, leaving David alone again to tell you all about how this bright green dildo really makes him want to move.
I think we could all use a laugh while we wait for the market to open.
Ask the MBA
What can I do about this crisis, ask anxious readers.
This is just the sort of public-spirited citizen Uncle Ben's been looking for. If you have, say, a few billion you'd like to use to goose the markets . . .
Ah, you want to know how to protect yourself from the fallout?
Ummm . . . . good question. Pay down your credit card debt as fast as you can. You might think about skipping dinner and a movie this month and applying that towards the Visa. Of course, this was good advice a year ago, and it will be good advice a century hence, so I'm not sure how much this helps.
But other than that, there is no virtuous behaviour you can undertake now that will let you avoid whatever economic fallout emerges from this. If the credit markets contract violently, you will be just as likely to be laid off if you live in a small, sensible house as if you live in a big, extravagent one. Your Mean Time to Bankruptcy (MTTB) will be longer . . . but at this point, it's probably a little late to start regretting your past consumption.
Unfortunately, other than the unhelpful observation that "it's probably not a good time to buy anything on revolving credit", I don't have much advice.
March 16, 2008
Sold!
So JP Morgan has agreed to buy Bear Stearns at $2 a share. As others have already pointed out, this is, from the point of view of the shareholders, just barely better than bankruptcy. Talk of a bailout of the bank is silly--this wasn't a bailout; it was an orderly winding-up of business.
This was always the most likely outcome--of the American bulge brackets, JP Morgan has the largest balance sheet and access to the Federal Reserve's discount window. Now that it's happened, we can breathe a sigh of relief that one gigantic disaster has been averted. Libertarians and liberals arguing against the Fed's role in all this sound to me either ignorant or psychotic. The credit markets are already badly malfunctioning (yes, I was wrong). Bear Stearns is the counterparty to a huge number of transactions. Allowing it to fail would have been like throwing a hand grenade into a burning pool of gasoline; bankruptcy proceedings are time-consuming and uncertain. JP Morgan has the ability to assume their risks without any danger of going under themselves; that's very good for the markets, and by extension, us.
Yes, this is creating moral hazard that we'll have to deal with, probably unpleasantly, down the road. But whatever the moral hazard, it is hard to see how it could be worse than the full-blown financial crisis the Fed is trying to avert.
There's an argument, of course, that successive Fed interventions, starting with the Russian bond crisis, have turned bankers into ever-greater risk takers, making each crisis bigger and more expensive than the last. The thinking goes that we need to draw the line here, whatever the cost, because if we let the financiers go on their merry way, eventually they'll create a wave that will swamp the Fed's power to intervene. Possibly so, but from what I hear, the people on Wall Street are pretty much scared right down to the tips of their Gordon Gekko underoos.
In some sense, right now it's the Fed's job to manage that fear--to scare them enough to ratchet back their risk profile, without scaring them so badly that they hunker down inside their weekend house and refuse to buy or sell anything. That's very tricky, and since in the long run we'll all be dead, I'd rather the Fed err slightly on the side of cheering them up. Perhaps Helicopter Ben should start pumping anti-depressants into the Wall Street water supply.
Because while we have, as I say, averted one gigantic disaster, there are still plenty of potential other ones waiting in the wings. The Bear buyout sends reassurance about the fate of its trades--but the Bear collapse, for all that it has been rumored for months, could send a fresh wave of fear through the markets. In the very short term, I'd imagine the buyout will improve matters in our markets (though Asian bank stocks are trading down), but as the week and the month unfold? Well, I'm glad I'm not in the prediction business.
Sure not a lot of good news around, is there? Well, more on that later. For now, a World War I poem. No, don't ask me why; it just seems rather apt, somehow. Perhaps I'm feeling sentimental.
Optimism
At last there'll dawn the last of the long year,
Of the long year that seemed to dream no end,
Whose every dawn but turned the world more drear,
And slew some hope, or led away some friend.
Or be you dark, or buffeting, or blind,
We care not, day, but leave not death behind.
The hours that feed on war go heavy-hearted,
Death is no fare wherewith to make hearts fain.
Oh, we are sick to find that they who started
With glamour in their eyes came not again.
O day, be long and heavy if you will,
But on our hopes set not a bitter heel.
For tiny hopes like tiny flowers of Spring
Will come, though death and ruin hold the land,
Though storms may roar they may not break the wing
Of the earthed lark whose song is ever bland.
Fell year unpitiful, slow days of scorn,
Your kind shall die, and sweeter days be born.
-- A. Victor Ratcliffe
Things that make you go hmmmmm . . . .
Apparently John McCain is in Iraq: This lead to some morbid speculation at brunch today: if John McCain is
